BEIJING • China has welcomed backing from International Monetary Fund (IMF) experts that the yuan should be included in its reserve currencies, saying the move would strengthen the world's financial system.
Now the world's No. 2 economy, China asked last year for the yuan, also known as renminbi (RMB), to be added to the elite basket of "Special Drawing Rights" (SDR) currencies, but until recently, the Chinese currency was considered too tightly controlled to qualify.
It now looks likely the yuan will be formally admitted to the SDR currency basket at the end of the month, which would mark a milestone in China's efforts to become a global economic power.
IMF chief Christine Lagarde said the fund now deemed that the yuan "meets the requirements to be a 'freely usable' currency" - a key hurdle to joining the yen, greenback, pound and euro as a leading unit in international trade.
For Singapore, the yuan's inclusion in the IMF basket will boost the yuan-denominated swap agreements Singapore has with China, and increase the general usage of the currency, market watchers say.
An HSBC spokesman told The Sunday Times that "offshore centres like Singapore, in particular, will benefit from the growing business of yuan settlement and clearance, as it is the largest yuan-clearing hub outside of Hong Kong... This will strengthen Singapore's standing as both an enabler and a beneficiary of the yuan's continued internationalisation".
The yuan hit headlines in August when China's central bank devalued the currency and said it would use a more market-oriented system to calculate the point around which the yuan can trade each day. The move sent markets into a tailspin as investors took it as a sign of slowing growth in China, but the central bank yesterday said such reforms had taken it closer to joining the SDR basket.
"China thinks that the inclusion of the RMB into the SDR basket will strengthen the representativeness and the attraction of the SDR (and) that it will improve the existing international monetary system," the People's Bank of China added.
The yuan has rapidly grown in importance in recent years as China - the world's top trading nation - has used it to settle more of its commerce, and made it directly convertible with more currencies. Including the Chinese currency in the SDR basket would likely boost demand for yuan-denominated assets among central banks, and give it a sheen of respectability at a time when many investors are questioning Beijing's ability to manage its slowing economy.
Ms Lagarde said IMF experts ruled Beijing had addressed "all remaining operational issues" required for SDR inclusion, which will be decided by the executive board at its Nov 30 meeting.
If a decision to include the yuan is made this month, the actual inclusion could take place as late as Sept 30 next year, giving Beijing more time to prepare.
The IMF experts' recommendation on Friday was broadly backed by the United States.
"We intend to support the renminbi's inclusion in the Special Drawing Rights basket, provided the currency meets the International Monetary Fund's existing criteria," the Treasury Department said.
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