https://www.scmp.com/business/article/2186536/world-slowly-drifting-away-us-dollar-reserve-currency
Donald Gasper
The world is slowly drifting away from the US dollar as the sole reserve currency
Donald Gasper
Published: 6:52pm, 17 Feb, 2019
Updated: 11:43pm, 17 Feb, 2019
TOP PICKS
The US dollar remains the dominant global reserve currency. Photo: EPA
There is growing resentment with the way the United States uses the privileged status of its currency within the international financial system as an instrument of its national policies. The latest expression of this came on February 1, when Germany, France and Britain launched an EU-backed payments system to help businesses circumvent unilateral US sanctions against Iran. Named the Instrument for Supporting Trade Exchanges, it is designed to act as a kind of euro-denominated clearing house for trade with Tehran.
Meanwhile, more than 60 central banks are showing strong interest in increasing their foreign reserves in the Chinese yuan and diversifying away from the US dollar. In June 2017 the European Central Bank for the first time switched 500 million euros (US$564.78 million) of its foreign exchange reserves from US dollars to yuan. According to the International Monetary Fund (IMF), during the third quarter of 2018 holdings of yuan assets by global central banks increased to US$192.54 billion, 1.8 per cent of all reserves.
France’s central bank and the German Bundesbank recently included the yuan in their foreign exchange reserves. The central banks of Belgium and Slovakia already possess yuan assets, while those of Spain and Switzerland have also expressed their interest in the currency. Central banks in Africa, Central and Southeast Asia have even bigger shares of their foreign exchange reserves in yuan.
It was reported in January that during the second quarter of 2018, joining the trend, the Bank of Russia twice reduced the amount of its foreign exchange held in US dollars and moved the equivalent of US$44 billion each into euros and yuan, with another US$21 billion invested in the Japanese yen. The share of Russian foreign exchange reserves held in yuan has increased from five to 15 per cent. That means that Russia’s yuan share is about 10 times the average for global central banks, with its total holdings of the currency constituting about a quarter of world yuan reserves.
Standard Chartered Bank predicts that the yuan, currently the world’s sixth most used currency for payments (its share in global payments stood at 1.7 per cent in October 2018), will be the fourth most used by 2020, after the US dollar, the euro and the pound. According to the People’s Bank of China, US$545.5 billion (3.71 trillion yuan) worth of cross-border trade was settled in yuan in the first three quarters of 2018.
A section of the China-Laos Railway near Luang Prabang under construction on October 21, 2018. Construction works are being carried out by the China Railway Group. Photo: Bloomberg
Share:
The Beijing-led “Belt and Road Initiative” envisages the introduction of swap facilities in the countries of the region involved. China has bilateral currency-swap agreements with more than 30 countries and a lot of belt and road participants signed or renewed such agreements in 2018. There is now an opportunity for China to promote settlement in yuan or other national currencies with belt road partners and other countries too. It is already switching to national currencies in bilateral trade with Russia, Iran and Pakistan and has also signalled support for Turkey’s plan to drop the dollar.
SUBSCRIBE TO SCMP Today: HK Edition
Get updates direct to your inbox
By registering for these newsletters you agree to our T&C and Privacy Policy
The world’s largest importer of crude oil and its second largest consumer, China in 2018 launched its first crude oil futures contract denominated in yuan on the Shanghai Stock Exchange. There is talk of creating a yuan-denominated benchmark for oil (with the emergence of the so-called petroyuan), and Iran, Russia, Saudi Arabia and Venezuela are ready to accept yuan and national currencies for the settlement of oil purchases.
By 2020 the yuan will be the sixth most used currency for payments while the euro will rank second behind the US dollar, according to Standard Chartered Bank. Photo: SCMP
Share:
Despite all the risks of currency fluctuations this is the way to establish a global rival for WTI (West Texas Intermediate) and Brent crude oil benchmarks and to reducing the dominance of the US dollar in commodities trade.
As China has emerged as the world’s second largest economy it is natural for this to be reflected in the international status of the yuan. This does not mean that the yuan is likely in the near future to displace the greenback like the US dollar displaced the British pound as the world’s leading currency after the second world war. What is more likely is that the US dollar will become just one of several leading currencies including the yuan.
“Ultimately, we will have reserve currencies other than the US dollar,” the Bank of England Governor Mark Carney predicted last month.
Donald Gasper is a Hong Kong-based analyst and commentator
This article appeared in the South China Morning Post print edition as: Yuan may rival dollar as reserve currency
https://gbtimes.com/chinese-yuan-strengthens-in-reserve-currency-market
Chinese yuan strengthens in reserve currency market
by Craig Houston Oct 03, 2018 13:27 FINANCE MARKETS CHRISTINE LAGARDE
The Chinese yuan now accounts for 1.84 percent of the world's foreign exchange reserve market. China News Service
in the 2012 anti-corruption campaign, corrupt high-level officials were known as 'tigers' and those at grassroots were called 'flies'. Read more
The Chinese yuan has strengthened its position as a global reserve currency, despite the ongoing trade war with the US.
The share of Chinese currency in the second quarter of 2018 rose to 1.84 percent, allowing it to leapfrog the Australian dollar and become the sixth most popular in the world.
Yuan assets increased for the fourth straight quarter to US$193.4bn, according to International Monetary Fund (IMF) data.
However, it is still some way behind the ‘Big Three’ currencies – namely the US dollar, the euro and the Japanese yen – with the British pound sterling and Canadian dollar also slightly ahead.
The US dollar decreased slightly to 62.25 percent, its lowest level since 2013, with the euro sitting at 20.26 percent and the yen third with a global share of 4.97 percent.
Chris Leung, a Hong Kong economist at DBS Bank told the South China Morning Post that: “Some central banks see the uncertainty emanating from the trade war as temporary only, and remain positive over China’s long-term outlook. They may actually be adding to their yuan holdings because the currency has fallen so much, making it a cheap investment.”
Related Articles
At the time, IMF managing director Christine Lagarde said: “The expansion of the SDR basket is an important and historic milestone for the SDR, the Fund, China and the international monetary system. It is a significant change for the Fund, because it is the first time since the adoption of the euro that a currency is added to the basket."
However, Lagarde, who is still in the role, adopted a much more cautionary tone on Monday when talking about the global growth. She pointed out that: “History shows that, while it is tempting to sail alone, countries must resist the siren call of self-sufficiency – because as the Greek legends tell us, that leads to shipwreck.”
https://www.reuters.com/article/us-imf-china-idUSKBN0TJ24Q20151201
IMF gives China's currency prized reserve asset status
Krista Hughes
5 Min Read
WASHINGTON (Reuters) - The International Monetary Fund admitted China’s yuan into its benchmark currency basket on Monday, in a victory for Beijing’s campaign for recognition as a global economic power.
The decision to add the yuan, also known as the renminbi, to the Special Drawing Rights (SDR) basket alongside the dollar, euro, pound sterling and yen, is an important milestone in China’s integration into global finances and a nod to the progress it has made with reforms.
To meet the IMF’s criteria, Beijing has undertaken a flurry of reforms in recent months, including better access for foreigners to Chinese currency markets, more frequent debt issuance and expanded yuan trading hours.
IMF chief Christine Lagarde, who along with in-house experts had previously given her support for the inclusion, made it clear she did not expect Beijing to stop there.
Related Coverage
“The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented,” she told reporters.
The People’s Bank of China said the move, which was backed by countries including the United States, Britain and Japan, showed the international community expected China to play a bigger role in the world economy.
“Going forward, China will continue to deepen and accelerate economic reforms and financial opening up, and contribute to promoting world economic growth, safeguarding financial stability and improving global economic governance,” it said in a statement.
The PBOC’s vice governor Yi Gang said he expected the inclusion would make the yuan more stable and there was no basis for it to devalue further, as some traders had expected.
“LANDMARK RECOGNITION”
An IMF official said it was not IMF policy to disclose board voting records, but a person familiar with the IMF deliberations said approval had been unanimous.
The yuan CNH= CNY= will have a 10.92 percent share, in line with expectations, after a review of the weightings formula for the SDR that also cut the euro's share by more than 6 percentage points.
An editorial in China’s official Xinhua news agency said the decision was a “landmark recognition” of China’s increased role in the global economy.
“The Chinese yuan clearly deserves a place in that grouping. China is the world’s second-biggest economy and top trader, and its currency is liquid and stable enough to serve as a store of value,” it added.
To be included in the SDR basket, the yuan had to meet the criteria to be “freely usable”, or widely used to make international payments and widely traded in foreign exchange markets, a yardstick it missed at the last review in 2010.
The yuan’s inclusion from October 2016 is largely symbolic, with few immediate implications for financial markets. But it is the first time an additional currency has been added to the SDR basket, which determines which currencies countries can receive as part of IMF loans.
“Ultimately China would like to see, as a number of countries would, the dollar end its reign as the global reserve currency,” said Malcolm Polley, chief investment officer at Stewart Capital Advisors.
“That won’t happen until there is another currency that from a geopolitical standpoint is as secure as the dollar.”
A woman takes pictures of new 100 yuan banknotes she withdrew from a bank in Hangzhou, Zhejiang province, China, November 12, 2015. REUTERS/Stringer
EURO MAKES ROOM
The new SDR formula gives more weight to financial variables and less to exports, reflecting long-standing criticism of the methodology but also cutting the euro’s share to 30.93 percent, from 37.4 percent.
The yuan will come in with a higher weight than sterling and yen, which will drop to 8.09 percent and 8.33 percent respectively, while the dollar remains broadly unchanged at 41.73 percent.
The addition is likely to fuel demand for China’s currency and for renminbi-denominated assets as central banks and foreign fund managers adjust their portfolios to reflect the yuan’s new status.
Moody’s Investors Service said it would give a confidence boost for investors in yuan assets and it expected more yuan-denominated bonds from non-Chinese issuers in China, and an increase in Beijing’s quotas for cross-border investment channels.
But analysts said investors would nevertheless remain cautious as long as China did not fully liberalize capital controls or allow the currency to float freely.
“‘Freely usable’ meant freely usable to reserve managers and available to official institutions,” said Steven Englander, head of G10 foreign exchange strategy at Citi in New York.
“But if you look at the normal definition of liquidity, the point is not that just you and your mates can use it but that the whole world can use it.”
The IMF said China’s comparatively higher interest rates would likely increase the SDR interest rate, potentially pushing up the cost of IMF loans for some borrowers.
http://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4
https://www.bloomberg.com/news/arti...e-yuan-may-unwind-china-s-move-toward-markets
U.S. Push for Stable Yuan May Unwind China's Move Toward Markets
By
Saleha Mohsin
and
Katherine Greifeld
February 20, 2019, 12:00 PM GMT+8 Updated on February 20, 2019, 5:49 PM GMT+8
Unmute
Current Time 0:10
/
Duration Time 3:55
Captions
China Beige Book Says First Quarter Recovery `Unmistakable'
Ben Simpfendorfer, CEO of Silk Road Associates, talks about the spats between the U.S. and China.
LISTEN TO ARTICLE
4:22
SHARE THIS ARTICLE
Share
Tweet
Post
Email
In this article
CNY
China Renminbi Spot
6.7120
CNY
-0.0270-0.4007%
President Donald Trump may finally get to deliver on his campaign promise to address China’s management of its currency for what he has insisted is its trade advantage. But it would mean an about-face on almost a decade of global economic policy.
The U.S. is said to have asked China to keep its currency stable as part of a new trade deal, a move aimed at discouraging officials in Beijing from devaluing the yuan to offset the impact of American tariffs. That request is at odds with years of global pressure on China, from the Group of 20 economies in particular, to move toward a free-floating currency.
Under such a shift, China’s exchange rate and bilateral trade surplus would serve as a way to monitor that promises are being kept, with tariffs as the threat should the Chinese falter. Adopting a U.S. request to prevent big swings in the yuan’s value would turn back the clock on progress China has made in recent years toward letting the forces of supply and demand have a bigger influence on the currency’s level.
“After years of asking China to become a more market-driven economy, the Trump administration would be explicitly asking the Chinese to set aside market forces when it comes to exchange-rate determination,” said Eswar Prasad, a Cornell University trade professor and former International Monetary Fund economist. “That’s a worrying precedent.”
Bloomberg Economics’ Take: Pact Would Only Mean More Flash Points
By removing the risk of a sharp yuan depreciation, the U.S. would help ensure that a trade truce between the two nations will shrink the bilateral trade imbalance, according to former U.S. Treasury official Brad Setser.
A weaker Chinese currency reduces the cost of goods manufactured in China and entices U.S. firms to buy more from Chinese suppliers. That means that even if the Asian nation agreed to buy more U.S. goods, a weakening yuan could negate the benefits to the U.S., Setser said.
Weaponized Yuan
The rift between the world’s two largest economies saw the offshore yuan weaken over 5 percent in 2018, drawing Trump’s ire and raising speculation that China was deliberately weakening its currency. The yuan has rebounded about 2 percent so far this year.
“It’s definitely a way of keeping the pressure on China -- forcing them to keep the renminbi stable, while also making the removal of 10 percent tariffs contingent on implementation,” said Robin Brooks, an economist at the Institute of International Finance in Washington.
China “will not use the renminbi exchange rate as a tool to deal with trade disputes,” Chinese Foreign Ministry spokesman Geng Shuang said at a Wednesday briefing in Beijing.
“We will not engage in a currency depreciation,” Geng said. “We hope the U.S. can respect market rules and objective facts and not politicize the exchange rate issue.”
Pressuring China to anchor its currency is against their interests, Brooks pointed out. Chinese policy makers have been encouraging a flexible exchange rate since 2015, when it was agreed that the yuan would be added to a basket of currencies that IMF member nations can count on toward official reserves -- a move toward global prestige.
“It goes against the grain of where China wants to go on monetary policy,” said Mark Sobel, a former U.S. executive director at the IMF and longtime Treasury official who is now a chairman at the Official Monetary and Financial Institutions Forum, a think tank in Washington.
Officials from the two countries are discussing how to address currency policy in a “Memorandum of Understanding” that would form the basis of a deal that ultimately will have to be approved by President Donald Trump and his Chinese counterpart Xi Jinping, Bloomberg News reported.
The U.S., Not China, Is the Real Currency Manipulator: Shuli Ren
While the precise wording remains unresolved, a pledge of yuan stability has been discussed in multiple rounds of talks in recent months and both sides have tentatively agreed it will be part of any final deal. Negotiations resume this week in Washington and are scheduled to continue through Friday as a March 1 deadline for higher U.S. tariffs approaches.
U.S. Treasury officials, including Secretary Steven Mnuchin and Undersecretary of International Affairs David Malpass, have participated in trade talks with China, with currency policy a key interest to oversee. China’s central bank Governor Yi Gang has also attended some meetings.
While a currency pledge and enforcement of it could be an important piece of any trade deal, Sobel said it’s a difficult mechanism to design. If the yuan depreciates, for instance, the U.S. Treasury Department would have the unenviable task of determining the culprit.
“The easiest way to resolve this is for China to do the genuine structural reforms that the U.S. is pushing for,” Brooks said. “The U.S. in effect wants appreciation of the renminbi and tariffs are one way to enforce that.”
— With assistance by James Mayger
(Adds China Foreign Ministry comment in ninth paragraph.)
Donald Gasper
The world is slowly drifting away from the US dollar as the sole reserve currency
- More than 60 central banks are showing interest in increasing their foreign reserves in Chinese yuan
- In future, the US dollar may be viewed as just one of several leading currencies alongside the yuan
Donald Gasper
Published: 6:52pm, 17 Feb, 2019
Updated: 11:43pm, 17 Feb, 2019
TOP PICKS
The US dollar remains the dominant global reserve currency. Photo: EPA
There is growing resentment with the way the United States uses the privileged status of its currency within the international financial system as an instrument of its national policies. The latest expression of this came on February 1, when Germany, France and Britain launched an EU-backed payments system to help businesses circumvent unilateral US sanctions against Iran. Named the Instrument for Supporting Trade Exchanges, it is designed to act as a kind of euro-denominated clearing house for trade with Tehran.
Meanwhile, more than 60 central banks are showing strong interest in increasing their foreign reserves in the Chinese yuan and diversifying away from the US dollar. In June 2017 the European Central Bank for the first time switched 500 million euros (US$564.78 million) of its foreign exchange reserves from US dollars to yuan. According to the International Monetary Fund (IMF), during the third quarter of 2018 holdings of yuan assets by global central banks increased to US$192.54 billion, 1.8 per cent of all reserves.
France’s central bank and the German Bundesbank recently included the yuan in their foreign exchange reserves. The central banks of Belgium and Slovakia already possess yuan assets, while those of Spain and Switzerland have also expressed their interest in the currency. Central banks in Africa, Central and Southeast Asia have even bigger shares of their foreign exchange reserves in yuan.
It was reported in January that during the second quarter of 2018, joining the trend, the Bank of Russia twice reduced the amount of its foreign exchange held in US dollars and moved the equivalent of US$44 billion each into euros and yuan, with another US$21 billion invested in the Japanese yen. The share of Russian foreign exchange reserves held in yuan has increased from five to 15 per cent. That means that Russia’s yuan share is about 10 times the average for global central banks, with its total holdings of the currency constituting about a quarter of world yuan reserves.
Standard Chartered Bank predicts that the yuan, currently the world’s sixth most used currency for payments (its share in global payments stood at 1.7 per cent in October 2018), will be the fourth most used by 2020, after the US dollar, the euro and the pound. According to the People’s Bank of China, US$545.5 billion (3.71 trillion yuan) worth of cross-border trade was settled in yuan in the first three quarters of 2018.
A section of the China-Laos Railway near Luang Prabang under construction on October 21, 2018. Construction works are being carried out by the China Railway Group. Photo: Bloomberg
Share:
The Beijing-led “Belt and Road Initiative” envisages the introduction of swap facilities in the countries of the region involved. China has bilateral currency-swap agreements with more than 30 countries and a lot of belt and road participants signed or renewed such agreements in 2018. There is now an opportunity for China to promote settlement in yuan or other national currencies with belt road partners and other countries too. It is already switching to national currencies in bilateral trade with Russia, Iran and Pakistan and has also signalled support for Turkey’s plan to drop the dollar.
SUBSCRIBE TO SCMP Today: HK Edition
Get updates direct to your inbox
By registering for these newsletters you agree to our T&C and Privacy Policy
The world’s largest importer of crude oil and its second largest consumer, China in 2018 launched its first crude oil futures contract denominated in yuan on the Shanghai Stock Exchange. There is talk of creating a yuan-denominated benchmark for oil (with the emergence of the so-called petroyuan), and Iran, Russia, Saudi Arabia and Venezuela are ready to accept yuan and national currencies for the settlement of oil purchases.
By 2020 the yuan will be the sixth most used currency for payments while the euro will rank second behind the US dollar, according to Standard Chartered Bank. Photo: SCMP
Share:
Despite all the risks of currency fluctuations this is the way to establish a global rival for WTI (West Texas Intermediate) and Brent crude oil benchmarks and to reducing the dominance of the US dollar in commodities trade.
As China has emerged as the world’s second largest economy it is natural for this to be reflected in the international status of the yuan. This does not mean that the yuan is likely in the near future to displace the greenback like the US dollar displaced the British pound as the world’s leading currency after the second world war. What is more likely is that the US dollar will become just one of several leading currencies including the yuan.
“Ultimately, we will have reserve currencies other than the US dollar,” the Bank of England Governor Mark Carney predicted last month.
Donald Gasper is a Hong Kong-based analyst and commentator
This article appeared in the South China Morning Post print edition as: Yuan may rival dollar as reserve currency
https://gbtimes.com/chinese-yuan-strengthens-in-reserve-currency-market
Chinese yuan strengthens in reserve currency market
by Craig Houston Oct 03, 2018 13:27 FINANCE MARKETS CHRISTINE LAGARDE
The Chinese yuan now accounts for 1.84 percent of the world's foreign exchange reserve market. China News Service
in the 2012 anti-corruption campaign, corrupt high-level officials were known as 'tigers' and those at grassroots were called 'flies'. Read more
The Chinese yuan has strengthened its position as a global reserve currency, despite the ongoing trade war with the US.
The share of Chinese currency in the second quarter of 2018 rose to 1.84 percent, allowing it to leapfrog the Australian dollar and become the sixth most popular in the world.
Yuan assets increased for the fourth straight quarter to US$193.4bn, according to International Monetary Fund (IMF) data.
However, it is still some way behind the ‘Big Three’ currencies – namely the US dollar, the euro and the Japanese yen – with the British pound sterling and Canadian dollar also slightly ahead.
The US dollar decreased slightly to 62.25 percent, its lowest level since 2013, with the euro sitting at 20.26 percent and the yen third with a global share of 4.97 percent.
Chris Leung, a Hong Kong economist at DBS Bank told the South China Morning Post that: “Some central banks see the uncertainty emanating from the trade war as temporary only, and remain positive over China’s long-term outlook. They may actually be adding to their yuan holdings because the currency has fallen so much, making it a cheap investment.”
Related Articles
-
IMF adds Chinese yuan to basket of reserve currencies
The International Monetary Fund (IMF) has added the Chinese yuan to its basket of reserve currencies, signalling the international community’s recognition of China’s key role in the global economy.
Sep 30, 2016 16:56 finance
At the time, IMF managing director Christine Lagarde said: “The expansion of the SDR basket is an important and historic milestone for the SDR, the Fund, China and the international monetary system. It is a significant change for the Fund, because it is the first time since the adoption of the euro that a currency is added to the basket."
However, Lagarde, who is still in the role, adopted a much more cautionary tone on Monday when talking about the global growth. She pointed out that: “History shows that, while it is tempting to sail alone, countries must resist the siren call of self-sufficiency – because as the Greek legends tell us, that leads to shipwreck.”
https://www.reuters.com/article/us-imf-china-idUSKBN0TJ24Q20151201
IMF gives China's currency prized reserve asset status
Krista Hughes
5 Min Read
WASHINGTON (Reuters) - The International Monetary Fund admitted China’s yuan into its benchmark currency basket on Monday, in a victory for Beijing’s campaign for recognition as a global economic power.
The decision to add the yuan, also known as the renminbi, to the Special Drawing Rights (SDR) basket alongside the dollar, euro, pound sterling and yen, is an important milestone in China’s integration into global finances and a nod to the progress it has made with reforms.
To meet the IMF’s criteria, Beijing has undertaken a flurry of reforms in recent months, including better access for foreigners to Chinese currency markets, more frequent debt issuance and expanded yuan trading hours.
IMF chief Christine Lagarde, who along with in-house experts had previously given her support for the inclusion, made it clear she did not expect Beijing to stop there.
Related Coverage
“The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented,” she told reporters.
The People’s Bank of China said the move, which was backed by countries including the United States, Britain and Japan, showed the international community expected China to play a bigger role in the world economy.
“Going forward, China will continue to deepen and accelerate economic reforms and financial opening up, and contribute to promoting world economic growth, safeguarding financial stability and improving global economic governance,” it said in a statement.
The PBOC’s vice governor Yi Gang said he expected the inclusion would make the yuan more stable and there was no basis for it to devalue further, as some traders had expected.
“LANDMARK RECOGNITION”
An IMF official said it was not IMF policy to disclose board voting records, but a person familiar with the IMF deliberations said approval had been unanimous.
The yuan CNH= CNY= will have a 10.92 percent share, in line with expectations, after a review of the weightings formula for the SDR that also cut the euro's share by more than 6 percentage points.
An editorial in China’s official Xinhua news agency said the decision was a “landmark recognition” of China’s increased role in the global economy.
“The Chinese yuan clearly deserves a place in that grouping. China is the world’s second-biggest economy and top trader, and its currency is liquid and stable enough to serve as a store of value,” it added.
To be included in the SDR basket, the yuan had to meet the criteria to be “freely usable”, or widely used to make international payments and widely traded in foreign exchange markets, a yardstick it missed at the last review in 2010.
The yuan’s inclusion from October 2016 is largely symbolic, with few immediate implications for financial markets. But it is the first time an additional currency has been added to the SDR basket, which determines which currencies countries can receive as part of IMF loans.
“Ultimately China would like to see, as a number of countries would, the dollar end its reign as the global reserve currency,” said Malcolm Polley, chief investment officer at Stewart Capital Advisors.
“That won’t happen until there is another currency that from a geopolitical standpoint is as secure as the dollar.”
A woman takes pictures of new 100 yuan banknotes she withdrew from a bank in Hangzhou, Zhejiang province, China, November 12, 2015. REUTERS/Stringer
EURO MAKES ROOM
The new SDR formula gives more weight to financial variables and less to exports, reflecting long-standing criticism of the methodology but also cutting the euro’s share to 30.93 percent, from 37.4 percent.
The yuan will come in with a higher weight than sterling and yen, which will drop to 8.09 percent and 8.33 percent respectively, while the dollar remains broadly unchanged at 41.73 percent.
The addition is likely to fuel demand for China’s currency and for renminbi-denominated assets as central banks and foreign fund managers adjust their portfolios to reflect the yuan’s new status.
Moody’s Investors Service said it would give a confidence boost for investors in yuan assets and it expected more yuan-denominated bonds from non-Chinese issuers in China, and an increase in Beijing’s quotas for cross-border investment channels.
But analysts said investors would nevertheless remain cautious as long as China did not fully liberalize capital controls or allow the currency to float freely.
“‘Freely usable’ meant freely usable to reserve managers and available to official institutions,” said Steven Englander, head of G10 foreign exchange strategy at Citi in New York.
“But if you look at the normal definition of liquidity, the point is not that just you and your mates can use it but that the whole world can use it.”
The IMF said China’s comparatively higher interest rates would likely increase the SDR interest rate, potentially pushing up the cost of IMF loans for some borrowers.
http://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4
https://www.bloomberg.com/news/arti...e-yuan-may-unwind-china-s-move-toward-markets
U.S. Push for Stable Yuan May Unwind China's Move Toward Markets
By
Saleha Mohsin
and
Katherine Greifeld
February 20, 2019, 12:00 PM GMT+8 Updated on February 20, 2019, 5:49 PM GMT+8
- Request for currency stability made in ongoing trade talks
- Currency pledge runs counter to a decade of global pressure
Unmute
Current Time 0:10
/
Duration Time 3:55
Captions
China Beige Book Says First Quarter Recovery `Unmistakable'
Ben Simpfendorfer, CEO of Silk Road Associates, talks about the spats between the U.S. and China.
LISTEN TO ARTICLE
4:22
SHARE THIS ARTICLE
Share
Tweet
Post
In this article
CNY
China Renminbi Spot
6.7120
CNY
-0.0270-0.4007%
President Donald Trump may finally get to deliver on his campaign promise to address China’s management of its currency for what he has insisted is its trade advantage. But it would mean an about-face on almost a decade of global economic policy.
The U.S. is said to have asked China to keep its currency stable as part of a new trade deal, a move aimed at discouraging officials in Beijing from devaluing the yuan to offset the impact of American tariffs. That request is at odds with years of global pressure on China, from the Group of 20 economies in particular, to move toward a free-floating currency.
Under such a shift, China’s exchange rate and bilateral trade surplus would serve as a way to monitor that promises are being kept, with tariffs as the threat should the Chinese falter. Adopting a U.S. request to prevent big swings in the yuan’s value would turn back the clock on progress China has made in recent years toward letting the forces of supply and demand have a bigger influence on the currency’s level.
“After years of asking China to become a more market-driven economy, the Trump administration would be explicitly asking the Chinese to set aside market forces when it comes to exchange-rate determination,” said Eswar Prasad, a Cornell University trade professor and former International Monetary Fund economist. “That’s a worrying precedent.”
Bloomberg Economics’ Take: Pact Would Only Mean More Flash Points
By removing the risk of a sharp yuan depreciation, the U.S. would help ensure that a trade truce between the two nations will shrink the bilateral trade imbalance, according to former U.S. Treasury official Brad Setser.
A weaker Chinese currency reduces the cost of goods manufactured in China and entices U.S. firms to buy more from Chinese suppliers. That means that even if the Asian nation agreed to buy more U.S. goods, a weakening yuan could negate the benefits to the U.S., Setser said.
Weaponized Yuan
The rift between the world’s two largest economies saw the offshore yuan weaken over 5 percent in 2018, drawing Trump’s ire and raising speculation that China was deliberately weakening its currency. The yuan has rebounded about 2 percent so far this year.
“It’s definitely a way of keeping the pressure on China -- forcing them to keep the renminbi stable, while also making the removal of 10 percent tariffs contingent on implementation,” said Robin Brooks, an economist at the Institute of International Finance in Washington.
China “will not use the renminbi exchange rate as a tool to deal with trade disputes,” Chinese Foreign Ministry spokesman Geng Shuang said at a Wednesday briefing in Beijing.
“We will not engage in a currency depreciation,” Geng said. “We hope the U.S. can respect market rules and objective facts and not politicize the exchange rate issue.”
Pressuring China to anchor its currency is against their interests, Brooks pointed out. Chinese policy makers have been encouraging a flexible exchange rate since 2015, when it was agreed that the yuan would be added to a basket of currencies that IMF member nations can count on toward official reserves -- a move toward global prestige.
“It goes against the grain of where China wants to go on monetary policy,” said Mark Sobel, a former U.S. executive director at the IMF and longtime Treasury official who is now a chairman at the Official Monetary and Financial Institutions Forum, a think tank in Washington.
Officials from the two countries are discussing how to address currency policy in a “Memorandum of Understanding” that would form the basis of a deal that ultimately will have to be approved by President Donald Trump and his Chinese counterpart Xi Jinping, Bloomberg News reported.
The U.S., Not China, Is the Real Currency Manipulator: Shuli Ren
While the precise wording remains unresolved, a pledge of yuan stability has been discussed in multiple rounds of talks in recent months and both sides have tentatively agreed it will be part of any final deal. Negotiations resume this week in Washington and are scheduled to continue through Friday as a March 1 deadline for higher U.S. tariffs approaches.
U.S. Treasury officials, including Secretary Steven Mnuchin and Undersecretary of International Affairs David Malpass, have participated in trade talks with China, with currency policy a key interest to oversee. China’s central bank Governor Yi Gang has also attended some meetings.
While a currency pledge and enforcement of it could be an important piece of any trade deal, Sobel said it’s a difficult mechanism to design. If the yuan depreciates, for instance, the U.S. Treasury Department would have the unenviable task of determining the culprit.
“The easiest way to resolve this is for China to do the genuine structural reforms that the U.S. is pushing for,” Brooks said. “The U.S. in effect wants appreciation of the renminbi and tariffs are one way to enforce that.”
— With assistance by James Mayger
(Adds China Foreign Ministry comment in ninth paragraph.)
