BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/47
The decision hinges on the free usability of yuan. China in recent months has rapidly dismantled currency controls and deregulated its financial and forex markets to meet IMF criteria. The IMF notes that now Chinese officials have eliminated remaining operational barriers to wider use of the yuan. The yuan already met the IMF “major exporter” criterion in the last quinquennial review of SDR; i.e. the size of China’s export share in global commerce was already sufficient.
As the fifth SDR currency, the yuan would be on par with the US dollar, euro, British pound and Japanese yen, and thereby signal the heightened role of China in the global economy. How the IMF decision affects international acceptance of the yuan will depend on how other actors perceive China’s and the yuan’s development. While becoming an SDR currency is unlikely to have much immediate economic impact, the decision supports China’s reform policies and increased use of the yuan over the long term. Since joining the WTO, China has demonstrated that it can follow international trade rules. It is hard to imagine that China would want perception of the yuan in a worse light than other major currencies.
While the trend to greater international use of the yuan is unquestionable, the transition to the new operating environment is unlikely to be straightforward or free of setbacks. This week the People’s Bank of China instructed clearing banks abroad (window guidance) to limit the capital exports from China. The measure helps to support the yuan’s exchange rate ahead of the IMF’s SDR decision.