China and reserve currency status

I think that China may have shot itself in the foot.

China aspires to have the CNY included in the basket of currencies that make up the SDR, and the IMF is considering their case in November.

The characteristic of reserve currency is that it is relatively "hard" and a safe store of value.

One of the disadvantages of the pegging of the CNY is that changes in its value tend to be arbitrary, unpredictable and large. This weeks devaluation will now sit as an outlier in the history set effectively invalidating all that perceived price stability that the Bank of China has worked so hard to create. Who wants to invest in a currency where central bank bureaucrats can unexpectedly knock 2% off the value of your investment at the stroke of a pen?

FX price stability is the important characteristic of a reserve currency, not the amount of gold owned by the central bank of the jurisdiction aspiring to reserve currency status. This week the Chinese ramped up the risk on the CNY and set themselves back years.