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China: Yuan is all-time close to SDR basket - BBH

FXStreet (Delhi) – Research Team at BBH, note that there is growing conviction that the yuan will get the nod by the IMF to join the SDR basket next month.

Key Quotes

“Recent reports, which refer to Chinese sources, say that the government is already preparing a statement on the acceptance. The IMF has a formal meeting in November when it is expected to deliberate on the issue.”

“Becoming an established “reserve currency” could certainly have benefits in terms of capital inflows – some estimates put potential demand for the yuan at $500 bln over the coming years.”

“But the greater political implications are probably most important for the Chinese leadership as it seeks to further integrate the country into the global financial system and, of course, exert influence over it.”

“In practice, there has been a flurry of recent developments that will change how the currency will be traded and thought of in the future. This includes the launching of its own cross-border payment system for the yuan (CIPS), the decision to start reporting the composition for its FX reserves for the IMF’s Special Data Dissemination Standards, the issue of a note by the PBOC in London, and plans to extend the hours of its onshore yuan trading to overlap with Europe. Full convertibility, however, is unlikely in the foreseeable future.”

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