IMF for inclusion of yuan in elite currency basket
China welcomes IMF backing to make yuan world reserve currency
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 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