Wednesday, November 04, 2015

IMF Accepting Chinese Yuan as Reserve Currency

Even as the International Monetary Fund prepares to accept China's yuan in its basket of reserve currencies, a major diplomatic victory for Beijing's campaign to internationalize the currency, foreign companies are growing more skeptical.

Thanks to recent reforms in China and the endorsement of key European governments, including Britain during a visit by President Xi Jinping last month, the yuan looks increasingly likely to find its way into the IMF reserve basket, known as Strategic Drawing Rights (SDR).

The IMF seal of approval would come on top of other diplomatic coups: European endorsement of Beijing's new regional development bank, another channel for pushing the yuan outwards, and the recent announcement of a trading platform for yuan-denominated financial products in Germany.

"It's a big step for the RMB's internationalization if the currency is included (in the IMF basket)," said an executive at a Chinese multinational in Hong Kong, who said he expects the move would make his foreign counterparties more willing to settle transactions in yuan.

So far this year, however, the willingness of foreigners to hold offshore yuan (CNH) has flagged as China cuts interest rates and the United States prepares to raise them.

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