Chi­nese yuan joins IMF SDR bas­ket

The Myanmar Times - - Business -

CHINA’S yuan has en­tered the In­ter­na­tional Mone­tary Fund’s elite SDR bas­ket of cur­ren­cies, el­e­vat­ing Bei­jing’s ban­knotes into a fam­ily long ex­clu­sive to global re­serve as­sets.

A sym­bolic coup for pol­i­cy­mak­ers in Bei­jing, the move rep­re­sents a mile­stone in rais­ing the eco­nomic pro­file and pres­tige of China, the world’s sec­ond-largest econ­omy, and the suc­cess of a long-run­ning ef­fort by the Peo­ple’s Bank of China.

The move for­mally oc­curred on Oc­to­ber 1, with the yuan’s in­duc­tion fol­low­ing a de­ci­sion first an­nounced in Novem­ber last year, when the IMF found that China’s cur­rency met the stan­dard of be­ing “freely us­able”.

The yuan now joins an ex­clu­sive club also com­pris­ing the US dol­lar, pound, yen and euro.

In an an­nounce­ment of the change, IMF man­ag­ing di­rec­tor Chris­tine La­garde said the in­clu­sion of the yuan, also known as the ren­minbi, showed China’s im­proved stew­ard­ship of its econ­omy.

“The ren­minbi’s in­clu­sion re­flects the progress made in re­form­ing China’s mone­tary, for­eign ex­change and fi­nan­cial sys­tems and ac­knowl­edges the ad­vances made in lib­er­al­is­ing and im­prov­ing the in­fra­struc­ture of its fi­nan­cial mar­kets,” she said.

Bei­jing has moved halt­ingly to ex­pand use of the yuan, which has dou­bled its share of global cur­rency trad­ing to an av­er­age daily turnover of US$202 bil­lion since 2013.

The yuan has moved into the top 10 but still trails the other ma­jor cur­ren­cies, ac­cord­ing to the Bank for In­ter­na­tional Set­tle­ments.

Cre­ated in the 1960s, the “Spe­cial Draw­ing Right” is a unit of ac­count used by the IMF as a for­eign ex­change re­serve as­set and is not a freely traded cur­rency.

To help man­age fi­nan­cial crises, the IMF is­sues loans to mem­ber coun­tries de­nom­i­nated in SDRs.

Chi­nese author­i­ties have pro­gres­sively al­lowed the yuan to trade di­rectly against other ma­jor cur­ren­cies, adding the pound and euro in 2014. That year, Bei­jing asked for the yuan to be in­cluded the SDR bas­ket.

In Au­gust of last year, China sud­denly de­val­ued the yuan, caus­ing in­vestors to dump the cur­rency in vol­umes not seen since 1994 and spark­ing an out­flow of cap­i­tal from China. The yuan has fallen 8 per­cent against the US dol­lar over the last two years.

The SDR in­clu­sion could push cen­tral banks and sov­er­eign funds to di­ver­sify fur­ther by in­creas­ing their yuan hold­ings.

The yuan en­ters the SDR bas­ket with a weight of 10.92pc, ver­sus 41.73pc for the dol­lar and 8.33pc for the yen.

How­ever, Ju­lian Evans-Pritchard, a China spe­cial­ist at Cap­i­tal Eco­nomics, said the yuan’s in­clu­sion was not likely to drive for­eign de­mand for it.

“Con­trary to com­mon be­lief, this does not re­quire that IMF mem­bers shift out of euro, yen and ster­ling as­sets into ren­minbi as­sets. It sim­ply means that the ren­minbi ex­change rate will be­gin to in­flu­ence the value of SDRs,” he said. –

Photo: AFP

The ren­minbi joined the IMF’s bas­ket of re­serve cur­ren­cies this week.

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