In Uncategorized 

Hale Ali’i November 30, 2015 at 7:52 am

China is on the brink of a major milestone, and the consequences for global markets are huge

Small pips in a currency have the ability to make an entire country’s goods cheaper or more expensive to the rest of the world in an instant.

And in this age of international finance, the cost financing and value of debt balances can swing massively.

This brings us to China, the world’s second-largest economy, where the country’s currency — the renminbi — could see its status in the world change.

Inclusion in the IMF’s special-drawing-rights basket

China has been all over the news with August’s currency devaluation and the Shanghai Composite’s dramatic moves.

Since then, investors and companies have been concerned about what exactly China means for growth prospects. Some have even attributed their weaker third-quarter numbers to it.

But there’s another, largely overlooked thing financiers should keep an eye on:

China wants to get its renminbi into the International Monetary Fund’s reserve-assets classification known as the special drawing rights, or the SDR. And its inclusion or exclusion could have major ramifications in the global markets.

On Wednesday, Lombard Street Research hosted a conference partially dedicated to analyzing the impact of China’s liberalization on financial markets. Several speakers specifically mentioned China’s desire for the yuan’s inclusion in the SDR as a key thing to watch.

Though inclusion in the basket may not immediately strike investors and casual onlookers as that important, that’s definitely not how China sees the situation, according to Diana Choyleva, Lombard Street Research’s chief economist and head of research.

“The IMF is about to decide whether to include the yuan in its SDR basket,” she said at the event. “As far as I’m concerned, if the yuan is accepted, and the omens are good now, this will mark the start of China’s full integration into global financial markets.”