Date
23 January 2017
Norman Chan says the renminbi's inclusion in the SDR basket is a major step in China's efforts to promote the global use of the currency. Photo: HKEJ
Norman Chan says the renminbi's inclusion in the SDR basket is a major step in China's efforts to promote the global use of the currency. Photo: HKEJ

RMB makes SDR: Chan says Hong Kong should seize historic moment

Hong Kong should take the historic opportunity thrown up by China’s accession to the International Monetary Fund’s Special Drawing Rights (SDR) regime announced Tuesday, says its central bank chief.

Norman Chan, chief executive of the Hong Kong Monetary Authority, said the inclusion of the renminbi in the international currency basket is a major step in China’s efforts to promote the global use of the currency.

“Being the largest offshore renminbi business center with close economic and trade ties with mainland China, Hong Kong should seize this historic opportunity and continue to strengthen our financial market infrastructure, as well as upgrading our talent pool and products,” he said.

SDR is an international reserve asset created by the IMF to bolster glbal liquiidity.

It is based on a weighted average of the value of a basket of currencies comprising the US dollar, euro, pound sterling, Japanese yen and now renminbi.

The new SDR basket will take effect on Oct. 1, 2016.

Andrew Colquhoun, head of Asia-Pacific sovereigns of Fitch Ratings, said the renminbi’s SDR inclusion will not make much difference in the short term.

“What really matters is whether central banks and sovereign wealth funds start to see the renminbi as a viable store of liquidity and of value to rival the US dollar,” he said.

“Such a shift seems unlikely while doubts persist over China’s prospects for a smooth and orderly rebalancing, and while China retains widespread capital controls.”

Peter Wong, deputy chairman and chief executive of the Hongkong and Shanghai Banking Corp., said the move confirms the emergence of the Chinese currency as a reserve currency, which is the ultimate objective of the exchange rate reform.

“The IMF’s recognition of the renminbi’s reserve currency status has profound long-term implications for the currency’s role in the international financial system,” he said.

“Many central banks and reserve managers have already invested in renminbi assets and we would expect sovereign investor demand for RMB to continue growing.”  

Sophie Jiang, an analyst at Nomura, said the reminbi’s 10.92 percent weighting in the SDR basket is slightly lower than their estimate of 12.5 percent.

The new weightings, however, puts the Chinese unit ahead of the British pound (8.09 percent) and Japanese yen (8.33 percent), she said.

The US dollar comes in an 41.7 percent and the euro 30.9 percent.

The weightings are based on a new formula that gives equal weight to exports and financial variables and the share of each currency.

The valuation of SDR on any particular day will depend on the prevailing exchange rates.

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