On Nov. 30, the executive board of IMF will convene to decide whether the RMB should be included in its Special Drawing Right (SDR) basket, currently comprised of the euro, U.S. dollar,Japanese yen and British pound. Inclusion is now just a formality, according to J.P Morgan China Chief Economist Haibin Zhu, an opinion shared by many.
A number of members in the IMF have explicitly supported RMB inclusion. U.S. treasury secretary Jacob Lew will support the yuan's bid if the currency meets IMF criteria. Britain has also backed inclusion and IMF managing director Christine Lagarde issued a statement recommending the move on Nov. 13. Four days later, she reiterated her support on the sidelines of the G20 summit in Turkey.
The IMF assessment and Lagarde's endorsement suggest unconditional approval and the executive board meeting on Nov. 30 is unlikely to deliver a surprise. If it comes, this change to global financial order has not come easily.
In 2010, the yuan was rejected on the basis that it did not meet the "freely usable" criteria. Since then, China has been working hard to internationalize the currency.
This year, the deposit rate ceiling has been removed, a reciprocal currency swap scheme with Britain has been extended, offshore RMB notes were issued in London, and the first phase of the China international payment system went online.
"The role of the yuan as an international currency is strengthening, based on the larger number of companies that use the RMB to settle payments, as well as the number of banks that accept payments in the currency," said economist Dario Epstein with Argentine consulting firm Research for Traders.
The yuan overtook the Japanese yen to become the world's fourth most used settlement currency in August. SDR inclusion is an important part of China's ongoing financial reform. In an article in Thursday's "People's Daily", central bank governor Zhou Xiaochuan committed himself to making the RMB fully convertible and freely usable within five years.
By then, Zhou expects more than a third of the world's international trade to be conducted through the RMB. Ratings agency Moody's said earlier this week that the inclusion would be credit positive for China. Domestically, it would support gradual liberalization of the capital account, whereas globally, it would encourage use of the RMB in cross-border trade, portfolio investment and debt issuance.
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