IMF sets timeline for Chinese yuan as a world reserve currency
The five-year review of global currency basket has been extended for a year.
The International Monetary Fund signalled that China’s yuan won’t be added to its basket of reserve currencies for at least a year.
China’s botched devaluation of the yuan is widely regarded as a step toward floating the currency, which is also known as the renminbi (or “people’s currency”), and a precursor to it being included in Special Drawing Rights (SDR).
The IMF reviews its basket every five years and has decided to extend this for a year until September 30, 2016, to consider entry by the yuan.
IMF managing director Christine Lagarde has indicated support for the yuan in SDR but has left the timing open.
The US dollar is the dominant currency in SDR along with the yen, pound and euro. The IMF uses SDRs as substitute for a world reserve currency in loans made to governments.
The IMF’s board will make a decision by the end of the year whether the yuan meets its criteria. One of these is that reserve currencies must be “freely usable,” meaning it must be able to be bought and sold under any market conditions.
The sudden devaluation of the yuan on August 11 was its biggest one-day movement in two decades. Officials in Beijing said the move was part of a plan to allow the market a greater role in exchange rates.
China is the world’s biggest exporting economy and getting the yuan labelled a reserve currency would enable more countries to use it in trade deals as well as allow central banks to spread their risks.
China has strict controls on the movement of capital and on the amount its currency can move against the dollar.
Though estimates of whether it is over- or under-valued vary, the IMF has said the yuan is near its fair value since the devaluation.
However, most observers also agree that admission to SDR will increase demand and cause the yuan to appreciate over time.
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Nevil Gibson
Thu, 20 Aug 2015
Thu, 20 Aug 2015
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IMF sets timeline for Chinese yuan as a world reserve currency
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