RMB likely to enter IMF's global reserve currencies list

Want China Times, Staff Reporter 2015-01-28

A clerk at a bank in Shanxi province counting bank notes in US
dollars and renminbi. (File photo/CNS)

Beijing is pushing for the inclusion of the renminbi as of one of the global reserve currencies of the International Monetary Fund and hopes to get a shot at the Special Drawing Rights system during the organization's twice-a-decade review this year, reports Chinese financial news website fx678.com.

The review will begin with an informal IMF board meeting in May before a formal review in autumn. Any changes decided during the review will take effect in January next year. Officials of Asian countries and G20 members said unlike the previous review five years ago, the matter of the renminbi's inclusion will be discussed actively this time around.

The renminbi's exchange rate has strengthened greatly from five years ago and the currency is now widely used in overseas trading, which could eliminate one of the IMF's main reasons for barring the currency from its Special Drawing Rights system during the previous review. Around 20% of China's trades are settled in renminbi and Beijing has signed agreements to trade the currency in Hong Kong, Singapore, Frankfurt and London, said the report.

Although the US could deny the renminbi from entering the basket — it holds 17% of the votes on the IMF's executive board — South Korea and other nations are looking forward to its entry since it will encourage investments in China. A senior official of an Asian central bank was confident that the renminbi would be included this year.

Jeffrey Frankel, a professor of Harvard University, said that political reasons may prevent the renminbi from being considered "freely usable." US congress has not approved a change to reduce Western Europe's voice on the IMF board and give China and other emerging economies more power.

The currency cannot yet be used freely. The Chinese government still controls its financial market strictly since even large asset management firms cannot buy renminbi or government bonds in large quantities through a single transaction, said David Dollar, who formerly carried out the US Treasury's diplomatic missions in China.

Another potential reason that the renminbi may not be included is its capital markets. China, however, has eliminated the excuse as the online platform of Thomas Reuter, a major multinational mass media and information firm, recorded a 350% increase in the currency's trading abroad. The number of countries planning to buy Chinese assets through Renminbi Qualified Foreign Institution Investors reached 10 last year and those establishing a renminbi settlement system reached 14. Eighteen central banks have signed agreements with Beijing for currency exchanges.