IMF to review yuan for currency basket

Historically, decisions that have changed the valuation method have been made with a 70 percent majority.

The review is well underway, according to Tiwari. Further work still needs to be done in a number of areas to help inform the executive board's decision. Staff continues its technical work, including on addressing data gaps and operational issues while working closely with Chinese authorities and other members before the formal board meeting.

Eswar Prasad, a professor of trade policy at Cornell University and a senior fellow at the Brookings Institution, said that the IMF's review indicates that China has made significant progress on meeting the "freely usable" criterion for the RMB to be included in the SDR basket, but that more progress is needed.

"The decision about the RMB's inclusion in the basket hinges on reforms such as greater exchange-rate flexibility, more investor access to onshore foreign exchange and securities markets, and availability of a wider range of government debt securities," said Prasad, a former IMF China Division chief.

He said IMF staff also has signaled that the RMB's inclusion in the SDR basket will ultimately be a matter of judgment by the IMF executive board because the decision falls right at the margin.

"China clearly meets the ‘export gateway' criterion, but the trajectory of China's financial development and RMB's international usage, while rising impressively, are not yet sufficient to meet the ‘freely usable' criterion," Prasad told China Daily on Tuesday.

He said inclusion of the RMB in the SDR basket would give the currency the IMF's official imprimatur, facilitate its use as an international currency and enhance its acceptance as a reserve currency by foreign central banks.

"This could be more important for central banks than it is for market participants who may be less concerned about the IMF's official seal of approval," he said.

In a story published in the South China Morning Post in June, Li-Gang Liu, chief economist for Greater China, ANZ Bank in Hong Kong, and a non-resident visiting fellow at the Peterson Institute for International Economics, argued that the RMB has obtained the basic qualifications for inclusion in the SDR basket.

The RMB is now the second-largest global trade-financing currency, the fifth-largest global payment currency and the 10th-largest foreign exchange turnover currency, according to estimates by the Bank for International Settlements in 2013.

It is expected that more than 30 percent of China's trade will be denominated in RMB this year. The renminbi also has been used as an investment currency, as more of China's outbound foreign direct investment and overseas development assistance funds are now conducted in the Chinese currency, according to Liu.

chenweihua@chinadailyusa.com

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