| SHANGHAI, Sept 30
SHANGHAI, Sept 30 China's yuan will formally
join the U.S. dollar, the euro, the Japanese yen and the British
pound as a global reserve currency on Saturday, in a key
milestone in the country's long campaign to boost its clout on
the global stage.
The yuan, also know as the renminbi or "people's money",
will be officially added by the International Monetary Fund
(IMF) to its currency basket as the Communist Party celebrates
the founding of the People's Republic of China in 1949.
The move itself is not expected to move financial markets
much, as it was announced last year, but it will put Beijing's
often opaque economic and foreign exchange policy increasingly
in the international spotlight as central banks add yuan assets
to their official reserves.
China stunned markets by devaluing the currency last year
and has since allowed the yuan to weaken to near
six-year lows, adding to worries about already feeble global
Some China watchers also fear that Beijing's commitment to
further market opening and financial sector reforms will fade
after its diplomatic success.
U.S. Treasury Secretary Jack Lew stressed that risk on
Thursday, saying the yuan is still "quite a ways" from true
global reserve currency status. While recognizing "enormous"
change in China in the last 10 years that had made the currency
more open, Lew said the government still had work to do.
"Being part of the SDR basket at the IMF is quite a ways
away from being a global reserve currency," he said, referring
to the "special drawing rights" basket that forms the IMF's unit
To be sure, China has continued liberalising sections of its
domestic markets, including opening up its interbank bond market
to all "medium and long term" investors in February.
But many analysts feel the overall reform agenda has lost
steam, as the government becomes more concerned about steadying
the economy after growth last year slowed to a 25-year-low.
"The renminbi's SDR status confirms the recognition by the
international community of China's economic ascendancy and
structural reform efforts. This should act as an external force
and a confidence booster for China to push for more reforms,"
Chi Lo, Senior Economist for Greater China at BNP Paribas
Investment Partners in Hong Kong, wrote in a note.
"However, it seems this strategic importance has faded as
Beijing has downgraded the priority of structural reforms since
the IMF board decision last year in exchange for upgrading GDP
growth as the top policy priority."
Unlike other currencies in the IMF's global basket, the yuan
remains highly controlled.
Questions also remain on how China manages its value,
despite repeated pledges to give markets more influence in
the daily fixing by the central bank. Spot trading in the
currency rarely deviates much from that morning midpoint rate.
Traders say state banks still sometimes intervene on behalf
of the central bank to support the currency when it moves too
While authorities are widely suspected of steadying the
currency ahead of a summit of G20 leaders in China in September
and the Oct. 1 SDR inclusion, downward pressure remains.
Earlier this year, Reuters reported that Chinese
policymakers would tolerate a fall in the yuan to 6.8 per dollar
in 2016, which would mean a 4.5 percent fall for the year.
The yuan is currently at 6.67 to the dollar, 2.7 percent
weaker than at the beginning of the year.
"The inclusion of the renminbi in the IMF's SDR will have
minimal impact on foreign demand for renminbi assets and
therefore offers little support for the Chinese currency,"
Capital Economics said in a note this week.
"If anything, the risk is that official intervention to keep
the renminbi stable ahead of its inclusion will subsequently be
paired back, allowing for renewed deprecation."
The SDR was originally envisioned as a possible alternative
reserve currency to the dollar, but it has struggled to gain
traction over the past several decades despite widespread
dissatisfaction with the dollar's dominance.
(Reporting By Nathaniel Taplin; Editing by Kim Coghill)