International Monetary Fund (IMF) Managing Director Christine Lagarde said on Sunday that the Chinese yuan “clearly belongs” in the Special Drawing Rights (SDR) basket and that the IMF would work with China to that end, Bloomberg reports.
“Timing is something that we will be discussing amongst ourselves but I think we welcome this introduction,” Lagarde said.
Langarde’s comments came during the China Development Forum in Beijing on Sunday at a session titled “Sound Monetary Policy in the ‘New Normal’,” the comments came following a pitch for the IMF to add the yuan to its SDR system by Chinese Central Bank Governor Zhou Xiaochuan.
Zhou’s pitch to include the currency into the SDR system cited examples such as allowing for foreign investors to trade Shanghai-listed stocks through a link with Hong Kong’s exchange and giving overseas funds expanded access to Chinese stocks and bonds.
Zhou added that rules on Chinese citizens investing as individuals overseas would be relaxed, and that there would be other measures taken this year to increase the yuan’s convertibility under the capital account.
More from Bloomberg:
For more than five years, Zhou has pushed for the yuan to be added to the SDR basket, a move that would pave the way for it to become a reserve currency, aiding China’s attempts to diminish the dollar’s dominance in global trade and finance. The nation’s ascent to become the world’s second-largest economy has bolstered his case.
The IMF created the SDR in 1969 to support the Bretton Woods system of fixed exchange rates after supplies of gold and dollars proved inadequate. Owning SDRs gives countries a claim to the four currencies in the basket: the dollar, euro, yen and U.K. pound.
The composition of the SDR basket is reviewed every five years. In 2010, the IMF decided that the yuan couldn’t be added because it wasn’t “freely usable.” Zhou used the panel Sunday to tell Lagarde how the currency is getting freer.
The IMF said in December 2014 that it would conduct the review of the SDR basket in October of this year after staring with an informal briefing in May.
Earlier this month, China announced that its long-awaited global payment system to process cross-border yuan transactions was ready and could launch as early as September.
The launch of the China International Payment System (CIPS) will pave the way for internationalizing the yuan and should greatly increase global usage of the Chinese currency by cutting transaction costs and processing times.
CIPS, will be a global payments superhighway for the yuan and will replace an assortment of networks that make processing renminbi payments a more cumbersome process.
CIPS will allow for companies outside of China to clear yuan transactions with their Chinese counterparts directly, thus reducing the number of stages that a payment needs to go through.
Last month, the IMF’s Deputy Managing Director Naoyuki Shinohara made a call for emerging Asian economies to actively engage in de-dollarization.
“In some cases, high dollarization can facilitate trade. But there are drawbacks, such as limiting exchange rate flexibility to mitigate against external shocks, and constraining the central bank’s ability to be the lender of last resort. Under such circumstances, consideration could be given to actively promote de-dollarization,” he said.
China’s yuan has recently emerged as one of the world’s top five payment currencies, overtaking the Canadian dollar and the Australian dollar, according to global transaction services organization SWIFT.
China has started to advertise the renminbi as the ‘new world currency’ as it continues to ramp up its drive for the globalization of its currency.