IMF ‘highly likely’ to review yuan for inclusion in its currency basket
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CHINA’S yuan is very likely to be added to the International Monetary Fund’s benchmark currency basket at its upcoming five-year review, a senior economist said yesterday.
“We still think it is highly likely that yuan will be included — though for technical reasons, the actual date of inclusion may be extended to September 30, 2016, to give reserve managers time to adjust,” Wang Tao, chief China economist at UBS, said in a research note.
Every five years, the IMF reviews the status of currencies within its Special Drawing Rights (SDR) and opens a window for inclusion of new currencies. Created in 1969, the SDR aims at supplementing IMF member countries’ official reserves.
Economists see the yuan’s inclusion as a big step in the currency’s internationalization.
“The current SDR basket expires at the end of this year. We are proposing extending (it) by nine months until September 30, 2016. This is in response to feedback from SDR users on the desirability of avoiding changes in the basket at the end of the calendar year and facilitating continued smooth functioning of SDR-related operations,” Siddharth Tiwari, director of the IMF’s Strategy, Policy and Review Department was quoted as saying in an IMF article.
“The proposed extension, which will be decided by the Executive Board this month, will not in any way prejudge the timing of conclusion or outcome of the review,” he said.
“In fact, the IMF article implies a large likelihood of SDR inclusion — otherwise the technical preparation would not be necessary,” Wang said.
“We thought the yuan had a reasonably good chance of being included in the SDR basket soon, with approval in principle likely this year, and actual inclusion perhaps next year. It now seems that if approved this year, the actual inclusion would be the end of September 2016,” he said.
IMF Managing Director Christine Lagarde has said the yuan’s inclusion in the SDR basket was not “a matter of if, but when.”
“We believe the yuan has a good chance of joining the benchmark currency basket,” HSBC said in a research note published yesterday.
“We see the yuan being an outperformer among other major and emerging market currencies,” it said.
The IMF’s Executive Board plans to formally review the possibility of adding the yuan to the SDR basket by the end of this year, senior IMF officials said after some media had reported the global lender might delay including it until September 2016.
The international use of the yuan is vital for the IMF to decide whether it is “freely usable,” an important criterion for admission into the SDR.
At the last review in 2010, the yuan met the criterion of a significant currency in terms of global trade, but was assessed as not meeting the “freely usable” requirement.
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