Yuan’s inclusion could spark big reshuffle
- By Dan Steinbock
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E-mail Shanghai Daily, September 15, 2015
In early august, the IMF was asked to delay its yuan inclusion until September 2016. But even if China misses the cut in fall 2015, there is a high likelihood of an interim review that will grant the yuan SDR status before 2020.
What does it all mean?
In the near-term, the yuan’s inclusion in the IMF reserve currency basket may be small. It would involve the reweighing of the IMF’s SDR basket, which amounts to almost US$30 billion. Currently, the US dollar accounts for 42 percent and the euro for 37 percent of the total, whereas the British pound and Japanese yen are about 9-11 percent each.
However, the long-term consequences of the yuan’s inclusion would be huge.
An endorsement by the IMF could unleash a significant, though gradual, reweighing of the entire global reserve portfolio, which today amounts to some US$11.6 trillion. It is also likely that non-public, private investors would follow in the central banks’ footprints, especially as China’s capital markets grow more efficient and liquid.
If, initially, the renminbi would be 10 percent of the IMF reserve currency bas-ket, along with Japanese yen and British pound, then the position of the US dollar could decrease to 38 percent and the euro to 34 percent, respectively.
Assuming the global reserve portfolio would mimic these shifts, some 10 per-cent of the global reserves — more than US$1.1 trillion — could flow into yuan assets. That would herald a new era in the global capital markets.
The yuan’s adoption as a major reserve currency is now a matter of time. In the short-term, it means increased volatility. In the medium-term, it has potential to support China’s rebalancing and thus growth prospects globally.
The author is a columnist with China.org.cn. For more information please visit: http://www.keyanhelp.cn/opinion/DanSteinbock.htm
