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Chinese yuan’s entry into IMF’s Special Drawing Rights basket to usher in deeper reforms: PBOC

Official at mainland’s central bank admits renminbi still lags behind other major currencies in terms of capital account convertibility and says Beijing must open up financial markets more

PUBLISHED : Friday, 04 December, 2015, 6:20pm
UPDATED : Friday, 04 December, 2015, 6:23pm

A Chinese central bank official says the inclusion of the yuan into the International Monetary Fund's (IMF) global reserve currencies basket is the starting point for deeper financial reforms, which include a greater liberalisation of its capital account.

Xing Yujing, director general of the No 2 monetary policy department of the People's Bank of China - the mainland’s central bank - told a news conference on Friday that the yuan's admission into the IMF's Special Drawing Rights basket would help improve price discoverability for the currency.

However, she noted the yuan lagged behind other major currencies in terms of convertibility on the capital account and that China still needed to open up its financial markets further.

While the yuan is already convertible under China's current account, the broadest measure of trade in goods and services, the capital account, which covers portfolio investment and borrowing, is still subject to restrictions as Beijing worries about abrupt capital flight and hot-money inflows.

“We will continue to push forward yuan convertibility on the capital account in a safe and orderly way, on condition that risks are under control,” she said.

The IMF admitted China's yuan into its benchmark reserve currency basket on Monday, which was a victory for Beijing's campaign for recognition as a global economic power.

However, it also sparked allegations that the IMF was bowing to pressure from China as Beijing seeks greater global recognition of its economic power.

The IMF’s spokesman Gerry Rice said on Thursday that the IMF’s decision was based solely on “technical” considerations.

“This was a technical process that went on over an extended period of time and the decision is firmly based in technical criteria,” Rice said.

In its review of its SDR currencies basket, which takes place once every five years, the IMF determined that the yuan, also known as the renminbi, met the two conditions needed - being widely used and “freely useable”.

Rice said: “Those criteria have been laid out from the very beginning [and had been explained].

“This has been done in the most transparent way possible.” he said.

He added that the decision to include the yuan was “fully endorsed” by the IMF's 188 member nations.

Rice also emphasised there was “no linkage” between the yuan decision and the impatience of several emerging-market powers, including China, over US-stalled reforms that would give them more weight in the institution.

China has pushed to make the yuan more international, setting up swap arrangements with countries so trade can be settled in the currency and China has said it would push ahead with financial reform. Beijing has widened the yuan's trading band and this year went a long way to freeing up interest rates.

Some Chinese academics have warned against any rush to dismantle capital controls at a time when money is leaving the country amid jitters about China's economic slowdown and the likelihood of US interest rate rises.

The yuan will join the US dollar, euro, yen and British pound in the IMF basket on October 1, 2016.

Reuters, Agence France-Presse