Brian Jackson, China Economist, IHS Global Insight
Key Points:
- The IMF on Monday (Dec. 1) published a press release confirming that the Chinese Yuan (CNY) will be included in the special drawing rights basket starting on 1 October 2016.
- The weighting of the CNY in the basket will be 10.92%, higher than weights for the Japanese Yen or British Pound, according to an initial fact sheet published by the IMF.
- The IMF expects to publish the full report considered at the 30 November meeting soon.
Outlook:
The IMF decision was widely expected. Currently, there is 204.1 billion SDR allocated, equivalent to about USD282.5 billion, indicating that the CNY 10.92% weight amounts to the equivalent of about $30.8 billion in additional demand for CNY as a direct outcome – a rather trivial figure compared to annual trade and investment flows for China.
Of course, indirectly the decision may encourage more non-SDR reserves to include a higher CNY component. This is less likely in the immediate future, given widespread expectations of market forces devaluing the currency as Chinese officials continue to loosen exchange rate management.
Thus, inclusion in the SDR should be viewed as an important milestone in China’s financial sector reform and CNY internationalization, rather than a predictor of its imminent rise. (*)