2015年CRI China Urged to Continue RMB Reform after Inclusion into SDR

As of October 1st of next year, the renminbi, literally 1 translated as "the people's currency," will become the fifth currency in the SDR basket, alongside the U.S. dollar, the euro, the Japanese yen 2 and the British pound.

Hong Hao, chief strategist at Bocom International Holdings, says the yuan's inclusion in the exclusive currency club isn't likely to have an immediate 3 impact on the value of the renminbi or its use as an international reserve currency.

"We're probably going to get some central bank buying of the Chinese yuan, and also some of the Chinese government bonds after inclusion. So those benefits will come as time goes by."

The Renminbi will make up just under 11-percent of the weighting of the IMF's Special Drawing Rights basket when it's finally included.

The value of the US dollar will account for just under 42-percent of the SDR value, while the euro will make up around 31-percent.

The yen and the British pound will make up the rest, each with just over 8-percent of the SDR's weighted value.

Till Engelhard, with the Bank of China's Frankfurt Branch, says the nearly 11-percent weighting of the RMB will make it more preferred by central banks and investment organizations in their investment portfolios 4.

"It also becomes more secure for the central banks to work with the renminbi, as central banks are also IMF members. So when they deal with China, they can do so using the renminbi to conduct interbank transactions. If there are balance of payments needs to cover, IMF members will have the right to draw the renminbi from the Chinese central bank depending on how much they're holding within the SDR. Central banks will also be able to trade in the renminbi."

The Chinese government has been touting 5 the inclusion of the renminbi into the SDR basket as a milestone 6 in its push to make the Chinese currency more international.

Economist 7 Wang Dan with the Economist Intelligence Unit says the tangible 8 benefits to the renminbi being added to the SDR will be limited.

"Joining the SDR, especially joining rights, is actually more symbolic 9 than substantial. It's going to gain recognition from the global market that the IMF recognizes it as an international reserve currency."

Many observers say it’s the market itself, rather than the renminbi's addition to the SDR basket, will determine whether or not the yuan will become a major global reserve currency.

Not every currency included in the SDR basket becomes a major reserve currency.

The Japanese yen is included in the SDR weighting because of the strength of the Japanese economy.

However, central banks don't use the yen as a reserve currency because of its vunerability to fluxuations in value.

Observers are suggesting a further opening up of the Chinese financial markets, as well as increasing market transparency will be needed to convince central banks around the world that the Chinese currency is a good bet.

For CRI, This is Luo Wen.