China to work with IMF on SDR evaluation, top official says

Chinese authorities will work actively with the International Monetary Fund ahead of its decision on whether to include the renminbi in its special drawing rights (SDR) basket later this year, the country's chief foreign exchange regulator has said.

The comments by Wang Yungui, head of the State Administration of Foreign Exchange's policy and regulations department, were made at a press conference yesterday (June 17).

"China will actively push for SDR entry and assist the IMF on the evaluation," Wang said, according to state news agency Xinhua.

The remarks follow reports that an IMF team was in China for technical discussions with authorities over the past week. The IMF is expected to announce the results of the SDR review, which is carried out every five years, in October.

Speaking in Beijing in March, IMF managing director Christine Lagarde said it was "not a question of if" the renminbi will be added to the reserve currency basket, but "a question of when".

Those remarks were followed by first deputy managing director David Lipton's announcement last month that the IMF no longer considers the renminbi undervalued – a change in stance that some believe signals a move towards SDR inclusion.

‘Nobody expecting full convertibility'

But Lipton also urged the Chinese authorities to make "rapid progress" toward greater exchange rate flexibility, telling them to "aim to achieve an effectively floating exchange rate within two to three years".

Full convertibility is one of the criteria a currency must meet to be included in the SDR basket, but exactly what that means in practice is more difficult to tell.

"Nobody is expecting 100% [full convertibility], the case is how to make [the renminbi] more convertible," said Nathan Chow, a China economist at DBS in Hong Kong.

The technical discussions likely relate to "how to buy and sell assets [across borders] and make them more convertible in order to meet the criteria," he said. 

Given that convertibility by most accounts is a long-term proposition, however, these discussions may not yet be very technical.

"They go there to sense the willingness of the government to liberalise markets. To see to what extent they can be improved," Chow said.