SDR entry will internationalize yuan, spur financial reforms: expert
The International Monetary Fund (IMF) is expected to include China's yuan to an exclusive group of reserve currencies that make up its Special Drawing Rights (SDR) as its Executive Board meets on Monday.
Analysts believe the inclusion would further internationalize the yuan and require more reforms from China to make its monetary policies more transparent.
The inclusion of the yuan means IMF member-states would have an additional option in reserve assets to meet balance-of-payments requirements.
The SDR currently includes four key international currencies - the British pound, Japanese yen, the euro and the U.S. dollar, holding 11.3 percent, 9.4 percent, 37.4 percent and 41.9 percent, respectively, according to Bloomberg.
The yuan would have a weight of about 14 percent to 16 percent.
Monday's meeting comes after IMF staff concluded that the yuan continued to meet the exports criteria for a currency to be included in the SDR.
Christine Lagarde, IMF managing director, expressed her support for the staff proposal, but added that the decision rests with the IMF's Executive Board, which is made up of 24 executive directors, with the US holding a 17 percent voting stake and China with a 3.8 percent share.
The U.S. and a few other key members of the IMF have shown support for the inclusion of the yuan.
Rising influence
Monday's decision would represent global acknowledgement of China's rising influence in the world economy, experts say.
Chen Fengying, an expert from the China Institutes of Contemporary International Relations, told the Global Times Monday that the yuan's inclusion would further speed up the currency's internationalization.
"This is a green pass for the yuan to enter the global market," she said, adding that although the process has gained momentum with the government's push and market demand, the IMF's recognition would further accelerate the process.
The inclusion would also help stabilize the value of the yuan and the financial markets, said Liu Xuezhi, a macroeconomist at the Bank of Communications.
Currently facing downward pressure, the yuan's exchange rate would bounce back shortly after the IMF's decision, Liu told the Global Times Monday. He added that in the long run, the yuan's exchange rate would stabilize because of the well-established SDR system.
Liu also said the inclusion of the yuan in the SDR would further connect the Chinese financial markets to international markets, and would then help stabilize China's domestic markets. However, challenges will remain, as financial reforms would become even more urgent.
Challenges remain
"Reforms to ensure openness and transparency in the country's monetary policies are necessary, and there will be some difficulties in the process," said Liu.
An IMF study published in July pointed out a range of operational challenges for adding the yuan to its currency basket, including allowing countries that hold SDRs to access yuan-denominated securities and identifying a reliable interest rate benchmark to determine the SDR rate.
In addition, although inclusion reflects great public recognition, opposing voices and allegations over the transparency of the country's monetary policies remain, and that would also pose difficulties with the inclusion and internationalization of the yuan, Liu added.
However, the inclusion of the yuan would have a "positive impact" on the global economy and trade, said Chen. She added the inclusion of the yuan would further connect the world's second-largest economy to the rest of the world and would boost trade and economic growth.
