IMF for in­clu­sion of yuan in elite cur­rency bas­ket

China wel­comes IMF back­ing to make yuan world re­serve cur­rency

Kuwait Times - - BUSINESS -

WASH­ING­TON: IMF ex­perts rec­om­mended Fri­day that the Chi­nese yuan be in­cluded in the Fund’s SDR bas­ket of cur­ren­cies, back­ing a strong push by Beijing to join the elite group­ing.

Now the world’s sec­ond-largest econ­omy, China asked last year for the yuan to be added to the group­ing, but un­til re­cently the yuan’s ex­change­abil­ity on in­ter­na­tional mar­kets has been deemed too tightly con­trolled by Beijing for it to fully qual­ify.

IMF chief Christine Lagarde said in a state­ment that the staff ex­perts, in their re­port to the IMF board, ruled the yuan or ren­minbi (RMB) now “meets the re­quire­ments to be a ‘freely us­able’ cur­rency.”

That was a key hur­dle to the yuan join­ing the yen, dol­lar, pound and euro in the Fund’s “spe­cial draw­ing rights” cur­rency bas­ket, seen as the lead­ing cur­ren­cies of in­ter­na­tional commerce.

Af­ter years of keep­ing the yuan tightly con­trolled, China has moved over the past few years to al­low it to be more widely used in in­ter­na­tional trans­ac­tions. Lagarde said the staff ex­perts ruled that Beijing has ad­dressed “all re­main­ing op­er­a­tional is­sues” re­quired for SDR in­clu­sion, which will be de­cided by the ex­ec­u­tive board at a Novem­ber 30 meet­ing.

“I sup­port the staff’s find­ings,” she said, adding to expectations that the board will also back the yuan.

The Fund has been gen­er­ally re­cep­tive to the idea that the yuan could join the other four cur­ren­cies in the group­ing. While not a freely traded cur­rency, the SDR is im­por­tant as an in­ter­na­tional re­serve as­set, and be­cause the IMF is­sues its cri­sis loans-cru­cial to strug­gling economies like Greece-val­ued in SDRs.

On Au­gust 4 the IMF said the yuan fell short of meet­ing all the stan­dards for in­clu­sion, par­tic­u­larly on be­ing “freely us­able” in in­ter­na­tional fi­nance.

China’s eco­nomic slow­down com­pli­cated Beijing’s ef­forts to widen the cur­rency’s use to meet that re­quire­ment. But there was strong pres­sure to do so be­cause the IMF re­views the SDR bas­ket only ev­ery five years, and the dead­line for the cur­rent re­view is the end of the year. In a move seen as try­ing to ac­com­mo­date China’s push for in­clu­sion, on Au­gust 19 the Fund an­nounced that it had ex­tended by nine months the im­ple­men­ta­tion of the bas­ket re­vi­sion, giv­ing more time for ad­just­ment to the po­ten­tial in­clu­sion of the yuan.

If a de­ci­sion to in­clude the yuan is made this month, the ac­tual in­clu­sion could take place as late as Septem­ber 30, 2016, giv­ing Beijing more time to pre­pare.

“The ex­ten­sion would also al­low users suf­fi­cient lead time to ad­just in the event that a de­ci­sion were to be taken to add a new cur­rency to the SDR bas­ket,” the IMF said at the time.

The rec­om­men­da­tion Fri­day was broadly backed by the United States. “We in­tend to sup­port the ren­minbi’s in­clu­sion in the Spe­cial Draw­ing Rights bas­ket pro­vided the cur­rency meets the In­ter­na­tional Mon­e­tary Fund’s ex­ist­ing cri­te­ria,” the Trea­sury Depart­ment said, us­ing an­other name for the yuan. “We will re­view the IMF’s pa­per in that light.”

China happy

China yes­ter­day wel­comed back­ing from IMF ex­perts that the yuan should be in­cluded in its re­serve cur­ren­cies, say­ing the move would strengthen the world’s fi­nan­cial sys­tem. Now the world’s sec­ond-largest econ­omy, China asked last year for the yuan to be added to the elite bas­ket of SDR cur­ren­cies, but un­til re­cently it was con­sid­ered too tightly con­trolled to qual­ify.

It now looks likely the yuan will be for­mally ad­mit­ted to the IMF’s “spe­cial draw­ing rights” cur­rency bas­ket at the end of the month, which would mark a mile­stone in China’s ef­forts to be­come a global eco­nomic power.

The yuan hit head­lines in Au­gust when China’s cen­tral bank de­val­ued the cur­rency and said it would use a more mar­ket-ori­ented sys­tem to cal­cu­late the point around which the cur­rency can trade each day. The move sent mar­kets into a tail­spin as in­vestors took it as a sign of slow­ing growth in China, a key driver of the world econ­omy, but the cen­tral bank on Satur­day said such re­forms had taken it closer to join­ing the SDR bas­ket.

“China thinks that the in­clu­sion of the RMB (yuan) into the SDR bas­ket will strengthen the rep­re­sen­ta­tive­ness and the at­trac­tion of the SDR (and) that it will im­prove the ex­ist­ing in­ter­na­tional mon­e­tary sys­tem,” the Peo­ple’s Bank of China (PBoC) added. “It will have win

ben­e­fits both for China and the world.”

Yuan’s rapid rise

The yuan has rapidly grown in im­por­tance in re­cent years as China-the world’s top trad­ing na­tion-has used it to set­tle more of its commerce, and made it di­rectly con­vert­ible with more cur­ren­cies. In­clud­ing the Chi­nese cur­rency in the SDR would likely boost de­mand for yuan-de­nom­i­nated as­sets among cen­tral banks, and give it a sheen of re­spectabil­ity at a time when many in­vestors are ques­tion­ing Beijing’s abil­ity to man­age the slow­ing econ­omy.

Lagarde said IMF ex­perts ruled Beijing had ad­dressed “all re­main­ing op­er­a­tional is­sues” re­quired for SDR in­clu­sion, which will be de­cided by the ex­ec­u­tive board at a Novem­ber 30 meet­ing. “I sup­port the staff’s find­ings,” she said, adding to expectations that the board will also back the yuan.

That would mark an about turn from the be­gin­ning of Au­gust-be­fore the yuan devaluation-when the Fund said the cur­rency was not freely us­able enough to be in­cluded in the bas­ket. De­spite the re­cent mis­giv­ings, there has been strong pres­sure for the IMF to act now as the SDR bas­ket is only re­viewed ev­ery five years. If a de­ci­sion to in­clude the yuan is made this month, the ac­tual in­clu­sion could take place as late as Septem­ber 30, 2016, giv­ing Beijing more time to pre­pare. —AFP

HONG KONG: A staff mem­ber dis­plays the new version of the 100-yuan RMB (US 15.7 dol­lars) ban­knotes for pho­tog­ra­phers at the Bank of China Tower in Hong Kong on Thurs­day. China re­leased on Thurs­day a new version of the 100-yuan bill, which bears a golden “100” and adopts ad­vanced anti-coun­ter­feit tech­nol­ogy. —AP

FRANK­FURT: Ni­co­ley Baublies, head of the cabin crew union, demon­strates for bet­ter pen­sion plans for the Lufthansa flight at­ten­dants on the sev­enth and last day of a strike of the cabin crew union in Frank­furt on Fri­day. —AP

IMF chief Christine Lagarde

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