China Closer As Yuan Could Join the IMF FX Basket

China is pushing hard for the RMB to become a global currency.

Bullion.Directory precious metals analysis 2 April, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

However, the United States has voiced opposition to both the yuan becoming a more dominant global currency and the development of the Asian Infrastructure Investment Bank (AIIB).

After a visit to Beijing, US Treasury Secretary Jack Lew said that “further liberalization and reform are needed for the yuan to meet this standard, we encourage the process of completed these necessary reforms.” Lew believes the currency is not ready to join the SDR, which is used for lending to countries with financial instability.

The IMF board will hold initial discussions in May on China’s request for the yuan to be added, as well as a review of the SDR composition later this year, according to IMF officials. China has made strides to have the yuan open to capital markets and increase its ability to be exchanged, but the US has been vocal opposition.

The AIIB has received a lot of press after US President Barrack Obama discouraged allied nations to join the Chinese-led bank, but those allied nations joined anyway with Japan remaining hesitant on whether to join or not.

Many see the AIIB as a way to limit the US and dollar’s influence, as the AIIB will offer financing in currencies other than the dollar while side-stepping the US financial system entirely. The Obama Administration took a hit after the AIIB saw demand in applying nations. Allied nations, such as Germany, France and Great Britain, which all joined the AIIB in 2015, are in favor of adding the RMB to the IMF’s currency basket, which includes the dollar, euro, yen and pound.

Britain has been aiming to become a sole position as an offshore center for international yuan trading, which is a large reason for the public pressing for yuan’s addition. Germany has also looked to be a prominent offshore trader.

The US is worried that with the yuan’s addition, the dollar will have less influence in international trade and finance. The focus of the AIIB is to challenge the World Bank and Asian Development Bank that is dominated by both the US and Japan.

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