11 Aug 2015
IMF to decide on CNY later in the year – Rabobank
FXStreet (Edinburgh) - Senior Currency Strategist at Rabobank Jane Foley evaluated the recent measure by the PBoC in light of the upcoming decision by the IMF.
Key Quotes
“While another spate of currency wars will focus the minds of the central banks of the regions, their jobs could be complicated further if the IMF decides this year to include the Chinese yuan into its special drawing rights basket”.
“Currently only the USD, EUR, JPY and GBP are included but the composition is reviewed every five years and China has been pressuring the IMF to consider including the CNY from next year”.
“Last week the IMF proposed that if the CNY was included that the current basket would be extended for nine months to September 2016 to smooth the transition process - which could lead to additional demand for the currency”.
“The IMF has made clear that it has two criteria for entry into the SDR basket. The first related to exports of goods and services having the largest value over a 5 year period – no one is questioning China’s claims on the basis”.
“The other criterion refers to the currency being freely usable. The IMF has made clear that this is distinct from whether the currency is freely floating or fully convertible. This puts the CNY clearly in the running despite the fact that market forces are still heavily controlled”.
“Of note is that fact that on July 29 IMF Chief Lagarde defending China’s recent interventions in the stock market stating that “no-one should be surprised by the fact that [the Chinese authorities] want to maintain an orderly movement”. A decision on whether the yuan will be included in the SDR basket is expected before year end”.
Key Quotes
“While another spate of currency wars will focus the minds of the central banks of the regions, their jobs could be complicated further if the IMF decides this year to include the Chinese yuan into its special drawing rights basket”.
“Currently only the USD, EUR, JPY and GBP are included but the composition is reviewed every five years and China has been pressuring the IMF to consider including the CNY from next year”.
“Last week the IMF proposed that if the CNY was included that the current basket would be extended for nine months to September 2016 to smooth the transition process - which could lead to additional demand for the currency”.
“The IMF has made clear that it has two criteria for entry into the SDR basket. The first related to exports of goods and services having the largest value over a 5 year period – no one is questioning China’s claims on the basis”.
“The other criterion refers to the currency being freely usable. The IMF has made clear that this is distinct from whether the currency is freely floating or fully convertible. This puts the CNY clearly in the running despite the fact that market forces are still heavily controlled”.
“Of note is that fact that on July 29 IMF Chief Lagarde defending China’s recent interventions in the stock market stating that “no-one should be surprised by the fact that [the Chinese authorities] want to maintain an orderly movement”. A decision on whether the yuan will be included in the SDR basket is expected before year end”.