China is well placed to meet the criteria for inclusion in the International Monetary Fund's benchmark currency basket, the country's representative at the international lender said on Friday. Beijing has launched a major diplomatic push for the yuan's inclusion in the IMF basket as part of its long-term strategic goal of reducing dependence on the dollar and France said on Friday it would back the bid.
Jin Zhongxia, executive director for China on the IMF's policymaking board, said China would respect the IMF's decision on whether to include the yuan currency in the Special Drawing Rights (SDR) basket, but was hoping for a positive outcome. The yuan, also known as the renminbi, was already ranked as a top exporting currency, he said.
"More importantly, China can potentially satisfy all of the operational requirements for being a reserve currency in the SDR basket," Jin said at an Atlantic Council event. China had an active currency market, had recently liberalized interest rates and opened interbank bond markets and would soon open its currency market to foreign institutions, he said. The IMF's executive board is scheduled to decide in November whether to add the yuan to a basket of currencies comprising dollars, euros, pounds and yen.
One of the criteria is that the yuan be "freely usable," or widely used to make international payments and readily traded on foreign exchange markets. Jin said the currency may be nearing its equilibrium exchange rate. China has been using foreign exchange reserves since mid-2014 to support the yuan after pressure on the currency intensified since a surprise devaluation on August 11.
The move sparked turbulence on global markets and was one reason the US Federal Reserve cited as driving its decision to refrain from hiking rates on Thursday. But Jin said the market reaction, while possibly "irrational," also showed the importance of the currency. "This is rare, even for some of the SDR basket currencies. So clearly if the renminbi is not that important, the world would not bother to pay so much attention," he said.