16 November, AtoZForex.com, Lagos – China’s bid for the Yuan’s inclusion in the International Monetary Fund’s (IMF) elite group of currencies has certainly gotten a boost. In a report to the board, IMF experts recommended on Friday that the Renminbi be included in the fund’s Special Drawing Rights (SDR) basket of currencies, potentially joining the dollar, euro, pound and yen in this elite group of currencies.
Being the world’s second largest economy, China has been pushing to join the SDR grouping but has been denied severally, majorly on grounds that the yuan’s exchangeability on international markets has been too tightly controlled by the government, precluding it from qualification.
It is clear that the IMF is in favor of the yuan’s inclusion, considering that the fund extended its window for implementation of the basket revision by nine months on August 19. A move seen as an accommodating measure to allow the world’s second largest economy, more time to adjust in order to be eligible for inclusion. The move can be seen as necessary, considering that the IMF reviews the SDR basket only every five years, and the deadline for the current review is the end of the year. The yuan was initially rejected on August 4, particularly for failing the test of being “freely usable” in international finance. After which China devalued the yuan, a move which earned it a nod from the IMF.
IMF chief, Christine Lagarde has stated that she supports the staff’s findings, adding to the likelihood of a final inclusion by the executive board during the November 30 meeting. Having clarified that the staff experts ruled that Beijing has addressed “all remaining operational issues” required for SDR inclusion. If the board agrees to the inclusion of the yuan in their November meeting, then the actual inclusion will not be effective till around late September 30, 2016, allowing Beijing more time to prepare.
The IMF said at the time:
“The extension would also allow users sufficient lead time to adjust in the event that a decision were to be taken to add a new currency to the SDR basket,”
The fund Yuan SDR inclusion is understandable, as the currency has grown in global importance and the SDR is important as an international reserve asset, and because the IMF issues its crisis loans, which is crucial to struggling economies like Greece, valued in SDRs.
The US is also in strong support for the yuan inclusion, adding to a confluence of factors. The Treasury department reiterated that it intends to support the Renminbi’s inclusion in the Special Drawing Rights basket provided the currency meets the International Monetary Fund’s existing criteria
After many years of keeping the yuan tightly controlled, China has gradually and finally moved to free it, therefore making the yuan more usable for international transactions.
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