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The yuan stable ahead of its inclusion into SDR

CHINA’S currency moved gently today as state banks were offering ample dollars to make up for companies' exchange demand to the greenback at the month end, making the yuan traded relatively stable ahead of its inclusion to International Monetary Fund (IMF) reserve basket.

Traders told Shanghai Daily that the government wants to see the yuan traded within a narrow range of guidance rate when it is about to officially enter the IMF's reserve basket, known as Special Drawing Rights (SDR), on October 1.

The spot market of the yuan opened at 6.6724 yuan per dollar and was changing hands at 6.6699 yuan at midday, nearly unchanged from the midpoint of 6.6700 yuan per dollar set by the People's Bank of China today. Chinese market would shut for seven days starting Saturday on National Day Holiday.

"The recent fluctuation of the yuan reflects the consideration of SDR inclusion," said a trader at a foreign bank in Shanghai. "There are a lot of dollar offerings on the market to hedge dollar buying that could lead the yuan to fast depreciation."

Some analysts said the central bank may loosen its grip on the yuan after the official inclusion of SDR, but traders was in wait-and-see mood as the rate is still under sort of guidance from PBOC.

After its inclusion of SDR, the yuan will have a 10.92 percent weighting in the basket, behind the euro and the dollar, in the first addition since 1999. There were 204.1 billion SDRs as of March this year, equal to around US$285 billion.

Though the yuan's join of SDR won't give a direct impact on its internationalization, the inclusion underlines the recognition of China market's importance to global economy and a potential wider use of transaction in financial market.

Nathan Chow, an economist at Singapore-based DBS Bank estimates that yuan will comprise 4 percent of global reserves, similar to that of Japanese yen in three years’ time. That implies US$440 billion out of some US$11 trillion of global reserves could be allocated to the yuan assets.


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