China’s Entrance Into SDR Basket Shifts Global Finance
September 30, 2016
- The inclusion is first and foremost recognition of the substantial reform efforts conducted by Chinese monetary authorities.
- “The RMB is already, for a number of years, very much an international currency.
- China has also taken additional measures to allow the inclusion of RMBinto the SDR,” said Jurgen Conrad, head of the Economics Unit at the Asian Development Bank in China.
- Alfred Schipke, the chief China representative of the IMF, thinks that the move’s significance isn’t limited only to the country.
- “[I think] the RMB joining the SDR will indeed be a milestone for China, but also for the international financial system. It, in effect, recognizes the progress that has been made on the reform side in China over the past couple of years,” said Schipke.
(TRUNEWS Beijing) – The development is a major step forward for China’s inclusion in the world financial system, though the short-term benefits might not be huge. That’s primarily because the SDR is still very limited in circulation, experts say.
“The amount of SDR in circulation is now a little bit more only than 200 billion U.S. dollars, which is very small compared to China’s international reserves of more than 3 trillion U.S. dollars,” said Conrad.
He said that since China now has a stake in the SDR, the country should promote reforms of the multi-currency basket.
China, for instance, should push for the basket to become more substantial and popular internationally so the yuan’s inclusion is more than just symbolic significance, said Conrad.
Schipke noted that the real issue is not just the RMB joining the SDR, but what really matters is what the Chinese government will do with it.
“I think the critical part here is how the reforms will move forward, both for RMBinternationalization and also in terms of the implications for the Chinese economy. So, these are questions more related to how the capital account is continued to be gradually opened, how the financial system is strengthened. So, these are important aspects rather than the fact that comes October 1, the RMB joins the SDR basket,” the IMF official said.
Schipke added that the future of the RMB’s internationalization will depend mostly on private-sector behavior — which is usually linked more to the performance of the Chinese economy — and whether the reforms will continue moving forward as planned.
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