Renminbi Gets Global Currency Basket Upgrade

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A worker counts renminbi into Chinese currency at a bank in Linyi, eastern China’s Shandong province. [Photo/Xinhua]

Still remains in third place behind the dollar, the euro but ahead of the yen, the pound

Strengthening the renminbi’s position as a key global reserve asset will further boost the Chinese currency’s accelerated march toward a more central role in the international financial governance system, officials and experts said.

Nevertheless, more reforms and opening up of China’s financial markets are still needed for the renminbi to become a global currency recognized like the US dollar and the euro, they added.

Effective Monday, the International Monetary Fund raised the renminbi’s weighting in the basket of currencies that make up the Special Drawing Rights, an international reserve asset also known as the SDR, by 1.36 percentage points to 12, 28%.

The IMF took the decision to increase the weighting based on the development of global trade and financial markets from 2017 to 2021. After the increase in weighting, the Chinese currency continues to hold the third largest global share in the SDR basket, behind the dollar and the euro but ahead of the Japanese yen and the pound sterling.

Evidence of the accelerated progress of the renminbi’s integration into the global financial governance system, experts said the increased weighting will help increase foreign holdings of renminbi-denominated assets and bolster market confidence in the change.

Zhang Liqing, director of the Center for International Financial Studies, which is part of the Central University of Finance and Economics, said the upgrade marks the latest progress in the internationalization of currency.

As an emerging international currency, the roles of the renminbi as a medium of international transactions, a pricing unit and a reserve currency, have emerged to varying degrees, although it still lags quite far behind the dollar and the euro. Mr. Zhang said.

The renminbi maintained its position as the fifth most active currency for global payments in June, with a 2.17% share, compared to 2.15% a month earlier, according to the Society for Worldwide Interbank Financial Telecommunication, or SWIFT.

As for the renminbi’s function as a reserve currency, its share of global foreign exchange reserves rose to 2.88% in the first quarter, ranking fifth in the world and marking the highest reading since the IMF announced. started publishing the numbers in 2016.

Moreover, the Chinese currency has also played a bigger role in safeguarding global financial stability, as the Bank for International Settlements announced in June that it would develop a renminbi liquidity arrangement. The arrangement will act as a yuan reserve pool, from which participating central banks can obtain renminbi liquidity when needed to weather market volatility.

The internationalization of the renminbi has been boosted somewhat by the questioning of the credibility of the dollar, while the renminbi can additionally serve as a safe-haven currency in the event of a global economic downturn, Zhang said.

“Most importantly, China’s ability to seize these opportunities depends on the country’s ability to make more positive progress in deepening reform and opening up, especially in terms of financial opening up,” he said. Zhang.

At a meeting of the State Foreign Exchange Administration on Thursday, it was decided that deepening reform and opening up the foreign exchange market will be one of the main tasks of the country’s foreign exchange regulator in the second semester.

The administration will improve the management of foreign investors’ funds in the domestic bond market and expand pilot programs to facilitate cross-border financing, said a statement released after the meeting.

Wang Chunying, deputy director of SAFE, said there is significant potential for foreign investors to further increase their holdings of renminbi-denominated assets, with the increased weighting of the renminbi in the SDR basket demonstrating recognition and the international community’s confidence in the Chinese economy and financial markets. .

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