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Victoria Ruan

The International Monetary Fund's finding that the yuan is no longer undervalued would appear to boost its chances of inclusion in the agency's Special Drawing Rights basket, but analysts caution that politics, as well as economics, will weigh heavily on any such decision.
Despite the yuan's leading share in world trade, controversies remain over whether it fits the IMF's criteria of being "freely usable".
And observers say the decision will be politically sensitive amid growing concern from the West about Beijing's rising power.
The IMF said on Tuesday that the yuan was no longer undervalued after substantial appreciation over the past year. But it urged Beijing to make the exchange rate more flexible.
In a review in October, IMF board members will decide on whether the yuan should be added to the SDR basket, which is now made up of the US dollar, the sterling, the yen and the euro.
"In the end, this year's decision about the SDR basket will be made on political as much as on economic grounds, which means it will be determined by the governments with the most influence at the IMF, including the US," said Capital Economics' Andrew Kenningham.
Chinese leaders have expressed desire for the yuan to be added into SDR this year. But Washington's concern about losing dominance in the global order has grown, observers say, particularly after many of its allies joined the Beijing-led Asian Infrastructure Investment Bank.
"The [SDR] issue is mainly a political issue," said Ding Yifan, a senior researcher at the Development Research Centre of the Chinese State Council.
If the IMF listed the SDR inclusion as a special matter that required an 85 per cent majority vote, then the United States, with its 16.74 per cent voting rights, could easily reject the proposal, Ding said. But if only a 70 per cent majority vote were needed, then China would "have every chance to win", he said.
Based on the IMF's explicit criteria, "there is a reasonably high chance that this year's vote will go China's way", Citigroup economist David Lubin said.
The yuan is currently the fifth most used currency in international payments, and the fourth most used in international money market instruments, although its use in bonds remains small.
Helen Qiao, Morgan Stanley's managing director for research, said inclusion in the SDR basket could "boost the yuan's role in the international monetary order in the medium to long term".
It might also spur institutional investors to increase yuan assets in their portfolio, Qiao said.
But she warned that lobbying the IMF board members might be challenging for Beijing given the short time left. "It would require an arduous campaign to gain nods from the IMF by the end of this year," she said.


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Yuan

Yuan's inclusion in IMF's currency basket faces economic, political hurdles

Despite the yuan's leading share in world trade, controversies remain over whether it fits the IMF's criteria of being 'freely usable'. Photo: Reuters

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China

Politics

Observers say the decision will be politically sensitive amid growing concern from the West about Beijing's rising power


The International Monetary Fund's finding that the yuan is no longer undervalued would appear to boost its chances of inclusion in the agency's Special Drawing Rights basket.
