IMF extends SDR update as eyes inclusion of China’s yuan

The fund had been expected to include the Chinese yuan currency into its supplementary foreign exchange reserve assets on January 1, 2016.

The international Monetary Fund (IMF) has said it is extending the current special drawing rights (SDR) valuation basket by nine months from 31 December to 30 September, 2016, deferring the widely-anticipated addition of the Chinese yuan to its benchmark currency basket. The lender formally reviews the composition and valuation of the SDR basket every five years.

When talking about ‘s recent reform in forex policy, which brought last week’s depreciation of the yuan, Rodlauer called the move praiseworthy as it allows a greater role for market forces in ‘s currency.

Unlike the other currencies in the basket, the yuan does not trade freely.

China has strict controls on capital flows across its borders and on the amount its currency can move against the dollar.

The new change has no “direct implications” in the measure used for creating that basket, the spokesman said. The onshore spot rate in Shanghai is currently limited to moves of 2 percent on either side of a daily fixing set by the PBOC.

China’s system of maintaining trading bands to limit the yuan’s fluctuations means the yuan can’t be deemed as freely usable, said Fraser Howie, co-author of “Red Capitalism”.

Washington has said that it hopes Beijing keeps reforming currency policies and meets the IMF’s criteria, but it has not tipped its hand on whether it will back any decision in November to add China.

China cut the yuan’s value against the dollar for a second day Wednesday, sending ripples through financial markets and raising fears that the currency could fall further.

“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. “It’s time for some stability”.