Yuan is the reserve currency of the IMF. Yuan becomes IMF's new reserve currency Yuan becomes IMF's fifth reserve currency

Despite the good health and continued positive dynamics of the PRC economy, the Chinese yuan has not become the world's reserve currency, like the US dollar, euro, British pound, Japanese yen and Swiss franc.

Germans want yuan

However, all this does not detract from the interest in the Chinese currency, and an increasing number of countries are considering the possibility of using the yuan to place their reserves.

According to Bloomberg, the German Federal Bank (Bundesbank) has decided to include the Chinese yuan in Germany's international reserves.

The yuan is increasingly being used as the foreign exchange reserves of central banks, for example, the ECB has included the yuan in reserves, and other European central banks have also acted, said Andreas Dombret, board member of the Bundesbank.

According to him, this decision was made after investment by the European central bank(The Bundesbank is part of it) €500 million in yuan-denominated assets.

According to the expert, the fact is that the real indicator of the demand for a currency is the use of this currency in international settlements. In 2015, the share of settlements in yuan, according to the International Interbank Information Transfer and Payment System SWIFT, was about 3%, which made everyone talk about the bright prospects for the yuan after the IMF decision.

However, after that, for some reason, settlements in yuan did not grow, and even decreased to 1.5% at the end of 2017. And why? - Altynov asks a question. - But because one desire to declare the status is not enough. A place in international trade and world settlements still needs to be won. Meanwhile, the participants in this very trade have so far turned out to be skeptical about the currency of China. For example, due to the insufficiently free nature of its exchange rate. It's no secret that the Chinese Central Bank is using yuan manipulation to solve its macroeconomic problems. And China's still relatively closed economy allows it. Again, it is no coincidence that one of the US accusations against the Celestial Empire is a claim about the currency. Thus, the news about the decision of the Bundesbank is just another step of the yuan towards its recognition, but nothing more. Yuan has no place here

Indeed, in October 2017, the share of the Chinese currency in international settlements fell to its lowest level since April 2014. According to the SWIFT payment system, in October last year it fell to 1.46% from 1.85% in September. Which suggests the conclusion that the peak of confidence in the yuan was the moment of its recognition by the IMF, after which its share of its use was almost halved.

Today, the yuan occupies only the 7th place among the most popular world currencies.

The undisputed leader in world settlements and reserves today is the US dollar, which occupies 39.47% of the market. The second most important participant, the euro, is actively increasing its share. Its share in world settlements is 33.98%. It is followed by the British pound sterling - 7.71%, the Japanese yen - 2.92%, and the Swiss franc - 1.63%.

Despite the fact that some countries, including Germany, are not opposed to placing part of their reserves in yuan, in the foreseeable future it is hardly worth waiting for its inclusion in the list of major world reserve currencies.

The basket of currencies of the International Monetary Fund was replenished on November 30 with the fifth monetary unit. The Chinese yuan joined the US dollar, the euro, the Japanese yen and the British pound sterling. For the first time in financial history, a currency that is not even freely convertible has been recognized as a reserve currency.

China has been moving towards this for a long time. Appropriate calls from the country's leadership intensified in 2009, in the context of the global financial crisis. China got through the crisis much easier than other major world economies, maintaining fairly high growth rates. At the same time, China overtook Japan, becoming the second largest country in the world in terms of GDP and the third largest currency area (after the US and the eurozone).

At the same time, the IMF raised the issue of revising quotas for individual countries. By the end of the first decade of the 21st century, developing countries have sharply increased their weight in the world economy and demanded more rights for themselves when making decisions in the world's main financial institution. The foundation itself supported the idea and that's it. Required documents issued. However, the case stalled in the US Congress.

By accepting the yuan into the club of reserve currencies, the IMF compensated China for the hitch with the increase in quotas (it is the PRC that looks like the most affected party in this story, since its contribution to world GDP is much larger than that of other developing countries). At the same time, if the decision on quotas looked obvious, then with a basket of reserve currencies, not everything is so simple.

The yuan is still not a freely convertible currency in the classical sense of the word. Until recently, there were severe restrictions on the use of the yuan abroad, and the exchange rate is controlled very tightly, although now the country's financial authorities allow it to fluctuate on the exchange. Beijing has set up swap lines with other central banks to encourage transactions in their respective currencies. However, capital controls remain. According to the plans of the People's Bank of China published last month, it is supposed to be canceled only by 2020.

For China, its financial system and the yuan will not change much at first. Inclusion in the reserve basket means the free exchange of currency for special drawing rights (SDRs) of the IMF. There are not so many goods and services denominated in SDRs in the world, respectively, and the demand for the currency needed by companies to hedge such transactions is relatively small. As an example-exception, perhaps the payment for the passage of ships through the Suez Canal, which is estimated precisely in SDRs, can serve. In general, one should not expect a sharp increase in capital inflows in yuan or assets after the entry into force of the IMF decision (this will happen in autumn 2016) should not be.

Photo: Zhengyi Xie / Zumapress / Global Look

Rather, the situation is reversed: in the near future, the yuan will become somewhat cheaper. The main reason for this is the relatively weak economic statistics and the reduction of the country's positive balance of payments. In addition, the rules for trading the yuan have changed. Now the People's Bank of China, as well as abroad, assigns at the start of trading the price that was set by the last deal of the previous day. This is what previously led the yuan to depreciate by 2 percent. Let's also not forget about the prospect of raising the discount rate of the US Federal Reserve, which may cause an outflow of capital to America from other continents, and primarily from emerging markets.

Interestingly, China this time chose to spend several hundred billion dollars of its reserves rather than let its currency weaken too quickly. In the old days, he would have also helped her devalue. Now everything is different. First, Beijing is betting on the rise in domestic demand and a gradual departure from the traditional model of the export economy, which is rather hindered by the weak yuan. Secondly, the United States is now very carefully watching all the actions of the PRC with its own currency. A strong devaluation of the yuan will categorically not please Washington. And they are definitely not going to figure out whether this is a natural devaluation or an artificial one.

Be that as it may, the plans of the People's Bank include a smooth devaluation of the yuan by another 3-5 percent during the year. That's enough not to dampen domestic demand, and it won't make America angry. On the other hand, in this way it will be possible to more or less follow market trends without burning gold and foreign exchange reserves.

The long-term prospects for the yuan are much more interesting and unpredictable. A lot depends on how China will use its currency in its own international trade transactions. The share of the yuan in China's trade with the outside world is growing - from zero in 2010 to 25 percent in 2014. By the end of 2015, this indicator is expected to increase to about 30 percent.

As the circulation of the yuan in China's trade transactions expands, so will the demand for it in other transactions. Of course, full convertibility is required. However, there is no doubt that the PRC will move in this direction. And with the Chinese economy poised to reach 20 percent of the global economy in the next 10 years and equal the US at current exchange rates, the potential demand for the Chinese currency is enormous.

However, you need to understand that the dollar is popular not only because of the size of the American real economy. The demand for it is provided, among other things, by the huge size of the financial market and, accordingly, the liquidity that rotates on it. An investor can come to the US at any time and choose any type of securities to his liking. In Europe, it is somewhat more difficult, and in China it is even more difficult due to various restrictions. So it is too early to say that the yuan will replace the dollar. But China's entry into the elite club of the world's great financial powers on November 30, 2015, certainly took place.

The IMF has included the Chinese currency in the reserve basket. The share of the yuan in it will be 10.92%, which is more than the share of the British pound and the Japanese yen (8%). The US dollar will retain its leadership - almost 42%, in second place - the euro with a share of almost 32%. What will be the impact of the inclusion of the yuan in the SDR basket?

The yuan finally earned a spot in the reserve currency basket. It's like a membership card to a narrow circle of the elite club, which until now included only the dollar, euro, British pound and Japanese yen. There is a lot of symbolism here - the role of China is emphasized, says Alexander Dushkin, asset manager of the International Private Investment Fund.

Alexander Dushkin, Asset Manager, International Private Investment Fund
“If the yuan is included in this group, this indicates a symbolic achievement by China of a certain level. China as an economy corresponds in size. It can be expected that this will help China further reduce the cost of borrowing. They are on a certain road, which will be long. By 2020, China promises that it will achieve full convertibility of its currency, and then it will be possible to say that its reserve status is indeed fully disclosed. At the moment, the reserve value of the yuan is not tangible for many states, because access to government bonds and the debt market is difficult, it does not allow the status of a reserve currency to fully open up.

Gradually, transaction costs for China will decrease, because the need for double currency conversion will disappear - the yuan will be converted into many currencies. But this will not happen soon, and you should not expect an instant effect.

Special drawing rights or the SDR basket, which included the yuan, is only important for the operations of the International Fund, explains Sergey Romanchuk, head of money and foreign exchange operations at Metallinvestbank.

Sergey Romanchuk, Head of Money and Foreign Exchange Operations at Metallinvestbank
“The use of the SDR basket is somewhat limited and important to the operations of the International Monetary Fund. The use of the yuan by other central banks as a reserve currency is possible in the future, and the Bank of Russia has also included the Chinese yuan in the list of currencies in which gold and foreign exchange reserves (GFR) can be invested. However, as far as we know, the Central Bank has not yet made any physical purchases of yuan, and in the near future it is unlikely that there will be a significant share of gold reserves in yuan.”

The yuan is still not among the freely convertible currencies, despite the rather significant number of transactions in it. According to the regulation, it is divided into the intra-Chinese yuan and the Hong Kong yuan, which is mainly operated by international banks.

The flow of yuan between accounts is regulated by special legislation, which has undergone some tightening over the past few weeks. This was partly due to the outflow of capital and the collapse of the Chinese stock market - such an attempt to protect against outside international investors who bear their own risks to the economy. The inclusion of the yuan in the IMF reserve basket is an important event that China has been moving towards for a long time, but fundamentally it does not change anything.

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On October 1, 2016, there was an event that does not happen often in the international monetary and financial sphere, but which, of course, can be classified as signifying important structural changes and having far-reaching long-term consequences. The Chinese yuan is officially included in the basket of key international currencies, on the basis of which the value of special drawing rights (SDR) of the International Monetary Fund is calculated. The composition of the basket was last changed in 1999 in connection with the introduction of the euro.

In the new basket, the Chinese yuan squeezed out the yen and the pound, but the weight of the euro decreased most noticeably (by almost 6.5%). At the same time, the share of the US dollar practically did not change. The weight of currencies in the SDR basket after the inclusion of the yuan was distributed as follows:

- US dollar - 41.73% (41.9% before the inclusion of the yuan);

- euro - 30.93% (37.4%);

- Chinese yuan - 10.92%;

- Japanese yen - 8.33% (9.4%);

- British pound - 8.09% (11.3%).

De facto, this event means that from now on the yuan is put on a par with the US dollar, the euro, the Japanese yen and the British pound. At the same time, for the first time, the national currency is included in the basket of IMF reserve currencies. developed country, as it was before, and emerging market countries. In addition, the yuan is not yet a freely convertible currency. The Chinese authorities will strive to increase the convertibility of the yuan by 2020. According to other forecasts, the process of transition to full convertibility of the yuan may be delayed for 10-15 years.

According to IMF Managing Director K. Lagarde, the inclusion of the yuan in the basket of reserve currencies is of historical importance for the SDR, the IMF, China and the international monetary system. In China, the inclusion of the national currency in the SDR basket is regarded as an important turning point, which will become a catalyst for the growth of demand for the yuan around the world, and therefore will contribute to its further internationalization and fulfillment of the mission of improving the international monetary system.

The mere fact that the Chinese currency is included in the IMF basket does not automatically make the yuan the world's reserve currency. However, this event reflects and reinforces the progress that China has made in reforming its monetary, financial and monetary systems, and is also a recognition of China's role and importance in the global economy.

The consequences of including the Chinese currency among the reserves will fully manifest themselves only in the long term and may turn out to be very large-scale and significant for the global monetary and financial system. Theoretically, the very fact of inclusion can contribute to the already ongoing process of expanding the international use of the yuan, removing a number of technical barriers along the way. However, with regard to the Chinese currency, experts' opinions are divided on the possible consequences. Some believe that there will be no dramatic changes in the short term, at least until China further liberalizes the financial sector and makes the yuan freely convertible. Others believe that the demand for the Chinese currency and investments in the yuan will grow in the near future.

To date, the Chinese yuan is already part of the official foreign exchange reserves: according to the IMF, 38 of the 130 central banks of the world have already included the yuan in their reserves. According to the latest survey conducted by the IMF, the share of the yuan in the gold reserves of central banks was less than 1.1%, which is less than the shares of the Australian and Canadian dollars. The US dollar accounts for 63.4% of global reserves (open structure), the euro 20.2%, the British pound and yen under 5% each, and the Canadian and Australian dollars just under 2%.

The inclusion of the yuan in the IMF basket will help increase demand for the Chinese currency from central banks and other public investors (for example, sovereign wealth funds) in order to diversify their foreign exchange holdings. According to some estimates, the share of the yuan in world reserves may increase to 5% by 2020 (over 375 billion dollars), which will bypass the reserves in the British pound and the Japanese yen. Although world central banks are not obliged to repeat the structure of the IMF basket, but if we assume that the increase in investments will be correlated with the share of the yuan in this basket (10.9%), then its share in world reserves may be higher and amount to about 800 billion dollars (or about half of the current assets of central banks in euros).

Following official state structures, private institutional investors may also show interest in the yuan. The growth of their investments in yuan assets by only 1% can lead to an increase in demand for them by 2020 by almost 200 billion dollars.

In general, according to the most conservative estimates, the expected growth in demand for assets denominated in Chinese currency by 2020 from public and private investors may amount to about $600 billion, and according to more optimistic forecasts, up to $1 trillion. USD

In order to facilitate transactions with the yuan abroad, China in last years actively creates offshore clearing centers - the so-called. "yuan hubs". The clearing center allows non-residents to access yuan and various financial instruments denominated in yuan, make payments and settlements in yuan with Chinese companies and banks, including on a clearing basis. At present, China already has over 20 overseas clearing centers around the world, including both neighboring countries (South Korea, Thailand, Malaysia) and European countries (UK, Germany, France, Luxembourg), as well as Australia, Canada, Qatar, Chile. In September 2016, the New York branch of the Bank of China became the clearing bank for yuan transactions in the United States, and the Moscow ICBC Bank (the Russian subsidiary of the Chinese ICBC Bank) became the clearing bank for yuan transactions in Russia.

According to SWIFT, in the total volume of payments passing through this international system, the share of the yuan in July-August of this year was 1.9%, which provided it with the fifth position among the world's leading currencies after the dollar, euro, pound and yen. The lag behind the yen, which is in fourth place, which accounts for about 3.4% of settlements, is still large and it is difficult to predict when this gap will be overcome.

In August 2015, the yuan already overtook the Japanese yen and ranked fourth among the world's leading currencies with a record settlement share of 2.79%. However, the subsequent devaluation of the yuan, along with the still high volatility of the Chinese currency and the slowdown in the Chinese economy, have made the yuan less popular as a unit of account. Of course, the share of the yuan in international settlements is incomparably small compared to both the dollar (40-42% of payments) or the euro (30-31%), and the share of China in the world economy and trade. At the same time, one should not deny the impressive growth in the international use of the yuan in recent years. If at the beginning of 2013 it ranked 13th with a share of 0.63% of international settlements, at present the yuan ranks fifth or sixth in this indicator. According to the results of the first half of 2016, the yuan is the second settlement currency after the yen in the Asia-Pacific region. At the same time, the gap between currencies is minimal.

According to the Bank for International Settlements (BIS), the yuan is the most traded currency in emerging markets on the international foreign exchange market. The average daily turnover of the yuan in the forex market in terms of the dollar from April 2013 to April 2016 almost doubled - from 110 to 202.0 billion dollars. During this period, transactions with Chinese currency increased from 2.2% to 4% of the average daily turnover of the forex market.

The trend of wider international use of the yuan, which has formed in recent years, allows us to consider it as one of the most important for the world monetary and financial market since the introduction of the euro. Consequently, it could not fail to find appropriate international recognition in the form of inclusion in the IMF basket. At the same time, the inclusion of the Chinese currency in the pool of reserve currencies imposes additional obligations on the PRC to increase transparency in terms of disclosing the structure of its foreign exchange reserves and gold reserves. In particular, so far China has only partially disclosed the structure of its reserves, but is expected to gradually increase transparency in this matter. In the same vein, it is worth considering the ongoing work between the BIS and the relevant Chinese structures to improve the provision of statistics on the Chinese banking system.

The yuan is actually on initial stage a long, complex and multifaceted process of moving towards the status of a full-fledged reserve currency, including numerous problems and risks, as well as ups and downs. It is hardly worth expecting a sharp change in demand for yuan in the short term, and China is not yet striving for this under the current conditions. Further liberalization of the capital market is difficult for the PRC due to the continued high risk of capital outflow, which can have a negative impact on the economy of the Middle Kingdom, and through it the entire world economy. It is fundamentally important for China to stabilize the situation in the monetary and financial market, and this takes time. Currency stability and time are also required for investors to believe in the reliability of the yuan. It can be assumed that, taking into account the current trends, in the near future, China will rather prefer to take a wait-and-see attitude, concentrating efforts on solving short-term problems, while reducing the pace of internationalization of the yuan.

The inclusion of the yuan in the IMF basket can be viewed from different angles. This is both a step towards further integration of China into the international monetary and financial system, and at the same time a definite message towards Beijing, designed to convince him of the need for further steps towards the free convertibility of the yuan.

The composition of the IMF basket is now more diversified and comprehensively reflects the current position of world currencies and the state of the global economy, which will provide it with additional protection from exchange rate volatility and increase its significance for the global economy.

China, on the other hand, reaffirms its intention to participate more actively in resolving issues of the global monetary and financial agenda and, at the same time, its readiness not to deviate from the path of reforms and further liberalization of the financial market. At the same time, China has an understanding that in the future the international community will evaluate China's financial reforms by higher standards and in accordance with a higher level of international responsibility.

This is a conditional unit of account of the fund, issued by the IMF in non-cash form. Its scope is limited to accounts within the IMF. SDR plays the role of additional liquidity needed to regulate the balance of payments of the member countries of the fund, to cover the deficit of their balance of payments, as well as international reserves and settlements on IMF loans. All these operations are carried out only at the interstate level or between the government of countries and the IMF.

01.10.2016

Yuan in the IMF basket

A year later, the decision of the International Monetary Fund to include the yuan in its basket of currencies came into force. This will give the Chinese currency and, to a certain extent, the entire Chinese financial system even more credibility, importance and influence. The Chinese authorities are trying to turn the yuan into a "global" currency, which, for example, is the US dollar. The current decision of the IMF is an important step towards this goal.

The exchange rates of the currencies included in the basket, and today, in addition to the yuan, this is the US dollar, the euro - 30, the Japanese yen and the British pound sterling, are used to calculate the current quotation of the SDR, the IMF's estimated domestic currency.

In the IMF basket, the yuan in terms of the percentage share of the yuan immediately took a place in the middle (about 11%), ahead of the yen (8.33%) and the pound sterling (8.09%); but yielding to the dollar (41.73%) and the euro (30.93%).

02.12.2015

Included in SDR basket

The Chinese government's efforts to have the yuan included by the International Monetary Fund in the basket of SDR currencies (Special Drawing Rights - Special Drawing Rights), that is, become the Reserve Currency, were rewarded. Now different states will be able to take loans from the IMF in yuan, use it in international payments, to form reserves. However, the main benefits for the People's Republic of China from this are mainly image-related, and the economic and financial benefits are indirect.

In the IMF's currency basket itself, the Yuan will become the third largest (11%) - after the Dollar and the Euro, and will outstrip the Pound Sterling and the Japanese Yen.

The IMF decision will not come into force immediately, but in a year - in October 2016. By this time, the country still has to fulfill a number of conditions, but all of them are in line with the actions and transformations that the government has been carrying out over the past few years, trying to comply with the rules and requirements of the IMF.

17.06.2015

Clear perspectives

There are currently four world reserve currencies whose status has been confirmed by the IMF: the US dollar, the European euro, the British pound sterling and the Japanese yen.

China has long set itself the goal of getting the International Monetary Fund to include the yuan in the "special drawing rights" basket. True, at the beginning of this year, the United States, represented by its Ministry of Finance, opposed it, citing several objective reasons. And yet, few people have any doubts that this will happen. Even if the IMF does not make a decision this year, then next year or 2017 - this will happen for sure.

Essentially, for a national currency to qualify as a reserve currency and be included in the SDR basket, it must meet only three basic conditions:

1. Its issuer must be a major global exporter.

2. It should serve as a common means of international payments.

3. She herself must also bargain widely.

The yuan "overfulfilled" the first two conditions: back in 2013, China became the world's largest exporter, and settlements on trade transactions with it are often paid in its national currency (already almost a quarter of all volumes). Even our domestic Rosneft recently announced its desire to take loans in yuan.

So far, things are not so good with the last requirement. It was in this aspect that the United States expressed its claims, calling for the weakening of financial control and the transfer of the yuan to a floating rate. So far, the Chinese currency in the light of the requirements of the IMF is not fully "freely usable." Its rate is no longer tied to the dollar, but fluctuates rather weakly. And still China restricts the free movement of capital.

However, this problem is partially mitigated by other actions of the Chinese leadership. In particular, the yuan is actively provided to other countries through their central banks through currency swaps.

And if you look at the situation as a whole, it becomes obvious that the directed efforts of the world's largest economy in terms of purchasing power parity cannot go unnoticed. Moreover, not so long ago the leadership of the IMF stated that they "share China's aspirations."

China will receive additional benefits from the new status of its currency. This is an even greater increase in the share of trade settlements in yuan, and an increase in the prestige of both the state itself and its financial institutions, including banks. Which, in turn, will lead to an even greater increase in the role of the national currency in the world and, ultimately, to strengthening the financial and economic power of the country.

All this should be taken into account by potential investors, since the expected economic growth associated with this expected event will certainly affect the value of Chinese assets.