RMB joins IMF bas­ket Oct 1

China Daily (USA) - - FRONT PAGE - By CHEN WEIHUA in Washington chen­wei­hua@chi­nadai­lyusa.com

The Chi­nese yuan will be of­fi­cially avail­able for loans and re­pay­ments for mem­bers of the In­ter­na­tional Mon­e­tary Fund (IMF) on Oct 1, as pre­vi­ously sched­uled, ac­cord­ing to the in­ter­na­tional fi­nan­cial or­ga­ni­za­tion.

It means that the yuan, also known as the RMB or ren­minbi, will join the US dol­lar, euro, Bri­tish pound and Ja­panese yen as one of the five cur­ren­cies in the IMF’s Spe­cial Draw­ing Rights (SDR) bas­ket. The SDR it­self is not a cur­rency, but rep­re­sents a claim held by IMF mem­ber coun­tries on which cur­ren­cies may be ex­changed.

Such a move has been widely re­garded as a ma­jor step that gives the yuan a prized re­serve cur­rency sta­tus. It also helps move the yuan a step closer to be­ing freely us­able in­ter­na­tion­ally. The IMF ex­ec­u­tive board made its de­ci­sion to in­clude the yuan in the SDR bas­ket on Nov 30, 2015.

In a press brief­ing on Wed­nes­day, IMF of­fi­cials in­di­cated that the rel­a­tive amounts of the five cur­ren­cies that will be fixed for the next five years will be an­nounced on Sept 30.

Sid­dharth Ti­wari, di­rec­tor of the IMF’s strat­egy, pol­icy and re­view depart­ment, called the in­clu­sion of the yuan in the SDR bas­ket “an im­por­tant mile­stone in the process of China’s global fi­nan­cial in­te­gra­tion”.

“It rec­og­nizes and re­in­forces China’s con­tin­u­ing re­form ef­forts,” he told the brief­ing.

The yuan will be at a weight­ing of 10.92 per­cent, lower than the dol­lar and euro, but higher than the pound and yen.

Ti­wari said that the IMF and Chi­nese gov­ern­ment have been keep­ing in close com­mu­ni­ca­tion in or­der to en­sure a smooth tran­si­tion. He added that the Chi­nese gov­ern­ment has launched sev­eral mea­sures to pre­pare for the yuan’s in­clu­sion in the bas­ket, such as re­port­ing to the IMF its for­eign cur­rency re­serve com­po­si­tion and im­prov­ing its bank­ing sec­tor.

Eswar Prasad, the Tolani Se­nior Pro­fes­sor of Trade Pol­icy at Cor­nell Univer­sity and a se­nior fel­low at the Brook­ings In­sti­tu­tion, said the yuan’s in­clu­sion in the IMF’s SDR bas­ket is a sym­bol­i­cally mo­men­tous event both for China and the in­ter­na­tional fi­nan­cial sys­tem.

“It is the first time an emerg­ing mar­ket cur­rency is be­ing seen as on a par with ma­jor ad­vanced econ­omy cur­ren­cies,” he told China Daily on Wed­nes­day.

The for­mer IMF chief in China added, how­ever, that the IMF’s el­e­va­tion of the yuan to the sta­tus of an elite re­serve cur­rency will not be an im­me­di­ate game-changer in global fi­nance.

“China needs more wellde­vel­oped and bet­ter reg­u­lated fi­nan­cial mar­kets, as well as a more open cap­i­tal ac­count and mar­ket-de­ter­mined ex­change rate, for its cur­rency to be­come a ma­jor re­serve cur­rency in prac­tice,” said Prasad, who lat­est book is Gain­ing Cur­rency: The Rise of the Ren­minbi.

Early this week, the Bank of In­ter­na­tional Set­tle­ments warned about the dan­gers of debt in China’s bank­ing sys­tem.

The IMF Ar­ti­cle IV Con­sul­ta­tion on China re­port re­leased on Aug 12 de­scribed the yuan as “broadly in line with fun­da­men­tals, al­though the ex­ter­nal po­si­tion in 2015 was mod­er­ately stronger than con­sis­tent with fun­da­men­tals”.

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