Yuan may get a second chance if it fails IMF currency basket review

The International Monetary Fund (IMF) won't rule out a possibility of holding a special review before 2020 to discuss the yuan's eligibility to join its special drawing rights (SDR) basket if the currency fails to make it at a five-yearly review this year, an IMF official said.

The IMF's 24-member executive board is due to meet informally next month before a formal review in autumn that will examine whether any currencies meet the criteria to be added to SDR, a type of monetary reserve currency created in 1969 which operates as a supplement to the existing reserves of a number of key economies around the world.

Beijing sees the yuan joining the SDR basket, now comprising the US dollar, yen, pound and euro, as a milestone in the currency's internationalisation. Yet some market watchers say that despite rapid relaxation in recent years, the mainland's capital account controls could see the yuan fail to make the SDR cut this year, and have raised the prospect of a special meeting between 2015 and 2020 to give it another chance.

"It's up to the board. If they think that a review within five years is warranted by changing international monetary arrangements, that review could be on the table," the IMF's representative in Hong Kong, Shaun Roache, said.

The IMF has not set any technical standards when it comes to the assessment of a currency's eligibility to be incorporated into its SDR basket. The criteria say an SDR currency should be "freely usable", rather than fully convertible.

"The technical team is looking at four indicators: the share of the official reserves, share of international banking liabilities, share of international debt securities and the foreign exchange turnover," Roache said.