IMF'S SDR Basket Of Currencies Requires Two Rounds Of Tests.

In August 11th this year, the renminbi struggled in the prospect of "dim", but after 94 days, it changed a lot.

In November 3rd, IMF President Christine Lagarde said that based on a series of assessments, IMF staff had proposed to the board of directors that the Renminbi should be included in the SDR basket currency of IMF.

"I support my colleagues' research, of course, whether the renminbi will eventually be included in the SDR basket of currencies, and also to the board of directors held in November 30th."

Lagarde said.

SDR (Special Drawing Right), Chinese called Special Drawing Rights (0.724729, 0, 0.00%), also known as "paper gold."

It is a Book asset that IMF distributes according to the share subscribed by Member States, which can be used to repay IMF debt and compensate for the balance of payments deficit between member governments.

The present SDR consists of four currencies: the US dollar, the euro, the pound and the Japanese yen.

According to the official definition of IMF, the "free use" of money means that money is widely used in the payment of international pactions, and at the same time, it is widely traded in major foreign exchange markets.

Based on the above two constants, IMF further extends four variables to more accurately assess whether the currency is in line with the definition of "free use", that is, the share of the currency in the main international reserves, the share in the international bank debt, the share in the international bond investment, and the volume of the currency in the foreign exchange market.

The first three variables are used as an assessment of whether currencies are widely used in international pactions. The last variable is an assessment of whether currencies are widely traded in the foreign exchange market.

In 2010, the renminbi was negated by "IMF" and was "useless" in the "free use" examination.

This time, in terms of exports of goods and services, China has no doubt about the absolute superiority of the last round of review.

Therefore, all the weights fall on the key word of "free use".

"In a series of international financial instruments, the use of the renminbi has rapidly become more extensive."

"Nowadays, the use of Renminbi and the share of RMB in the paction have made considerable progress on the basis of the relatively low level of assessment in 2010."

This is the initial comment of IMF on the "free use" of RMB in August 3rd this year.

To be included in IMF's SDR basket of currencies, two rounds of "examinations" are required.

The volume of exports of goods and services is the first round of examinations to be included in the SDR basket currency of IMF.

IMF in August 3rd to SDR a basket of currencies.

China continued to comply with the regulations on exports.

The relevant data have supported the fact that China has become the third largest exporter in the world, and the gap between China and the US and the entire euro area is decreasing significantly.

According to the data released by IMF, China's exports of goods and services accounted for 11% of the total exports of the world from 2010 to 2014, up nearly 3 percentage points from 8.1% in 2005 to 2009.

In fact, as early as 2010, when IMF reviewed the SDR basket of currencies in the past round, China had passed the IMF "examination" for exports of goods and services.

Five years ago, China was the only member of the IMF to meet the threshold for exports of goods and services.

However, to be included in IMF's SDR basket of currencies, it is necessary to accept the second round of examination, that is, whether the currency issued is in line with the definition of "free use".

The concept of "free use" was first proposed by IMF in 1978 when it made second amendments to the original regulations.

In 2000, "free use" was first incorporated into the auditing standard for a basket of currencies in SDR.

In terms of the four assessment variables extended to the "free use", the scores given by IMF are as follows:

First, the share of the renminbi in international reserves.

According to IMF's evaluation report, the composition of the official foreign exchange reserve currency (COFER) is still small, and it can not be included in the main reserve currency for separate statistics.

Based on this, IMF further made statistics on the assets denominated in Renminbi in the official foreign exchange reserve assets (OFA) of member countries. The statistics show that in 2014, 38 Member States held

Assets that are calculated, and only 27 countries held officially in 2013.

Second, the Renminbi denominated share of international bank debt.

According to data released in the eighty-fifth annual report released by the bank for International Settlements BIS in 2015, the yuan accounts for about 1.9% of international bank debt as of the end of 2014, which does not include the renminbi debt of banks in mainland China.

Third, international bond investment.

According to the statistics of IMF, RMB bond investment in international bonds has accounted for 0.6% of global bond investment in the second quarter of 2015, compared with less than 0.1% in 2010 five years ago.

Finally, according to BIS statistics, the share of RMB in foreign exchange pactions has also increased significantly.

RMB has increased from 0.4% in 2010 to 1.1% in 2013.

In 2013, the average daily trading volume of RMB in the major foreign exchange markets was about $120 billion, compared with about $34 billion in 2010.

Obviously, the renminbi has performed well in this "free use" examination, although the final "total score" will not be known until the IMF executive board is held in November 30th.

However, although there are

The good performance of RMB is still not satisfactory.

In November 17th, the yuan continued its downward trend since November. The median price of the onshore RMB was 6.3740 yuan against the previous 1 US dollars, down 0.09 percentage points to 1 yuan to 6.3796 yuan.

The offshore price of the renminbi also continued to decline, which was 0.05 percentage points weaker than the shore price and was 6.4166 yuan against the 1 US dollar.

Obviously, the good news of IMF failed to boost the performance of the renminbi. On the one hand, it was attributable to the fact that the good interest rate is rising in the Fed's December interest rate expectations and the US dollar is constantly strengthening.

Against the backdrop of a strong dollar recovery, it is hard for the yuan to get room for improvement.

On the other hand, if at the end of November, it was finally confirmed to be included in the SDR basket of currencies, the relative weight of the RMB in the US dollar, pound sterling, euro and yen is the key data that the market is eager to know.

For investors, this figure is probably as important as the renminbi being included in the SDR basket of currencies.

As Chris Weston, chief market strategist of IG, commented, "this data is directly related to the future expectation of RMB purchase."

Moreover, this positive interest is important but perhaps far from enough for investors to see the further internationalization of the renminbi and China's further opening of its capital account, which further explains why the renminbi is hard to catch up with the market in the short term.

"If it is included in the SDR, it is an important milestone for the renminbi, but it is far from the end of RMB internationalization.

In the foreseeable future, China needs to continue to give continuous confidence to foreign institutions and investors in assets held in Renminbi and Renminbi denominated assets. "

RBS Kuijs Asia director Louis Kuijs commented.

"China needs to do more to make the renminbi a real international reserve currency."

Credit Sussie Private Banking monetary Strategy Analyst Koon How Heng said.