SDR inclusion far from enough to increase yuan’s allure to investors
Slowing economic growth, capital exodus concerns and underdeveloped financial markets are challenges that IMF’s official stamp cannot overwrite
The yuan is facing a long march towards reserve currency status , a process that won’t be dramatically accelerated by its potential inclusion in an elite, yet symbolic , currency basket, experts say.
Beijing is keenly anticipating an International Monetary Fund announcement this month on whether the yuan will be incorporates into its Special Drawing Rights basket, a quasi-currency rarely used in financial transactions.
Kevin Lai, chief Asia-ex Japan economist at Daiwa Capital Markets, said the debate over SDR inclusion was “almost irrelevant” to the yuan’s value going forward and to how China could avoid a hard landing of its debt-ridden economy. The debt-to-GDP ratio of the world’s second-largest economy now stands at around 300 per cent.
The house is on fire and the SDR inclusion is a small bucket of water 10 miles away
“The house is on fire and the SDR inclusion is a small bucket of water 10 miles away,” said Lai, whose constant downbeat views on the yuan and the mainland Chinese economy have earned him the nickname “yuan bear”.
“An inclusion is neither adequate nor necessary for China to get the reserve currency status,” he said on Wednesday. “China will have to do a lot more before the world wants to own more renminbi-denominated assets.”