RMB joins IMF basket Oct 1
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”.