This Week's Focus: China and the IMF

This Week's Focus: China and the IMF


After the recent visits of Chinese President Xi Jinping to the US and the United Kingdom, representatives of the International Monetary Fund have given a clear message to China that it is likely that the yuan will soon become part of the basket of reserve currencies fund, known as Special Drawing Rights issued by the IMF.

Special Drawing Rights (SDRs) (SDR - Special Drawing Rights)
The IMF created the SDR in 1969 to increase global liquidity to the system of fixed exchange rates established in Bretton Woods agreements following the abandonment of the gold standard. SDRs are not a currency but gives IMF member countries the right to obtain any of the currencies in the basket (dollar, euro, yen and pound sterling) to meet balance of payments needs. So the ability to convert SDRs yuan would be good for many countries with deficit in its balance of payments with China.

The volume of SDRs in circulation
The SDR's value is currently based on the weighted rates for the four Monedes that compose it. The equivalent of about $ 280 billion in SDRs IMF members remained at September 2015, compared with about $ 11.3 trillion in global reserve asset. The USA. They remained close to $ 50 billion in SDRs in August 2015, 18% of the total.

China wants to gain weight in the IMF
In a speech in 2009, the People's Bank of China, Zhou Xiaochuan, the governor said the global financial crisis highlighted the risks of a global monetary system based on national reserve currencies. He argued that SDRs should assume the role of a "super-sovereign reserve currency" with its expanded to include currencies of the major economies basket.

Xi Jinping thanked the US support for the yuan is part of the SDR after meeting with President Barack Obama in late September at the White House. At the moment China is moving towards free market economic reformes obtain IMF support would allow reformers in the Chinese government argued that changing the country is paying off.

The global use of the yuan has increased since the IMF rejected the inclusion of this currency in the last revision in 2010. The yuan is the fourth most widely used currency in global payments, exceeding the yen, according to SWIFT (Society for Worldwide Interbank Financial Telecommunication).

The criterion of currency "free use" is one that draws on the IMF, and the use of official reserves, holdings of debt and currency trading. Many major economies, including the US, Germany and the UK, are prepared to support the inclusion of the yuan if it meets the criteria of the IMF. Support the yuan can promote relations between China and countries such as the UK, which has tried to make London a major center of trade yuan.

The inclusion of the yuan to the basket can also help the IMF to improve its position with the Chinese. China and other emerging markets aspire to greater representation in the background in the reforms agreed in 2010, but the US Congress has yet to ratify the changes.

Effects on Chinese assets
According to Standard Chartered Plc and AXA Investment Managers, around 1,000 million USD in world stocks will migrate to Chinese goods if the yuan is attached to the shopping IMF reserve.

Issues of securities denominated in yuan by foreign companies could exceed $ 50 billion in the next five years, says the International Finance Corporation of the World Bank.

The acceptance of the yuan as a reserve currency, would involve the accumulation of assets in yuan by central banks and institutional investors, creating a significant demand for assets denominated in that currency, allowing a greater capacity for issuance by China.