Pete Sweeney Shanghai
LATER this year the International Monetary Fund (IMF) might include the Chinese yuan in its official basket of reserve currencies, a political and economic triumph for Beijing in the teeth of US opposition, but slowing growth in China is likely to limit the impact of the victory.
Adding the yuan, or renminbi, to the dollar, euro, yen and pound in the Special Drawing Rights (SDR) basket, as IMF head Christine Lagarde says is only a matter of time, should over time expand its role as a currency for international trade and investment and make the world’s central banks more likely to hold it in reserve.
That in turn should lower transaction costs, exchange risk and borrowing costs for China, already the world’s largest trading nation, and its companies.
Fresh from its success in drawing member countries to a new China-led development bank despite US opposition, Beijing will enjoy another victory over Washington, which opposes early inclusion of the yuan in the SDR.
But rather than enjoying a rally in the yuan after months of softness, as some analysts have speculated, markets might find little has changed.
That was in part because the yuan was unlikely to receive an allocation in the SDR of more than the 10 percent individual share that the British pound and Japanese yen each had, perhaps amounting to just $31 billion (R366bn), Chi Lo at BNP Paribas said.
It is also because Beijing, though it is under pressure to widen the yuan’s trading band and ease restrictions on cross-border capital flows to meet IMF tests for accessibility that it flunked last time it was under consideration, is unlikely to go too fast down the path of reform. – Bloomberg