IMF Announces RMB Joining SDR

First, the strength of foreign ministry is an extension of internal strength, and continuing to promote reform and opening up is the foundation of building a country. China's accession to the SDR is the recognition of the international community for its achievements over the past thirty years in China's reform and opening up. This is a new beginning, not an end. At present, China is facing growth shift and structural adjustment, and actively promoting reform and opening up is the foundation of our country.

1) what is SDR? Special Drawing Right (SDR) is a reserve asset and accounting unit created by the International Monetary Fund, also known as "paper gold (Paper Gold)". It is the right of the fund to allocate funds to Member States. In the event of an international balance of payments deficit, member states can use it to exchange foreign exchange funds to other countries designated by the IMF to pay the balance of payments deficit or to repay the loans of the IMF. They can also act as international reserves in the same way as gold and freely convertible currencies. But because it is only a unit of account, not a real currency, it must be exchanged for other currencies before it can be used directly for trade or non trade payment. Because it is a supplement to the International Monetary Fund's original common drawing rights, it is called the special drawing right.

2) the decision to join the SDR is an endorsement of China's financial reform achievements. There are two conditions for a country's currency to enter the SDR: the total volume of exports and services in the country ranks among the forefront of all Member States, and the currency should be "freely available". In a report released in early August, IMF said that in the last assessment, China met the entry requirement of "export", but the renminbi was not included in SDR because it was not judged to be free to use. currency Second requirements for choice. This time the RMB can be included in the basket of SDR currencies, mainly because it has already met second requirements. The IMF resolution said that the decision of the executive board to include Renminbi in the basket of SDR currencies is an important milestone in the integration of China's economy into the global financial system. It is recognition of the achievements made by the Chinese authorities over the past years in reforming their monetary and financial systems. China's continuous push and deepening in this field will promote the establishment of a more dynamic international monetary and financial system. This will also support the development and stability of China and the global economy.

3) the impact on the economy: it helps to expand the financial sector's opening up, enterprises to go out and promote transformation and upgrading. The entry of RMB to SDR will expand the scope and field of the use of RMB, and reduce the risk of exchange rate fluctuations. It will speed up the opening of domestic services, capital account liberalization, two-way opening of bonds, liberalization of A shares and liberalization of banking system. China's financial industry will face competition in opening up, which will help improve the efficiency of modern corporate governance. The liberalization of capital account and the marketization of exchange rate will make capital flow more free-form and raise the level of financial supervision under open conditions. Deep integration into the world will increase the awareness of international rules in the domestic market. It helps to enhance the depth and breadth of financial markets, consolidate financial infrastructure, open up and develop multi-level capital markets, and better serve China's economic structural adjustment and transformation and upgrading.

4) impact on policy: speed up Floating rate Reform, liberalization of capital account liberalization, construction of interest rate corridors and upgrading of regulatory system. When China joins SDR, China will take more important international rules and increase its dominant power to promote domestic financial reform when participating in international affairs. The RMB will continue to be stable, the fluctuation range of exchange rate will be relaxed and the floating exchange rate system will eventually be implemented. We should speed up the opening of capital account and finally realize the free entry and exit of funds. Accelerate the construction of interest rate corridors, and ultimately implement a price based monetary policy. The acceleration of financial reform and opening up also requires the upgrading of the regulatory system.

5) the impact on asset allocation of large categories: it helps to increase reserve currency, but the symbolic meaning is greater than the real meaning. According to the adjusted basket of SDR, the weight of RMB was 10.92%, the US dollar decreased from 41.9% to 41.7%, the euro 37.4% to 30.9%, the yen 9.4% to 8.3%, and the pound 11.3% to 8.1%. The SDR created and allocated to Member States by IMF in September only amounted to 280 billion US dollars (about 2.5% of the global reserve currency assets in the same period), and the new SDR currency basket will come into force in October 1, 2016. It will help to promote the A share in the mid 2016 into MSCI, and increase the allocation of A shares by passive index fund, which will bring incremental funding. It helps to increase the global allocation of Chinese bonds, and the yield of Chinese bonds is higher than that of developed economies such as the US, Europe and Japan. But taking into account the expected increase in the US Federal Reserve Rate in December, the narrowing trend of the US China interest rate gap and the rising pressure on future exchange rates, we should pay attention to the space of the bond market.

The Executive Board of the International Monetary Fund (IMF) completed today's five year deliberation on the composition of the currency basket of SDR. The main focus of this executive board's deliberation is whether the renminbi meets the existing standards, so that it can be included in the basket of SDR currencies. The board decided that the renminbi was in line with all existing standards. Since October 1, 2016, the renminbi has been identified as a freely available currency and will serve as the fifth currency, together with the US dollar, the euro, the yen and the pound, to form the basket of SDR currencies. To ensure that there are sufficient time for fund organizations, IMF members and other SDRs to adjust to new changes, the new currency basket will come into effect in October 1, 2016.

After the end of the board meeting, International Monetary Fund President Lagarde said that the decision of the executive board to bring the renminbi into the basket of SDR currencies is an important milestone in the integration of China's economy into the global financial system. It is recognition of the achievements made by the Chinese authorities over the past years in reforming their monetary and financial systems. China's continuous push and deepening in this field will promote the establishment of a more dynamic international monetary and financial system. This will also support the development and stability of China and the global economy.

The value of SDRs will be determined by the weighted average of basket currencies including the US dollar, euro, Renminbi, yen and sterling. The introduction of Renminbi into the basket of SDR currencies will diversify the currency basket and represent the world's major currencies, thereby helping to increase the attractiveness of SDR as reserve assets. The interest rate of SDRs will continue to be determined by the weighted average of interest rates for short-term financial instruments in the money market of SDR basket currencies. The authorities of the issuers of all currencies in the SDR basket (also including the Chinese authorities) should maintain policy frameworks that facilitate the operation of the fund and its member states and other users of SDR in their currencies. The documents discussed by the board will be announced in the near future.