By Andrew Jay Rosenbaum
ANKARA
The International Monetary Fund is considering including the Chinese currency, renminbi, in its Special Drawing Rights currency - a move that would raise the importance of renminbi as an instrument for international trade, economists say.
On Tuesday, the IMF executive board announced in a statement that it would formally review the composition and valuation of the Special Drawing Rights (SDR) basket toward the end of the year.
In the statement, the IMF said that it was focusing the current review of the SDR basket on renminbi inclusion. A decision will be made at the IMF's formal board meeting at the end of this year.
"The SDR’s value is currently based on a basket composed of the U.S. dollar, the euro, the pound sterling and the Japanese yen. The IMF reviews the SDR basket valuation method every five years to ensure that it reflects the relative importance of major currencies in the world’s trading and financial systems, with the aim of enhancing the attractiveness of the SDR as a reserve asset," the statement said.
Robert Minikin, head of Asia FX Strategy at Standard Chartered Bank, commented in a note on June 15 that big strides had been made in the internationalization of the renminbi over the past five years. “China’s currency now meets the technical requirements for inclusion in the International Monetary Fund’s Special Drawing Rights (SDR) basket, in our view, a move that would give the currency reserve status," Minikin said.
"Inclusion could encourage China to increase data transparency and introduce further currency reforms. It would also strengthen the legitimacy of the Special Drawing Rights as a reserve asset," HSBC head of Asian FX Research Paul Mackel said in a note published on February 27.
According to a separate statement on the IMF website, the SDR is neither a currency, nor a claim on the IMF. "Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations."
The 2009 SDR allocations totaling SDR 182.6 billion have played a critical role in providing liquidity to the global economic system and in supplementing member countries’ official reserves amid the global financial crisis, the statement said.
Chinese officials have been calling for the currency's inclusion in SDR for some time, as part of moves to internationalize the renminbi. In March, Chinese Premier Li Keqiang told IMF Managing Director Christine Lagarde that China would make the reforms needed to meet the criteria for SDR inclusion ahead of the next review. Since 2014, Chinese authorities have begun setting up swap facilities around the world, so that banks may more easily use the currency as part of their reserves.
In March, IMF Managing Director Christine Lagarde said that she was "impressed with the rapid internationalization of the renminbi. The authorities’ commitment to accelerate reforms, particularly in the financial and external sectors, should further facilitate the international use of the renminbi. The authorities have also expressed interest in having the renminbi included in the SDR basket. We welcome and share this objective, and we will work closely with the Chinese authorities in this regard," Lagarde wrote in a note published on the fund's website on March 23.
