Currency Spotlight: China’s Efforts For RMB Yuan Inclusion In IMF SDRs
There is a high chance of RMB inclusion in the IMF Special Drawing Right(SDR) basket, JP Morgan economist Zhu Haibin has said, highlighting China’s directed efforts.
“The IMF will probably be supportive of RMB’s inclusion in the SDR as its board will hold a meeting to review the relevant issue on 4 November, ” said Zhu in a report.
But the IMF decision might not be published soon, according to Zhu.
Zhu attributed his opinion to China’s recent reforms to support the Renminbi’s bid for inclusion in the IMF SDR basket.
“Over the past months, China has continued to push ahead with capital account liberalization and the internationalization of RMB,” said Zhu in the report.
The People’s Bank of China (PBOC), China’s central bank, announced last Saturday the removal of the deposit rate ceiling, marking the completion of interest rate liberalization, Zhu said.
To promote London as an offshore RMB center, the PBOC has extended on 20 October an agreement on a reciprocal currency swap scheme with the Bank of England. The maximum value of swap was expanded from RMB 200-B (US$31.5-B) to 350-B, valid for 3 years and can be further extended when agreed.
Meanwhile, the PBOC also issued its 1st offshore RMB note in London. The note is worth RMB 5-B at an interest rate of 3.1%, and falls due in Y 2016. London is already a top RMB trading center outside China.
The PBOC opened the onshore inter-bank Forex (FX) market to foreign central banks, sovereign wealth funds and multilateral financial institutions on 30 September to address the technical issue on the ability to hedging RMB-denominated exposures, according to the report.
Earlier in October, the first phase of the China international payment system was launched in Shanghai. On Oct. 8, the central bank announced that China’s official statistics will conform to special data dissemination standards (SDDS), an IMF statistical system to improve transparency.
In the short term, Zhu did not expect strong direct influence on global capital market even if the RMB is to be included in the SDR this month, while stressing the symbolic significance.
In the long run, RMB’s internationalization is hinged on Chinese economic performance and the evolving of China’s capital account and interest rate mechanisms, Zhu said.
“China will continue financial reform in the hope that the RMB will be included in the SDR basket later this year,” said Yi Gang, deputy governor of the PBOC, at the IMF annual talks in Lima, Peru last month.
China has opened its inter-bank bond market and Forex market to overseas financial institutions; has been promoting data transparency, following SDR requirements; and has freed the RMB exchange rate through changes to the central parity rate mechanism, Yi said.
The SDR is currently constituted by the USD, Euro, Japanese Yen and the Great British Pound. Chinese RMB Yuan failed to be included in the basket in Y 2010 as the IMF said the currency did not meet the freely usable criteria.
By Tian Shaoshui
Paul Ebeling, Editor
HeffX-LTN
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