Yuan Begins Post-SDR Run With Little Fanfare as China on Holiday

  • Entry will spur leaders to push ahead wih reforms, HSBC says
  • Chinese policies driven more by domestic factors: Macquarie

Quiet Start for Yuan as a Global Reserve Currency

The yuan began its first trading day as a global reserve currency with little fanfare, barely moving in overseas markets as Chinese investors stayed away on a week-long holiday.

The currency entered the IMF’s Special Drawing Rights on Saturday -- the basket’s first revision since 1999 -- in a move that HSBC Holdings Plc said will fuel financial liberalization in China. The inclusion is a recognition of the nation’s efforts to implement reforms in its monetary, foreign-exchange and financial systems, Siddharth Tiwari, director of the International Monetary Fund’s strategy, policy and review department, said in comments posted on the lender’s website.

China has taken several steps to open up its economy recently, allowing foreigners greater access to its $6.4 trillion onshore interbank bond market, scrapping quota restrictions on an inbound investment program and increasing communication with the market. Still, it retains strict currency controls by limiting onshore moves around a daily reference rate and through suspected direct intervention in the foreign-exchange market.

“China’s monetary policy is driven by domestic fundamentals,” said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. in Singapore. “The economy remains moribund, and among the easiest paths to easier monetary conditions is through a weaker currency. SDR has little to do with currency strength or weakness over time.”

The yuan has weakened 2.7 percent against the dollar this year, the most in Asia, and dropped almost 7 percent versus a trade-weighted gauge as policy makers were seen encouraging declines to help an economy expanding at the slowest pace in more than two decades. Recent data on manufacturing, industrial profits and retail sales suggest that growth is stabilizing, if not picking up.

The yuan traded in Hong Kong’s offshore market was unchanged at 6.6773 per dollar as of 4:54 p.m. local time, according to data compiled by Bloomberg. The onshore rate closed at 6.6745 on Friday. Chinese markets will be shut the whole of this week.

For a Timeline listing the yuan’s key events since 1948, click here.

Being part of the SDR is a highly anticipated moment for China, which has been pushing for the status since at least 2009, according to a research note sent out by HSBC. Describing the inclusion as a “historic milestone,” IMF Managing Director Christine Lagarde said in a statement Friday that it reflects the progress that the Asian country has made in reforming its financial systems and liberalizing markets.

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