Asian banks welcome yuan joining IMF basket
IT JOINS THE DOLLAR, EURO, POUND AND YEN AS A HARD CURRENCY
Policymakers in Asia welcomed the Chinese yuan’s inclusion in the International Monetary Fund’s basket of reserve currencies, with South Korea expecting to boost holdings of the currency and Hong Kong pledging to increase support for yuan trading.
The decision is a “key milestone” in the yuan’s internationalisation and confirms its status as a freely usable currency, Hong Kong Monetary Authority chief executive Norman Chan said in a statement yesterday.
The yuan’s weighting in the Bank of Korea’s foreignexchange reserves is expected to increase and South Korea plans to issue yuan-denominated sovereign bonds in December, BOK official Park Jun-seo said at a forum.
The IMF’s executive board voted to add the yuan to the Special Drawing Rights basket, which includes the dollar, euro, pound and yen, in the first change in the SDR’s currency composition since 1999.
The move is a key step in a decades-long ascent toward international credibility for the currency, which was created after Second World War and for years could be used only domestically in the Communist-controlled nation.
“Being the largest offshore RMB business centre with close economic and trade ties with Mainland China, Hong Kong should seize this historic opportunity and continue to strengthen our financial market infrastructure, as well as upgrading our talent pool and products,” said HKMA’s Chan, referring to the renminbi. “Hong Kong can continue to play a pivotal role of bridgehead and financial hub in the process of mainland’s further opening up its financial markets and RMB internationalisation.”
Renminbi is the currency’s official name and means “the people’s currency” in Mandarin; yuan is the unit.
The addition will take effect October 1, 2016, with the yuan having a 10.92 per cent weighting in the basket, the IMF said.
Weightings will be 41.73 per cent for the dollar, 30.93 per cent for the euro, 8.33 per cent for the yen and 8.09 per cent for the British pound. The dollar currently accounts for 41.9 per cent of the basket, while the euro accounts for 37.4 per cent, the pound 11.3 per cent and the yen 9.4 per cent.
Japan, Asia’s top economy until it was unseated by China, said it respected the IMF’s decision. It refrained from any commitment to buy yuan for its own reserves, which are the world’s second largest, after China’s.
The decision establishes the yuan as a fixture in the very international monetary system Chinese leaders criticised following the global financial crisis.
In a landmark 2009 speech, People’s Bank of China Governor Zhou Xiaochuan argued a global system so reliant on a single currency — the US dollar — was inherently prone to shocks.
That conviction set off a global push by China’s leaders, including now-President Xi Jinping, to have the yuan included in the SDR, which countries can use to supplement their currency reserves.
The yuan’s inclusion will contribute to stability in the international monetary system and is a welcome development, Bank Negara Malaysia Governor Zeti Akhtar Aziz said in Kuala Lumpur.
yuan’s weighting in IMF reserve currency basket.