Benjamin J. Cohen writes:  The Chinese government’s campaign to have its currency, the renminbi, included in the International Monetary Fund’s reserve asset appears to be on the brink of success. Last week, IMF staff formally recommended adding the renminbi to the basket of currencies that determines the value of its so-called Special Drawing Rights (SDRs).

The addition of the renminbi to the basket, which currently includes the US dollar, the euro, the British pound, and the Japanese yen, would provide China with a boost to its prestige. More important, it would advance the government’s efforts to internationalize the renminbi. But it would also be a mistake. The decision to recommend the renminbi’s inclusion, far from having been made on sound economic grounds, can only be understood as political. As such, the long-term consequences are likely to be regrettable.

On a purely technical basis, the renminbi’s qualifications for inclusion in the SDR basket are questionable. Traditionally, the IMF has insisted on two criteria: a currency’s issuing country must be among the world’s leading exporters, and the currency must be “freely usable” – widely used and traded.

As the world’s largest exporter, China clearly meets the first condition. The second, however, is probably still beyond its reach. The renminbi is by no means in the same league as the SDR basket’s four incumbent currencies. In 2014, China’s currency ranked seventh in global central-bank reserves, eighth in international bond issuance, and 11th in global currency trading. Moreover, the renminbi remains non-convertible for most capital transactions, China’s financial markets are primitive, and trading margins for the exchange rate are still set daily by the monetary authorities.

Indeed, as recently as August, the IMF was skeptical about adding the renminbi to the SDR basket, saying that “significant work” was still needed, and suggesting that a decision should be put off until 2016 in order to ensure a “smooth” transition.

So why did the IMF flip? The answer is obvious: China mounted a full-court press to change minds. In August, the currency’s exchange-rate regime was loosened slightly. Renminbi-denominated government bonds were issued in London, and plans were laid to create new trading platforms for the currency in several European financial centers. And Chinese policymakers made it abundantly clear how unhappy they would be with a negative decision..

Many would argue that this is a positive development. Certainly, it mollifies China’s leaders, offering them a stronger incentive to continue to work within the existing international monetary regime. Recent Chinese initiatives, especially the creation of the Asian Infrastructure Investment Bank, have given rise to fears that the country intends to build a new set of international institutions to compete with Western-dominated organizations like the IMF.

On the other hand, the move sets a worrying precedent, injecting politics into a policy area that had been governed by objective economic considerations.

Of course, it can be argued that China’s recent economic trajectory means that it is only a matter of time before the renminbi does become a match for the SDR’s incumbents.

Use of the renminbi for the purpose of invoicing and settling trade with China is bound to continue growing.

Nor is inclusion of the renminbi in the SDR basket likely to provide as big a boost to the currency’s internationalization as many believe. Some central banks may decide to follow suit, adding renminbi-denominated assets to their reserves to match the composition of the basket. But the increase will be marginal at best – some $40 billion in the next few years, according to the IMF’s calculations. With global reserves now totaling more than $10 trillion, that is a mere drop in the proverbial bucket.

The political reasons for including the renminbi in the SDR are all too clear. Unfortunately, the risks of doing so are no less obvious.

Carmen Reinhart writes:  The global commodity super-cycle is hardly a new phenomenon. Though the details vary, primary commodity exporters tend to act out the same story, and economic outcomes tend to follow recognizable patterns. But the element of predictability in the path of the commodity-price cycle, like that in the course of a roller coaster, does not make its twists and turns any easier to stomach.

Since the late eighteenth century, there have been seven or eight booms in non-oil commodity prices, relative to the price of manufactured goods. (The exact number depends on how peaks and troughs are defined.) The booms typically lasted 7-8 years, though the one that began in 1933 spanned almost two decades. That exception was sustained first by World War II and then by the post-war reconstruction of Europe and Japan, as well as rapid economic growth in the United States. The most recent boom, which began in 2004 and ended in 2011, better fits the norm.

Commodity-price busts – with peak-to-trough declines of more than 30% – have a similar duration, lasting about seven years, on average. The current bust is now in its fourth year, with non-oil commodity prices (relative to the export prices of manufactures) having so far fallen about 25%.  Commodity Booms and Troughs

Security measures will be costly for western countries.

French President Francois Hollande’s increased spending to boost security in the wake of the deadly attacks in Paris should be given special treatment under Europe’s budget rules, European Commission President Jean-Claude Juncker said.

“We are faced with terrorist acts. France and other countries need additional means and these additional means should not be dealt with on the same footing as regular spending,” Juncker told an audience in Brussels on Wednesday.

Following the assaults in the French capital that killed at least 129 people on Nov. 13, Hollande said he is ready to breach the European Union’s budget-deficit ceiling to spend whatever is needed to ensure security. He promised more money for intelligence services, additional police officers and no cuts to the army’s personnel numbers.

The European Commission has already said that extra spending by governments to deal with the influx of refugees into the bloc may receive a reprieve under the budget rules, which include an annual deficit limit of 3 percent of gross domestic product.

When nations are faced with “unusual events outside the control of the government,” then spending can be increased without drawing sanctions, the commission said on Nov. 17. While the statement referred to refugee-related spending, Commission Vice President Valdis Dombrovskis said the EU executive would assess the impact of France’s security spending.