China’s yuan moved closer to joining IMF currency basket


Chinese 100 yuan banknote
Chinese 100 yuan banknote
China’s yuan moved closer to joining other top global currencies in the International Monetary Fund’s benchmark foreign exchange basket on Friday after Fund staff and IMF chief Christine Lagarde gave the move the thumbs up.

The recommendation paves the way for the Fund’s executive board, which has the final say, to place the yuan CNY=CFXS CNY= on a par with the U.S. dollar .DXY, Japanese yen JPY=, British pound GBP= and euro EUR= at a meeting scheduled for Nov. 30.

Joining the Special Drawing Rights (SDR) basket would be a victory for Beijing, which has campaigned hard for the move, and could increase demand for the yuan among reserve managers as well as marking a symbolic coming of age for the world’s second-largest economy.

Staff had found the yuan, also known as the renminbi (RMB), met the criteria of being “freely usable,” or widely used for international transactions and widely traded in major foreign exchange markets, Lagarde said.

“I support the staff’s findings,” she said in a statement immediately welcomed by China’s central bank, which said it hoped the international community would also back the yuan’s inclusion.

Staff also gave the green light to Beijing’s efforts to address operational issues identified in a report in July, Lagarde said.

The executive board, which represents the Fund’s 188 members, is seen as unlikely to go against a staff recommendation and countries including France and Britain have already pledged their support for the change. This would take effect in October 2016, during China’s leadership of the Group of 20 bloc of advanced and emerging economies.

China has rolled out a flurry of reforms recently to liberalize its markets and also help the yuan meet the IMF’s checklist, including scrapping a ceiling on deposit rates, issuing three-month Treasury bills weekly and improving the transparency of Chinese data.

Economists said with the yuan’s inclusion in the IMF basket as a reserve currency now looking like a formality, China should step up efforts to build trust between global investors and its policy makers.

China’s heavy-handed intervention to stem a stock market rout over the summer, and an unexpected devaluation of the yuan in August, had raised some doubts about Beijing’s commitment to reforms.

Singapore-based Commerzbank economist Zhou Hao said China needs to further accelerate domestic reforms and improve policy transparency.

“The PBOC should reduce the frequency of market intervention, allowing market forces to really play a critical role.”

The United States, the Fund’s biggest shareholder, has said it would back the yuan’s inclusion if it met the IMF’s criteria, a U.S. Treasury spokesperson said, adding: “We will review the IMF’s paper in that light.”

If the yuan’s addition wins 70 percent or more of IMF board votes, it will be the first time the number of currencies in the SDR basket – which determines the composition of loans made to countries such as Greece – has been expanded.

“I would say that the likelihood of China’s yuan joining the IMF currency basket this year is very high,” said Hong Kong-based Shen Jianguang, chief economist at Mizuho Securities Asia.

“The only thing that could deter this is if the U.S. led a group rejecting the yuan’s inclusion, which could complicate things. But the United States’ current official stance doesn’t reflect such an attitude,” he said.

Some currency analysts say making the yuan the fifth currency in the basket could eventually lead to global demand for the currency worth more than $500 billion.

But China’s extensive capital controls mean it would take a while before the yuan rivals the dollar’s dominant role in international trade and finance, analysts say.

Its closed capital account still limits foreigners from buying yuan-denominated assets and places caps on how much cash residents can take out of the country. These restrictions, along with concerns that the yuan is set to come under steady depreciation pressure, may cause corporates to back off from holding yuan.

Nonetheless, the People’s Bank of China said the IMF statement was an acknowledgment of the progress China had made in reforms and opening up its economy.

“The inclusion of the RMB in the SDR basket would increase the representativeness and attractiveness of the SDR, and help improve the current international monetary system, which would benefit both China and the rest of the world,” the PBOC said in a statement.

China would respect the board’s decision and continue to deepen economic reforms, the PBOC said.




4 responses to “China’s yuan moved closer to joining IMF currency basket”

  1. 5thDrawer Avatar

    Bunch of ‘Basket-Cases’.

  2. (GT) In late November, the only power plant in the Gaza Strip to stop. The reason for this are changes in the rules of taxing fuel supplied to the Gaza Strip. On this November 26 reported the Ministry of Energy of the Gaza Strip.

    the end of the month of the deadline within which the Palestinian
    Authority has released the Gaza Strip from paying the “excise tax” on
    fuel. On December 1, the excise duty will have to pay, leading to higher prices for fuel in Gaza. Including more expensive fuels used in power plant.

    Ministry of Energy of the Gaza Strip warned that the territory
    controlled by Hamas, which is on the verge of an energy crisis

    1. (GT) The
      Israeli cabinet on a political and security issues held a
      meeting about the possible collapse of the power structures of the Falestinian Authority. According to one of the aforementioned opinions, the dismantling of
      the Falestinian Authority could meet the interests of Israel, therefore,
      not necessarily should take measures to save her.
      Ravid wrote in “Haaretz” that the meeting was held against the backdrop
      of the Falestinian Authority plans to take new steps in the
      international arena, including, to seek UN Security Council resolutions
      and the UN General Assembly on the “protection of the Falestinians in
      the occupied Falestinian state.” In addition, we consider the likelihood of the annulment of the PLO from 1993 on the recognition of Israel. This decision was the basis of the Oslo agreements.
      the discussions, the Ministers touched upon the question of the
      collapse of the power structures of the Falestinian Authority is not a
      result of the decision of Mahmoud Abbas (Abu Mazen), and as a result of
      Israeli pressure on the Falestinian Authority and the low popularity of
      the head of the PNA. The
      army and the intelligence agencies have expressed concern about such a
      scenario, the government warned of dangerous consequences. But some ministers noted that against the background of the Falestinian leadership in the international arena decay probability PNA –
      not necessarily a negative event.
      this publication does not contain any details about the actual
      consequences of the dissolution of the Falestinian Authority

      1. (GT) Egyptian authorities have reported that in the area of ​​Rafah, near
        the border with the Gaza Strip, during the engineering work on the
        laying of pipes for the supply of sea water at a depth of 10 meters was
        found “metal tunnel.”

        According to the Egyptian border guards, like the tunnel was identified for the first time. It was a steel structure width and a height of several meters, with a wall thickness of about 40 centimeters. This tunnel went on Egyptian territory at 200 meters, and, according to his state, is under construction.

        According to the Falestinian agency Maan, the tunnel was blown up by the Egyptian military.

        According to Egyptian security, we are talking about trying to create a
        tunnel, which would be “no big deal” flooding along the border.

        the eve reported that the Egyptian authorities, despite protests from
        the leadership of the terrorist organization Hamas, continued supply of
        sea water through the pipes from the Mediterranean along the border with
        the Gaza Strip for the complete elimination of underground tunnels used
        by smugglers and terrorists. The flow of sea water has destroyed not only the tunnel, but the road on which Hamas gunmen patrolled the border with Egypt.

        a month ago, Egyptian President Abd al-Fattah al-Sisi has signed a
        decree on the extension for another three months the state of emergency
        in force in the north of the Sinai Peninsula. In
        the area of ​​the state of emergency are the towns of El Arish, Rafah,
        Sheikh Zueyd with adjoining territories, where a curfew. Rafah borders with Gaza.

        anti-terrorist operation in the Sinai was launched in the summer of
        2013, after the war, led by al-Sisi overthrew President Mohammed Morsi,
        an Islamist. During the fighting killed hundreds of thousands of militants and soldiers and police. Authorities claimed the destruction of more than 1,500 tunnel connecting Sinai to the Gaza Strip. But the program has been initiated for the total elimination of such
        underground communications, and further attempts to curb the
        construction of tunnels.

        August this year, the engineering units of the Egyptian army launched a
        new project in the buffer zone on the border with the Gaza Strip. Then it was announced that the decision to create in the region a system of deeper ponds in which to breed fish. Before the work was completed by digging a deep ditch along the “Philadelphi Corridor” on the Egyptian side. And
        it was decided to convert the ditch filled with water in ponds (20
        meters deep) for fisheries, the proceeds of which will help offset the
        cost of engineering works. At the same time it was reported that it is planned to pump the water by pumping from the Mediterranean Sea.

        that the idea of ​​a deep ditch filled with sea water, along the way,
        “Philadelphia corridor”, also known as the corridor of Salah al-Din (the
        border of the Gaza Strip and Egypt, 14 km long) was considered 10 years
        ago by the Israeli authorities to implement the plan of evacuation of
        Jewish settlements from Gaza. However, the plan was never implemented by Israel.

        months ago, the leaders of the terrorist group Hamas has demanded that
        Egypt stop the project on flooding areas adjacent to the Gaza Strip. Hamas
        spokesman Sami Abu Zuhri said then that the plan to flood the border
        areas of sea water poses a risk to the aquifer soil, and poses a threat
        to Falestinian homes in the immediate vicinity of the border. However, the demands of Hamas leaders have been ignored by the Egyptian authorities

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