China pledges to push ahead with financial reforms as IMF adds yuan to elite club

China will not stop financial sector reforms after an IMF decision to add the yuan currency to the fund's benchmark currency basket.
China will not stop financial sector reforms after an IMF decision to add the yuan currency to the fund's benchmark currency basket. PHOTO: EPA

WASHINGTON (REUTERS) - China will not stop financial sector reforms after an International Monetary Fund decision to add the yuan currency to the fund's benchmark currency basket, a senior Chinese policymaker said on Tuesday (Dec 1).

The IMF's executive board on Monday admitted the yuan, also known as the renminbi, to the Special Drawing Rights (SDR) basket alongside the US dollar, euro, pound sterling and yen, a symbolic win for Beijing's campaign for recognition as a global economic power. "The yuan joining SDR does not mean (the) end of reform of the financial sector in China," China's Vice-Finance Minister Zhu Guangyao said at the Peterson Institute for International Economics.

But he made it clear Beijing was in no rush to allow the yuan to float freely, as China tried to change from an investment-driven model of economic growth to one linked more closely to innovation. "Now we are continuing with a managed floating system and we hope this system can help us to successfully complete the transition," he said.

He also said that he hoped the currency would one day fully reflect market values.

IMF policymakers stressed at Monday's SDR discussion the need for China to continue and deepen reforms, and to tackle any operational issues which might inhibit IMF members from exchanging yuan for other currencies, the IMF said.

IMF staff pointed to gaps between onshore and offshore exchange rates and warned future deviations could pose challenges for IMF members, who may receive some disbursements in yuan once the decision takes effect.

The staff outlined increasing use of the yuan, which had to meet the test of being widely used to make international payments and traded broadly in foreign exchange markets.

A survey showed members of the IMF reported holding US$70 billion (S$98.4 billion) in yuan-denominated assets in 2014, or 1.1 per cent of official foreign asset holdings.

Data suggested that daily average yuan turnover was roughly US$250 billion in six regional trading centres, behind the four other SDR currencies as well as the Australian dollar, Canadian dollar and Swiss franc, the report said.

Data through April showed turnover in London rose 80 per cent over two years, while turnover in Canada - home to one of only two RMB clearing and settlement centres in the Americas - was up more than 400 per cent at 0.2 billion.

Trading in New York was too thin to warrant a separate mention. Former New York City Mayor Michael Bloomberg is leading a push to establish a US yuan hub.