IMF delays China’s bid for global reserve currency status
The International Monetary Fund has decided that China’s currency will not be included in a basket of reserve currencies for at least a year, delaying a move some had expected to take place as soon as January even as it took pains to stress the decision was largely procedural.
The IMF is due to decide by the end of the year whether to include the renminbi in its so-called special drawing rights, the elite group of currencies it uses to determine the value of its own de facto currency.
The decision depends on the IMF determining just how “freely usable” the tightly controlled Chinese currency has become. The push for inclusion has been driving a series of reforms by Beijing, which is keen to see the renminbi labelled a reserve currency alongside the dollar, euro, yen and sterling.
The bid for SDR inclusion is also among the factors cited by observers as being behind last week’s move by the People’s Bank of China to allow a greater role for markets in setting the daily trading band for the renminbi, which prompted the two biggest daily swings in the currency since the 1990s.
But the IMF said on Wednesday its board had decided that if it opts later this year to include the renminbi in the SDR basket, the move will not take formal effect until September 2016.
This potentially gives China more time to enact reforms, although most if not all would have to be in place before the IMF board makes its decision, which is expected in November.
The extended timeframe also signals the monumental complexity of adding a currency to the IMF’s reserve basket, a manoeuvre last carried out at the birth of the euro in 1999.
The decision, the IMF said, was based on a staff recommendation made in a report last month and in response to requests from “SDR users” — other member countries that receive IMF loans — for a “sufficient lead time to adjust” to the new currency basket.
The IMF said the decision had in effect been taken on August 11, during the board’s annual summer break, because the time for objections had lapsed. It had not been announced before Wednesday because IMF rules give staff seven days to prepare announcements, the IMF said.
Above all, “the approved extension of the current basket does not in any way prejudge the outcome of the [SDR review], expected to be discussed formally by the executive board later this year,” the IMF said.