China's financial reform plans sufficient to support yuan's inclusion into SDR

WASHINGTON - Experts are cautiously optimistic that China's plans for further financial reforms would be sufficient to help its currency renminbi (yuan) meet the International Monetary Fund's (IMF) criteria for joining its benchmark currency basket later this year.

"I don't think China is going to do anything radically this year, especially after the stock market correction. But I think China's own plans for reforms are probably sufficient to include the yuan in SDR (special drawing rights) this year," David Dollar, senior fellow with the Brookings Institution and former official of the World Bank and the US Treasury Department, told Xinhua in an interview.

Last week, IMF Managing Director Christine Lagarde also expressed confidence in China's financial reforms, saying the recent market turmoil in China wouldn't derail the IMF's discussion on whether to include the yuan in its SDR basket.

"We are very comforted by that determination of Chinese authorities to deliver on the reforms, which will be conducive, one day, when the times come, once all the signals are checked positively, to the renminbi being included in the special drawing rights basket," she said.

Earlier this year, Lagarde said the yuan's inclusion in the SDR basket was not "a matter of if, but when", and the IMF would work on this with Chinese authorities.

As part of the review process, the Executive Directors of the IMF held an informal meeting last week to discuss a staff report that laid out the initial considerations for reviewing the yuan's SDR qualifications.

The report, released Tuesday and paved the way for a final decision on the SDR review later this year, hailed China's progress on the internationalization of the yuan since the last review of the SDR basket in 2010.

"Other currencies have not experienced substantial changes in their relative prominence, underscoring that the rise of the yuan is the most significant development in international currency use since the last review," the report said. "This notion is also supported by other contextual information such as the rising global network of yuan swap lines and the rapid growth in yuan payments from offshore clearing centers to the mainland."

The international use of the yuan is vital for the IMF to decide whether the yuan is a "freely usable" currency, an important criterion for admission into the SDR. At the last IMF review in 2010, the yuan met the export criterion, but was assessed as not meeting the "freely usable" criterion.

"If the yuan were determined to be a freely usable currency, it would play a more central role in the Fund's financial operations going forward, and it would qualify for inclusion in the SDR basket," the report said.

Zhou Xiaochuan, governor of the People's Bank of China, said in April that China will carry out a series of reforms to further increase the capital account convertibility of yuan, and make the currency more "freely usable".

Some experts believed that the yuan now meets the requirement of being "freely usable".