WASHINGTON, D.C.: The International Monetary Fund (IMF) said on Tuesday (Wednesday in Manila) that it needs to do “significant work” in reviewing the inclusion of China’s currency in its basket of “special drawing rights” reserve currency.
The Chinese government is seeking to expand use of the yuan, also known as the renminbi (RMB), by having it included in the SDR, an international reserve asset that currently is comprised by four currencies: the dollar, euro, pound and yen.
The IMF executive board, which represents the institution’s 188 member nations, will make its final decision in November, a senior IMF official said, speaking on condition of anonymity.
“The RMB’s international use has been increasing, albeit from a low base, since the last SDR valuation review,” the IMF said in a report.
According to the IMF, the yuan meets the criteria of being a currency used for widescale exports of goods and services. But other conditions remain to be examined.
“A key focus of the review will be the determination on whether the RMB is a freely usable currency,” the IMF said.
In the IMF view, a freely usable currency is determined by “the actual international use and trading of currencies,” not whether a currency is either freely floating or fully convertible.
The yuan is tightly controlled by the Chinese government, a thorn in the side of China’s relations with the United States, the IMF’s largest shareholder. The US government has long accused China of keeping the yuan undervalued to boost its exports.
“Significant work remains outstanding to inform the Board’s determination with regard to the RMB’s inclusion in the SDR basket,” the IMF report said.
In late May, the IMF said that it did not consider the yuan undervalued, and the Group of Seven economic powers said they unanimously agreed that the yuan should be included in the SDR basket, but the process should not be rushed.
The last time the SDR basket was modified was in 2000, when the euro replaced France’s franc and Germany’s deutschemark.
Whatever the outcome on the yuan decision, the IMF report proposed that the current SDR basket remain in force until September 30, 2016, and not expire as planned at the end of this year, to allow more time for SDR users to adapt to the new basket.
The IMF executive board is expected to decide on that extension in August.