IMF vis­its for SDR re­view

China Daily (Canada) - - FRONT PAGE -

Ja­panese yen, Bri­tish pound and euro. Whether to add the yuan is a ma­jor is­sue for this year’s as­sess­ment.

The two-stage re­view process con­sists of a tech­ni­cal de­ter­mi­na­tion of whether the yuan meets SDR cri­te­ria, such as whether it is “freely us­able”. The IMF Ex­ec­u­tive Board is to vote on the is­sue by the end of the year.

The yuan failed a re­view for SDR in­clu­sion in 2010, as it was not con­sid­ered “freely us­able” at the time. The po­lit­i­cal back­drop then was neg­a­tive for China, as the United States claimed the cur­rency was “sub­stan­tially un­der­val­ued” and should be al­lowed to ap­pre­ci­ate.

To join the SDR bas­ket will have lim­ited eco­nomic ben­e­fit for China, ex­perts said, but the re­form be­hind the process will be a mile­stone for China’s fi­nan­cial open­ing, as it will ac­cel­er­ate cap­i­tal ac­count lib­er­al­iza­tion.

The SAFE of­fi­cial con­firmed onWed­nes­day that the agency aims to fin­ish the re­vi­sion of for­eign ex­change reg­u­la­tions by the end of this year, which was listed as a ma­jor task by the State Coun­cil and the cen­tral bank to achieve the yuan’s full con­vert­ibil­ity.

The re­vi­sion work in­cludes: fur­ther re­duc­ing ad­min­is­tra­tive ap­provals on cap­i­tal con­trols; strength­en­ing sta­tis­ti­cal anal­y­sis and mon­i­tor­ing of cross-bor­der cap­i­tal flows and tight­en­ing con­trols on for­eign debt in the for­eign ex­change mar­ket.

“The key is to pre­vent a re­gional and sys­temic fi­nan­cial cri­sis,” saidWang.

Ear­lier this month, the Peo­ple’s Bank ofChina, the cen­tral bank, an­nounced that it would al­low off­shore yuan clear­ing. It also said it would per­mit par­tic­i­pat­ing banks to ac­cess the on­shore in­ter­bank repo mar­ket, as a mea­sure to ex­pand the cur­rency’s use in more for­eign mar­kets.

The PBOC said in a re­port that the gov­ern­ment will soon al­low in­di­vid­u­als to in­vest over­seas un­der the Qual­i­fied Do­mes­tic In­sti­tu­tional In­vestor II pro­gram.

Paul Mackel, head of Asian for­eign ex­change re­search at HSBC Hold­ings Plc, said that there are only a few steps left for the yuan to be con­sid­ered con­vert­ible.

“Ad­di­tional steps to­ward ren­minbi con­vert­ibil­ity will soon ma­te­ri­al­ize, tight­en­ing the link­ages be­tween on­shore and off­shore mar­kets,” he said.

Greater cap­i­tal ac­count open­ing should mean greater two-way volatil­ity inthe yuan’s ex­change rate, and the cur­rency will be­come more sen­si­tive to cap­i­tal flow dy­nam­ics, said Mackel.

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