IMF visits for SDR review
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.