October 15, 2015 / 7:49 AM / 2 years ago

CNH TRACKER-China steps up bid get yuan into the IMF currency basket

HONG KONG, Oct 15 (Reuters) - China is stepping up efforts to have its currency included in the International Monetary Fund’s Special Drawing Rights basket by selling a slew of offshore yuan bonds beyond Hong Kong and by resolving some technical issues.

The IMF is scheduled to make a decision next month.

Two state-owned banks - China Construction Bank and Agricultural Bank of China - completed bond issuances in London this week, in a move to further expand the yuan’s global footprint.

The People’s Bank of China (PBOC) and the Ministry of Finance plan to issue sovereign bonds denominated in yuan in London ahead of President Xi Jinping’s visit to Britain this month.

The issues will be the first sovereign yuan bond sales outside China and Hong Kong. It will make investments in yuan products easier for Western investors as most of the so-called dim sum bonds are listed on the Hong Kong Stock Exchange.

Meanwhile, in China’s domestic market, the Finance Ministry has started to regularly auction three-month bills on a weekly basis, aiming to activate short-tenor government bond market.

“The availability of three-month government bond yield is one prerequisite for a currency to play a role in SDR operation,” said Xiangrong Yu, an analyst at China International Capital Corporation (CICC).

The reference interest rates for the U.S. dollar, the euro, the sterling and the yen in the current SDR basket are all three-month spot rates for central government bonds in these four regions, he said.

In Yu’s view, there’s a higher than 70 percent chance that the yuan will be added to the SDR basket in November.

On the foreign exchange front, China plans to extend the trading hours for the yuan to 2330 local time (1530 GMT) to cover the European trading session, three sources with direct knowledge of the matter told Reuters on Wednesday.

It will clear another operational barrier, as the IMF calculates the basket currencies’ FX value at noon London time, when China markets are shut. With the coming change, there will be trading in China when the basket value is set.

Market players are divided on whether the yuan will be added to the basket, as the IMF said in August the currency had a way to go to meet operational requirements and it would freeze the SDR basket until October next year.

But if global rankings of currency usage provide any guidance, the yuan has already broken into the top four as a world payment currency, surpassing the yen and only behind the other three SDR currencies.

Chinese officials made a fresh push for the yuan’s inclusion last week amid queries on increasing volatility of its currency after the PBOC engineered a sharp depreciation on Aug. 11.

Yi Gang, China’s deputy central bank governor, told the International Monetary and Financial Committee (IMFC) that steps to improve transparency of Chinese data, develop representative foreign exchange and interest rates as well as open interbank markets helped address concerns.

WEEK IN REVIEW:

* Hong Kong Exchanges and Clearing Limited (HKEx) said on Monday it plans to introduce its second group of London metal mini futures contracts denominated in the yuan for nickel, tin and lead, pending regulatory approval.

* The Monetary Authority of Singapore (MAS) said on Tuesday existing cross-border yuan initiatives between Singapore and the China-Singapore Suzhou Industrial Park and Singapore-Sino Tianjin Eco-City will be broadened to the cities of Suzhou and Tianjin.

* Persistent depreciation of the yuan would be inconsistent with China’s economic fundamentals, PBOC Deputy Governor Yi Gang said on Friday.

* China’s yuan firmed nearly 0.4 percent on Monday, its strongest one-day gain since March.

CHART OF THE WEEK:

China's yuan is now the fourth most-used world payment currency: link.reuters.com/buf85w

RECENT STORIES: China’s yuan seen to play a bigger role as funding currency

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Editing by Richard Borsuk

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