The IMF should put off any move to add the yuan to its benchmark currency basket until after September next year, IMF staff said in a report which showed a mixed performance of the yuan on meeting key financial norms.
The report, published on Tuesday, came after Beijing launched a major diplomatic push for the yuan to be added to the IMF’s Special Drawing Rights (SDR) basket as part of its long-term strategic goal of reducing dependence on the US dollar.
The IMF board is scheduled to make a decision in November on whether to include the yuan in a basket of currencies comprising US dollars, euros, British pounds and yen, although the decision could be pushed back if policymakers decide they need more information.
Delaying any change in the basket for nine months through September next year would avoid disrupting financial market trading on the first day of the new year, the report said.
A senior IMF official said reserve asset managers would need about six months notice to adjust to a change.
The yuan meets the requirements as a significant currency in terms of international trade, but also has to be judged to be “freely usable,” or widely used to make international payments and readily traded on foreign-exchange markets.
The report shows a mixed performance on financial criteria. Although the currency is increasingly used in cross-border transactions and heavily traded in Asia, it is only thinly traded in North America and is not commonly used in international debt securities. Data was missing for some variables, the report said.
The senior IMF official said there was no set checklist of indicators to guide the decision and no “off-on” switch on whether the yuan would make the grade at the planned review, but he said politics would play no role in the decision, which will govern the mix of currencies that countries like Greece receive as part of disbursements from the IMF.
“They should be able to use it directly or they should be able to sell it immediately,” the official said.
Analysts interpreted the IMF delay differently, with some inferring the IMF wanted to see a more freely traded yuan before including it as a reserve currency. Others said the delay seemed technical, aimed at giving the market more time to prepare.
“The IMF article implies a large likelihood of SDR inclusion — otherwise the technical preparation would not be necessary,” UBS economist Wang Tao (王濤) said in a note to clients.
IMF managing director Christine Lagarde has said that adding the yuan to the basket is a “question of when.”
Chinese Premier Li Keqiang (李克強) in March asked Lagarde to push for inclusion, saying Beijing would speed up the convertibility of the yuan on the capital account, and open domestic individual cross-border investment and foreign institutional investment in China’s capital market.
Siddharth Tiwari, director of the IMF’s strategy, policy and review department, said in a document released with the report on Tuesday that the IMF executive board would decide on the yuan extension proposal later this month.
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