Page 74 - 2017 White Paper
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7 White Paper on the Business Environment in China
make payments for international transactions and widely depends on how China acts. Will it take it as incentive to
traded in the principal exchange markets (IMF Survey bring in transparency and reform the financial system?
2015b). (Knowledge at Wharton 2015)”
The IMF Executive Board’s determination that the For China, the move is a validation of efforts over the
RMB is freely usable and its decision to include the RMB past few years to liberalize financial markets and free up
in the SDR basket both take effect on October 1, 2016. flows of funds into and out of China’s capital markets.
The review also acknowledged recent steps taken by In this regard, the IMF’s decision could strengthen the
the Chinese authorities to grant full access for official credibility of Beijing’s economic reformers against more
reserve managers and their agents to the onshore fixed- conservative elements in the Xi Jinping administration.
income and foreign exchange markets, as well as steps
to enhance data disclosure (IMF Survey 2015b). Caixin analyzed what the decision means for the
future of reform in China. Data from the IMF show that
The decision to include the RMB in the makeup of the only 38 central banks have yuan-dominated holdings
SDR basket reflects major shifts in the global economy, that total RMB 780 billion, or 1.1% of total foreign
and is a recognition of China’s progress over the last few reserves held by central banks around the world
decades in moving toward a more open and market- (versus 64% for the US dollar and 21% for the euro).
based economy. The IMF’s decision is a “win-win” for Analysts around the world say many global investment
both China and the world and acknowledges China’s institutions will “quickly respond” to the IMF’s decision
achievements in economic development and reform, the and put yuan-denominated holdings in their portfolios,
People’s Bank of China, the central bank, PBOC said in a and Standard Chartered Bank estimated that nearly USD
statement on its website (Mayeda 2015b). 1 trillion will be invested in China’s bond market by the
end of 2020 (Wang 2015).
The IMF staff’s report to the Executive Board notes
that since the last SDR review in 2010, whereby, However, many debate on the future of the currency’s
Bloomberg notes, the yuan was actually rejected as a international status, with a consensus emerging that
reserve currency, the use of the yuan in international this depends on the development of financial markets
payments has risen substantially. In addition, yuan in China and progress in reforming the exchange and
trading activity in foreign exchange markets covering interest rate regimes: Without financial reforms and
two of the three major trading time zones has increased further opening up, one analyst from Goldman Sachs
significantly, and can now accommodate transactions said China’s efforts to push for greater adoption of the
of the magnitude involved in IMF operations (Mayeda yuan in international payments and trade would backfire
2015b). because the currency would be exposed to more risks.
Caixin reports that policy head Zhou Chengjun at the
The Wall Street Journal notes that the inclusion puts People’s Bank of China said the decision simultaneously
new pressure on Beijing to change everything from marks the recognition of the RMB as an international
how it manages the yuan to how it communicates with currency, “but it also means China is obliged to align its
investors and the world. China’s pledges to loosen its financial system with international standards via further
tight grip on the currency’s value and open its financial reforms of the financial market and greater opening up”.
system will come under new scrutiny. Inclusion would
also put pressure on the central bank to offer the same Xinhua reports that on December 3, 2015, China’s
degree of clarity and transparency that the U.S. Federal Cabinet, the State Council, publicly welcomed the IMF
Reserve, the European Central Bank and other vital decision to include the yuan in its Special Drawing Rights
institutions strive for.. basket, dubbing it “an opportunity for further financial
reform and opening-up”. In an executive meeting of the
Implications for China Reforms State Council presided over by Premier Li Keqiang, the
cabinet reiterated that China will stick to a managed,
Wharton management professor Minyuan Zhao floating exchange rate mechanism, keep the currency
observes that the longer-term impact of that will stable at a reasonable level and make it convertible
depend on how China uses the opportunity, saying under the capital account “in an orderly manner”.
“Whether it is a positive or a negative in the long run In a released statement, the council called the IMF’s
74
make payments for international transactions and widely depends on how China acts. Will it take it as incentive to
traded in the principal exchange markets (IMF Survey bring in transparency and reform the financial system?
2015b). (Knowledge at Wharton 2015)”
The IMF Executive Board’s determination that the For China, the move is a validation of efforts over the
RMB is freely usable and its decision to include the RMB past few years to liberalize financial markets and free up
in the SDR basket both take effect on October 1, 2016. flows of funds into and out of China’s capital markets.
The review also acknowledged recent steps taken by In this regard, the IMF’s decision could strengthen the
the Chinese authorities to grant full access for official credibility of Beijing’s economic reformers against more
reserve managers and their agents to the onshore fixed- conservative elements in the Xi Jinping administration.
income and foreign exchange markets, as well as steps
to enhance data disclosure (IMF Survey 2015b). Caixin analyzed what the decision means for the
future of reform in China. Data from the IMF show that
The decision to include the RMB in the makeup of the only 38 central banks have yuan-dominated holdings
SDR basket reflects major shifts in the global economy, that total RMB 780 billion, or 1.1% of total foreign
and is a recognition of China’s progress over the last few reserves held by central banks around the world
decades in moving toward a more open and market- (versus 64% for the US dollar and 21% for the euro).
based economy. The IMF’s decision is a “win-win” for Analysts around the world say many global investment
both China and the world and acknowledges China’s institutions will “quickly respond” to the IMF’s decision
achievements in economic development and reform, the and put yuan-denominated holdings in their portfolios,
People’s Bank of China, the central bank, PBOC said in a and Standard Chartered Bank estimated that nearly USD
statement on its website (Mayeda 2015b). 1 trillion will be invested in China’s bond market by the
end of 2020 (Wang 2015).
The IMF staff’s report to the Executive Board notes
that since the last SDR review in 2010, whereby, However, many debate on the future of the currency’s
Bloomberg notes, the yuan was actually rejected as a international status, with a consensus emerging that
reserve currency, the use of the yuan in international this depends on the development of financial markets
payments has risen substantially. In addition, yuan in China and progress in reforming the exchange and
trading activity in foreign exchange markets covering interest rate regimes: Without financial reforms and
two of the three major trading time zones has increased further opening up, one analyst from Goldman Sachs
significantly, and can now accommodate transactions said China’s efforts to push for greater adoption of the
of the magnitude involved in IMF operations (Mayeda yuan in international payments and trade would backfire
2015b). because the currency would be exposed to more risks.
Caixin reports that policy head Zhou Chengjun at the
The Wall Street Journal notes that the inclusion puts People’s Bank of China said the decision simultaneously
new pressure on Beijing to change everything from marks the recognition of the RMB as an international
how it manages the yuan to how it communicates with currency, “but it also means China is obliged to align its
investors and the world. China’s pledges to loosen its financial system with international standards via further
tight grip on the currency’s value and open its financial reforms of the financial market and greater opening up”.
system will come under new scrutiny. Inclusion would
also put pressure on the central bank to offer the same Xinhua reports that on December 3, 2015, China’s
degree of clarity and transparency that the U.S. Federal Cabinet, the State Council, publicly welcomed the IMF
Reserve, the European Central Bank and other vital decision to include the yuan in its Special Drawing Rights
institutions strive for.. basket, dubbing it “an opportunity for further financial
reform and opening-up”. In an executive meeting of the
Implications for China Reforms State Council presided over by Premier Li Keqiang, the
cabinet reiterated that China will stick to a managed,
Wharton management professor Minyuan Zhao floating exchange rate mechanism, keep the currency
observes that the longer-term impact of that will stable at a reasonable level and make it convertible
depend on how China uses the opportunity, saying under the capital account “in an orderly manner”.
“Whether it is a positive or a negative in the long run In a released statement, the council called the IMF’s
74
