Exclusive: China's yuan may enter IMF basket with lower share - sources

Thu Nov 19, 2015 2:58pm EST
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(Reuters) - China's yuan may enter the International Monetary Fund's benchmark currency basket at a lower weighting than previously estimated as the IMF considers rejigging the basket to better reflect financial flows, people briefed on the Fund's discussions told Reuters.

IMF policymakers are expected to add the Chinese currency to the Special Drawing Rights basket later this month, after a campaign by Beijing for the yuan, or renminbi, to have equal billing with the dollar, euro, pound sterling and yen.

Adding the yuan to the SDR basket would mark the biggest change since 1980, when the number of currencies in the basket was cut from 16.

Two people familiar with IMF deliberations said policymakers were considering changing the way the weights of currencies in the basket are calculated to make export volumes less important and financial flows more important.

China, the world's largest exporter, lags other countries in financial transactions and such a change would give China's yuan, also known as the renminbi, a lower share in the basket than under the current formula.

The yuan's inclusion is largely seen as a recognition of China's political and economic heft and as setting the seal of approval on its economic reforms and would likely not have a major impact on financial markets.

IMF staff calculated in July the yuan could have a weighting of about 14 to 16 percent and HSBC estimated it would have about 14 percent under the current formula.

One person briefed on the IMF discussions said those estimates were "too high" and a second person, an official of a major Asian country who saw a report from IMF staff to the executive board, suggested the weighting may be closer to 10 percent. "It's barely a two-digit rate, just the minimum (rate to be a double-digit one)," the official said.

The IMF's executive board, which represents the Fund's 188 members, will decide on the composition of the SDR basket on Nov. 30 but is likely to back a thumbs-up for the yuan from IMF staff and managing director Christine Lagarde. The board will also discuss changes to the weightings.   Continued...

A customer holds a 100 Yuan note at a market in Beijing, August 12, 2015. REUTERS/Jason Lee