The inclusion of the Chinese currency renminbi (RMB), or the yuan, in the International Monetary Fund (IMF) Special Drawing Rights (SDR) basket as its fifth component currency would be credit positive for China, said a Moody's report on Monday.
It would support market-oriented reform, including gradual liberalization of the capital account, said the report. On November 13, Managing Director of the IMF Christine Lagarde issued a statement that IMF staff had proposed including the RMB in its SDR, an international reserve asset whose value is based on a currency basket that currently includes the U.S. dollar, the euro, the Japanese yen and the British pound.
The IMF said in the statement that the RMB meets the IMF's "freely usable" criterion and that Chinese authorities have addressed all remaining operational issues identified in an initial staff analysis in July. Moody's said the inclusion would also encourage broader use of the RMB in cross-border trade, portfolio investment and debt issuance.
Inclusion in the SDR would encourage central banks to invest in RMB-denominated assets, which would potentially stabilize RMB demand, partly offsetting capital outflows at times of higher uncertainty, it said.
A more open capital account would be credit positive by allowing greater diversification of funding sources for Chinese issuers and greater diversification of investment for Chinese savers, the report added.
The yuan failed to be included in the SDR in 2010 as the IMF said it did not meet the "freely usable" criterion. The IMF will decide on the matter in a meeting of its Executive Board on November 30.