February 11, 2011 15:52 PM
IMF Says Adding Chinese Yuan To SDR Still Too Early
HONG KONG, Feb 11 (Bernama) -- The International Monetary Fund (IMF) said Friday it is still too early to add the Chinese yuan to international foreign exchange reserve assets as the currency has yet to be fully liberalised, South Korea's Yonhap news agency reported.
"The recent review of the Special Drawing Rights (SDRs) valuation concluded that in spite of China's prominent share of global exports, the yuan should not be included in the SDR basket, as it did not meet the criteria to be determined a freely usable currency," the IMF said in a report released on its Web site.
An SDR, which is allocated to nations by the IMF, represents a claim to foreign currencies for which it may be exchanged in times of need.
It is derived from a basket of currencies -- the US dollar, the Japanese yen, the British pound and the euro.
The IMF, however, did not rule out the possibility of the yuan being included in the basket of currencies in the future.
"It is an open question, however, whether this criterion should be retained as part of the SDR valuation method," it said.
"Recent reforms that allow nonresidents, including central banks, to hold yuan-denominated deposits and the gradual development of yuan derivatives in Hong Kong could contribute over time to resolving some of the technical difficulties in hedging yuan exposure," the IMF said.
Additional convertibility agreements between China and other SDR-designated holders, as well as China's credible commitment to internationalise use of the yuan and to liberalise capital flows, will help strengthen the international status of the Chinese currency.
The global lender was cautious, saying other issues might need to be also considered, in particular the fact that the yuan's value is tied to the dollar and managed by Chinese authorities.
"Adding the yuan to the SDR basket would virtually increase the weight of the U.S. dollar in it, and allow the exchange rate policy of one country to impact the value of the SDR in a discretionary way," it said.
China does not have full capital account convertibility and has capital controls that limit the buying and selling of its currency at market rates.
It has resulted in the lack of the currency's liquidity, the most important quality necessary for a currency to be internationally used.
During the 2008 financial crisis, the yuan was pegged at around 6.83 to the dollar.
China says it has re-pegged the yuan against a basket of currencies instead of the US dollar alone since June 19, 2010, letting the currency move at a managed floating exchange rate.
IMF Says Adding Chinese Yuan To SDR Still Too Early
HONG KONG, Feb 11 (Bernama) -- The International Monetary Fund (IMF) said Friday it is still too early to add the Chinese yuan to international foreign exchange reserve assets as the currency has yet to be fully liberalised, South Korea's Yonhap news agency reported.
"The recent review of the Special Drawing Rights (SDRs) valuation concluded that in spite of China's prominent share of global exports, the yuan should not be included in the SDR basket, as it did not meet the criteria to be determined a freely usable currency," the IMF said in a report released on its Web site.
An SDR, which is allocated to nations by the IMF, represents a claim to foreign currencies for which it may be exchanged in times of need.
It is derived from a basket of currencies -- the US dollar, the Japanese yen, the British pound and the euro.
The IMF, however, did not rule out the possibility of the yuan being included in the basket of currencies in the future.
"It is an open question, however, whether this criterion should be retained as part of the SDR valuation method," it said.
"Recent reforms that allow nonresidents, including central banks, to hold yuan-denominated deposits and the gradual development of yuan derivatives in Hong Kong could contribute over time to resolving some of the technical difficulties in hedging yuan exposure," the IMF said.
Additional convertibility agreements between China and other SDR-designated holders, as well as China's credible commitment to internationalise use of the yuan and to liberalise capital flows, will help strengthen the international status of the Chinese currency.
The global lender was cautious, saying other issues might need to be also considered, in particular the fact that the yuan's value is tied to the dollar and managed by Chinese authorities.
"Adding the yuan to the SDR basket would virtually increase the weight of the U.S. dollar in it, and allow the exchange rate policy of one country to impact the value of the SDR in a discretionary way," it said.
China does not have full capital account convertibility and has capital controls that limit the buying and selling of its currency at market rates.
It has resulted in the lack of the currency's liquidity, the most important quality necessary for a currency to be internationally used.
During the 2008 financial crisis, the yuan was pegged at around 6.83 to the dollar.
China says it has re-pegged the yuan against a basket of currencies instead of the US dollar alone since June 19, 2010, letting the currency move at a managed floating exchange rate.