IMF policymakers see need for more economic reforms in China

WASHINGTON: International Monetary Fund policymakers stressed the need for further economic reforms in China and saw some operational challenges in adding China's yuan currency to the fund's benchmark currency basket, the IMF said on Tuesday.

The IMF's executive board on Monday admitted the yuan, also known as the renminbi, to the Special Drawing Rights (SDR) basket alongside the dollar, euro, pound sterling and yen, a symbolic win for Beijing's campaign for recognition as a global economic power.

"They recognized some remaining operational challenges, but expected their impact to be mitigated by a number of factors, including the unencumbered access of fund members and SDR users to both onshore and offshore markets," the IMF said in a statement, summing up Monday's board discussion.

"Directors stressed the importance of continuing and deepening the recent reforms and addressing any operational issues that may arise."

IMF staff pointed to gaps between onshore and offshore exchange rates and warned future deviations could pose challenges for IMF members, who may receive some disbursements in RMB once the decision takes effect.

China would also have to make sure members could freely exchange the yuan for other currencies.

"Ongoing reforms that promote greater integration between the onshore and offshore markets should reduce the risk of spikes in the spread over time, though recent developments highlight the continued potential for setbacks," staff said in a paper prepared for the board.

The decision hinged on China's currency being considered "freely usable," or widely used to make international payments and traded broadly in foreign exchange markets.

The staff report said a survey showed members of the IMF reported holding $70 billion in renminbi-denominated assets in 2014, or 1.1 percent of official foreign asset holdings.

Data suggested that daily average RMB turnover was roughly $250 billion in six regional trading centers, behind the four other SDR currencies as well as the Australian dollar, Canadian dollar and Swiss franc, the report said.

Data through April showed turnover in London rose 80 percent over two years, while turnover in Canada - home to one of only two RMB clearing and settlement centers in the Americas - was up more than 400 percent at 0.2 billion.

Trading in New York was too thin to warrant a separate mention. Former New York City Mayor Michael Bloomberg is heading a push to establish a U.S. renminbi hub.

The RMB accounted for 1.1 percent of cross-border payments and 1.0 percent of international debt issuance in the first half of 2015, the report added, and about 1.8 percent of international banking liabilities, the report said.