An International Monetary Fund (IMF) spokesperson says his organization’s executive board will meet next month to decide if the yuan will join the U.S dollar, Japanese yen, the English pound and the euro as its benchmark currencies.
IMF staff have recommended that the yuan be accepted and now it is up to the board to assess the yuan’s “performance against a checklist of technical criteria”.
“The decision on the possible inclusion of the RMB in the SDR basket will ultimately be made by the IMF’s executive board when the meeting is held,” the spokesperson says.
Even though the board may give the yuan’s inclusion a thumbs up, any change to the basket won’t take effect until October 2016.
Financial experts say that China’s recent roll out of reforms to liberalise its markets and help the yuan meet the “freely usable”, or widely used criteria to be traded on foreign exchange markets and make international payments, have all been done with IMF acceptance as the driving force.
On Friday, China’s central bank announced it was was freeing the interest rate market by getting rid of a ceiling on deposit rates.
China has also begun a weekly issuing of three-month Treasury bills and plans to increase the trading hours for the yuan to coincide with European hours.
The positive staff review means the IMF board will be able to work with a 70 percent voting majority and not the 85 percent normally reserved for the IMF’s toughest decisions.
The United Kingdom and France have backed the yuan’s inclusion while Italy and Germany have indicated they are open to the move, depending on the technical criteria being met.
A professor at Cornell University and former head of the IMF’s China Division, Eswar Prasad, says he does not see the United States or Japan going against the positive IMF staff recommendation.
“I think it will be very difficult for the IMF, especially given all that China has done this year, to deny China the prize it really wants,” he says.
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