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IMF Says China Will Have to Wait Longer for 'Reserve' Status, Yuan Drops

IMF Says China Will Have to Wait Longer for 'Reserve' Status, Yuan Drops

Ryan Cox,

Talking Points:

  • Evaluation of the Chinese Yuan’s IMF-approved reserve status was pushed back to September
  • The current review is expected to be complete by November, but the extension was granted
  • USD/CNH reaction much smaller than revaluation activity last week, but 0.4% rally in 6 months outside those days

The Chinese Yuan will have to wait until late 2016 before the IMF will consider it as a reserve currency to be included in in the SDR basket. The Executive Board of the IMF approved the, previously discussed, extension of current SDR basket until September 30, 2016. The review of the SDR basket valuation occurs every five years and was due for December 31, 2015 but will now be extended an additional nine months.

Any decision from the boards review in September 2016, affecting the current basket, would become effective in October 2016. The extension was expected as the board previously stated a need for an extension to facilitate a smooth transition for SDR related operations. If a decision to add the Yuan to the currency basket was made the extension would also allow sufficient time for users to make needed adjustment.

In comparison to the large moves made by the Yuan’s last week - after multiple sharp declines following the People’s Bank of China move to change its fixing mechanism - this expected extension had relatively small effect on the Yuan. However, excluding last week’s volatility, the 0.35 percent increase in USDCNH was the largest in six months. In the chart below, we can see the movement in the USDCNH compared to bigger moves during the change in exchange rate method early in the month.

IMF Says China Will Have to Wait Longer for 'Reserve' Status, Yuan Drops

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