Date
24 January 2017
The renminbi is increasingly used in cross-border transactions and heavily traded in Asia, but it is only thinly traded in North America and is not commonly used in international debt securities, the IMF staff report said. Photo: Bloomberg
The renminbi is increasingly used in cross-border transactions and heavily traded in Asia, but it is only thinly traded in North America and is not commonly used in international debt securities, the IMF staff report said. Photo: Bloomberg

IMF report says no rush to add renminbi to currency basket

The International Monetary Fund should put off any move to add China’s renminbi to its benchmark currency basket until after September 2016, IMF staff said in a report.

The report, published on Tuesday, comes after Beijing launched a major diplomatic push for the renminbi, also known as yuan, to be added to the IMF’s Special Drawing Rights basket as part of its long-term strategic goal of reducing dependence on the US dollar.

The IMF board is scheduled to make a decision in November on whether to include the yuan in a basket of currencies comprising dollars, euros, pounds and yen, although the decision could be pushed back if policymakers decide they need more information, Reuters reported.

Delaying any change in the basket for nine months through September 2016 would avoid disrupting financial market trading on the first day of the new year, the staff report said.

A senior IMF official said reserve asset managers would need about six months notice to adjust to a change.

The renminbi meets the requirements as a significant currency in terms of international trade, but also has to be judged to be “freely usable” or widely used to make international payments and readily traded on foreign exchange markets.

The report shows a mixed performance on financial criteria, Reuters said.

Although the currency is increasingly used in cross-border transactions and heavily traded in Asia, it is only thinly traded in North America and is not commonly used in international debt securities, the report said, adding that data was missing for some variables.

The senior IMF official said there was no set checklist of indicators to guide the decision and no “off-on” switch on whether the yuan would make the grade at the planned review.

But he said politics would play no role in the decision, which will govern the mix of currencies that countries like Greece receive as part of disbursements from the IMF.

“They should be able to use it directly or they should be able to sell it immediately,” the official said.

IMF managing director Christine Lagarde has said adding the yuan to the basket is a “question of when”.

European members of the Group of Seven major industrialized economies — Germany, Britain, France and Italy — favor adding the yuan to the basket quickly. Japan, like the United States, is more cautious, officials have said.

The yuan has made huge strides since Beijing’s last push for more formal international recognition of the currency, as global financial leaders were struggling to deal with the fallout of the subprime and banking crisis.

Chinese Premier Li Keqiang in March asked Lagarde to push for inclusion, saying Beijing would speed up the convertibility of the yuan on the capital account and open domestic individual cross-border investment and foreign institutional investment in China’s capital market.

Siddharth Tiwari, director of the IMF’s strategy, policy and review department, said in a document released with the report that the IMF executive board would decide on the extension proposal later this month.

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CG

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