New | Yuan's inclusion in SDR basket eases traders’ concern about currency’s volatility

One month before China’s renminbi is formally included in the currency basket of the International Monetary Fund’s Special Drawing Rights, or SDRs, analysts and currency traders say their concerns about the yuan’s volatility have eased.

“It’s the beginning of a new era for the yuan to play a bigger role in the global financial system,” said Candy Ho, the global head of RMB business development at HSBC in Hong Kong.

While the yuan is still not freely convertible into other currencies, and the government still exerts tight control over cross-border capital flows, the prospects for further liberalisation are positive, analysts said.

“The official inclusion of the yuan into the SDR market will provide reassurance for foreign investors, encouraging sovereign investors and other long-term investors to participate in CIBM programme to access China’s bond market even more,” said Wang Ju, senior foreign currency strategist at HSBC in Hong Kong.

The World Bank this week became the first foreign institution eligible to sell SDR bonds in China, with the People’s Bank of China approving a 2 billion SDR programme. A quarter of that, or 500 million SDRs (US$700 million) were marketed on the interbank bond market on Wednesday.

As bond yields around the world declined to record low levels and even negative, China’s bond market, which offers an average of 2 per cent to 3 per cent yield for investors, is attractive for overseas investors, according to Wang.