China must wait until at least next year to join an exclusive club of the world’s top currencies, the IMF said on Wednesday.
The IMF board voted to leave unchanged until Sept. 30 next year a basket of currencies used in IMF operations, known as the Special Drawing Rights (SDR).
China, the world’s second- biggest economy, had wanted the IMF to include the yuan in the basket along with the US dollar, euro, British pound and Japanese yen starting on Jan. 1.
Unlike the other currencies in the basket, the yuan does not trade freely. China sets a daily target and lets the yuan trade 2 percent higher or lower.
The Washington-based IMF only conducts its SDR review every five years and that might have accelerated China’s efforts to get the yuan included.
Last week, Beijing devalued the yuan and said it would give market forces more say in determining the exchange rate — a move the IMF praised as a step in the right direction.
The yuan in Shanghai is now allowed to trade as much as 2 percent on either side of the People’s Bank of China’s (PBOC) reference rate.
The IMF, which rejected the yuan in 2010 on the grounds that it was not “freely usable,” called China’s move a “welcome step,” while cautioning the change had no direct effect on the SDR review.
The SDR basket is a virtual currency the IMF can use for emergency loans and the fund’s member countries can use to bolster their own reserves in times of crisis.
Joining the basket would give the yuan the IMF’s seal of approval and might encourage foreigners to use the Chinese currency and to have more confidence in China’s financial markets.
The yuan yesterday rose on speculation the PBOC intervened to support the currency after the IMF decision.
It closed 0.1 percent higher at 6.3890 per US dollar in Shanghai, according to China Foreign Exchange Trade System prices. It fell as much as 0.08 percent earlier.
In Hong Kong’s offshore market, the freely traded yuan fell 0.08 percent to 6.4465 per US dollar as of 4:51pm, according to data compiled by Bloomberg.
“The IMF executive board vote is slightly negative for the yuan today as the inclusion will be delayed,” said Banny Lam (林樵基), co-head of research at Agricultural Bank of China International Securities (中國農業銀行國際證券) in Hong Kong. “That said, any major yuan depreciation is unlikely in the near term after such a big adjustment last week. It’s time for some stability.”
Additional reporting by Bloomberg
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