China Renminbi SDR Basket Inclusion: G7 Agree In Principle
by Eric Dubin, The News Doctors
On Friday, G7 finance ministers agreed that China’s renminbi inclusion into the International Monetary Fund’s SDR currency basket is desirable, but the technical requirements review must still precede renminbi inclusion. This isn’t exactly news.
The main takeaway is that German Finance Minister Wolfgang Schaeuble’s statement can be construed to indicate that the US position has moved further towards the embrace of the renminbi’s inclusion into the IMF’s SDR basket. The IMF held its informal board meeting earlier this month. In the fall, a formal review will proceed and a decision is likely to be announced.
The two day G7 meeting was held in Dresden, Germany. In a press conference Schaeuble said, “We were completely agreed that it is desirable in principle, that the technical conditions must be examined, but there are no politically divergent views on this.”
Reuters reports: “Whether the renminbi will be included in autumn already is a decision the IMF must make. It seems a bit optimistic to me,” Schaeuble said. “There is still a series of technical questions to be clarified and not just technical questions. It would be wrong, precisely because we have complete agreement on the aim, to make this process harder by putting inappropriate time pressure on.”
Schaeuble expressed skepticism that a final decision will come in 2015. But his statement can be read as a hedge because, as he noted in the press conference, renminbi inclusion is ultimately a decision for the entire IMF. To force China to wait another five years for the next IMF SDR review is untenable, especially after the 2010 IMF SDR review established the general agreement in principle to expand the SDR basket and voting share representation with the IMF.
China continues to have an incentive to report updated gold holdings this summer so as to boost confidence in the renminbi. In addition, China may very well end the “managed float” between the renminbi and the US dollar in advance of the IMF SDR basket decision. That would surprise most analysts, but I think there are better than 50/50 odds that China will take this action because it would pretty much leap-frog them past most of the “technical requirements” discussion for renminbi inclusion into the SDR basket and their capital account and markets are stable enough to sustain the removal of the managed float regime.