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Chinese yuan on track to be included in IMF basket: HSBC

LONDON: China’s yuan “ticks all the right boxes” for inclusion in the International Monetary Fund’s SDR list of global reserve currencies, the biggest international bank in China, HSBC, said in a report on Tuesday.

The report by the bank’s chief strategist Paul Mackel comes ahead of discussions within the Fund next month on whether to include the yuan, or renminbi, in the basket behind the Special Drawing Rights, a virtual currency that values IMF reserves and emergency payouts to members.

Britain and other members of the Group of 20 leading economies are jostling for position as financial partners for China and have made positive noises about the inclusion of the yuan, which bankers say would be a turning point for trading of the currency.

Japan has been more cautious, but U.S. Treasury Secretary Jack Lew, who sounded sceptical earlier this year, last month voiced an openness to “a positive review”, as long as China carried out promised reforms.

Beijing has made steady progress on moves to widen the yuan’s use internationally. Sources told Reuters earlier this week that Beijing would soon extend trading of the yuan in China to overlap with European trading hours, encouraging more use of the yuan and supporting its case with the IMF.

“Some of the recent reforms are well-timed to support the RMB’s bid for inclusion in the IMF’s Special Drawing Right (SDR) basket,” Mackel said.

“Others set the stage for the RMB to play a more important global role over the longer term. (…) The RMB is ticking all the right boxes to be included in the IMF’s Special Drawing Right.”

After China’s roughly 3 percent devaluation of the yuan in early August sent a shockwave through global financial markets, however, he cautioned on the outlook for the currency’s value in the near term. There might be a small boost for the yuan from inclusion in the SDR basket, but a decision not to might more clearly weaken the currency.

“Confidence in the RMB and, hence, voluntary reserve diversification flows into China could rise with the endorsement of SDR inclusion,” Mackel said. “But this process has already been taking place. RMB inclusion is likely to be neutral to positive, but the converse is very likely to be negative.”

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