China’s yuan strengthened amid speculation it will win reserve-currency status in an IMF review this year.
China is making the currency more convertible under the capital account and hopes the yuan can be included in the fund’s reserve currencies, People’s Bank of China Governor Zhou Xiaochuan (周小川) told IMF managing director Christine Lagarde at a forum in Beijing on Sunday.
In response, Lagarde said the yuan “clearly belongs” in the Special Drawing Rights basket and that the IMF would work with China to that end.
The yuan rose 0.06 percent to 6.2027 yuan to the US dollar as of 10:45am in Shanghai yesterday, China Foreign Exchange Trade System prices showed.
The central bank raised its daily fixing by 0.08 percent to 6.1448, the strongest since Feb. 26. The gap between the spot rate and the fixing was little changed at 0.9 percent, within the central bank’s 2 percent limit.
“The Chinese government’s aim to internationalize the yuan and Zhou’s recent comments gave the yuan a boost, which will be short-term,” Shanghai-based Xiangcai Securities (湘財證券) strategist Zhu Lixu (朱禮旭) said by telephone. “Because China’s economic fundamentals are weak and the US dollar will remain strong, the yuan still faces downside pressures in the long run.”
The offshore yuan fell 0.12 percent to 6.2107 yuan to the US dollar in Hong Kong, after a record weekly advance of 1.3 percent, according to data compiled by Bloomberg.
The composition of the SDR basket is reviewed every five years. In 2010, the IMF decided that the yuan could not be added because it was not freely usable.
Zhou said yuan controls have since eased, adding that foreign investors are allowed to trade Shanghai-listed stocks through a link with Hong Kong’s exchange and overseas funds have greater access to Chinese stocks and bonds.
He added that rules on Chinese citizens investing as individuals overseas are set to be relaxed, and further progress would be made this year to increase the yuan’s convertibility under the capital account.
Twelve-month non-deliverable yuan forwards strengthened 0.06 percent to 6.3788, 2.8 percent weaker than the spot rate in Shanghai.
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