IMF Board Sets September 2016 as Earliest Yuan Can Join SDR

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The International Monetary Fund pushed back until Sept. 30, 2016, the date that China’s yuan could be included in its basket of reserve currencies.

The executive board, which represents the IMF’s 188 member nations, voted Aug. 11 to extend the composition of the fund’s Special Drawing Rights for nine months, the Washington-based fund said Wednesday in a statement. IMF staff in July had recommended the extension to minimize disruption if the board decides to add the yuan to the basket, which includes the U.S. dollar, euro, yen and British pound.

“While the board is currently expected to complete the review in November 2015, staff sees merit in agreeing now on a limited extension of the current valuation basket,” the IMF said in a separate report released Wednesday.

The offshore yuan fell as much as 0.4 percent in U.S. hours following the release of the board’s decision and was down 0.2 percent at 1:38 p.m. in New York.

“The headline poses a slight disappointment,” said Mike Moran, head of economic research for the Americas at Standard Chartered Bank in New York.

The IMF is reviewing a bid by China to have the yuan included in the SDR. IMF staff are analyzing whether the yuan qualifies as “freely usable,” a core requirement of joining the SDR. The executive board has the final say on whether the currency is added.

Moran said it’s only a matter of time before the yuan wins the IMF’s endorsement. “As much as some in the market are worrying, this is the path that China, the IMF and the Treasury have been advocating and signaling for quite some time,” he said.

Traders who sold offshore yuan likely overreacted by misinterpreting the board’s decision as a sign the IMF doesn’t think the yuan, also called the renminbi, qualifies for the SDR, said Viraj Patel, a London-based currency strategist at ING Groep NV.

“Our base case remains that the renminbi will clear the ‘freely usable’ hurdle by the end of the year, and will be included in the SDR basket,” he said.

China last week shifted to a more market-determined exchange rate, a move the IMF welcomed as a step toward a freely floated currency.

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