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China's further inclusion in global financial system

CCTV.com

10-01-2016 00:13 BJT

China's yuan will officially join the International Monetary Fund's SDR basket on Saturday. Financial experts say the inclusion is first and foremost a recognition of the substantial reform efforts conducted by Chinese monetary authorities. They also say it's a step up in international status for the yuan.

"The Renminbi is already, for a number of years, very much an international currency. Of course, China has also, particularly last year, taken additional measures to allow the inclusion of the Renminbi into the SDR," said Jurgen Conrad, head of Econ. Unit, Asian Development Bank.

"I think the RMB joining the SDR will indeed be a milestone for China but also for the international financial system. It in effect recognizes the progress that has been made on the reform side in China over the past couple of years," said Alfred Schipke, Chief China Representative, IMF.

The development is a major step forward for China's inclusion in the world financial system, though the short-term benefits might not be huge. That's primarily because the SDR is still very limited in circulation.

"The amount of SDR in circulation is now a little bit more only than 200 billion US dollars, which is very small compared to China's international reserves of more than 3 trillion US dollars," Jurgen Conrad said.

Conrad said that since China now has a stake in the SDR, the country should promote reforms of the multi-currency basket. He said China should push for the basket to become more substantial and popular internationally, making the yuan's inclusion go beyond a symbolic move.

Officials from the International Monetary Fund said that the real issue isn't just the yuan joining the SDR. They say what really matters is what the Chinese government will do with it.

"I think the critical part here is how the reforms will move forward, both for RMB internationalization and also in terms of the implications for the Chinese economy," Alfred Schipke said.

"So, these are questions more related to how the capital account is to be continued to gradually open, how the financial system is strengthened. So, these are important aspects rather than the fact that come October 1st, the RMB joins the SDR basket."

What's next? Schipke said the future of the yuan's internationalization will depend mostly on private sector behaviour. That is usually linked more to the performance of the Chinese economy, and whether the reforms will continue moving forward as planned.

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