KUALA LUMPUR: The inclusion of China’s renminbi in the International Monetary Fund’s (IMF) benchmark currency basket is a long-term game changer in facilitating trade and investments globally and regionally.
Standard Chartered group chief executive Bill Winters said official recognition of the renminbi as a reserve currency is more than just an important milestone for the Chinese currency.
“It has a significant, game-changing effect on the rest of the world’s markets.
“In just over a decade, China’s extensive reforms have propelled the renminbi from being non-existent on the world’s stage to becoming a currency in the IMF Special Drawing Rights (SDR) basket.
“The inclusion in the SDR speaks volumes of how much China has accomplished since embarking on the reforms in 2004,” he added.
Winters said China’s speed of development has also been striking and today marks the beginning of another new chapter.
HSBC deputy chairman and chief executive Peter Wong said many central banks and reserve managers had already invested in renminbi assets and expect sovereign investor demand for the currency to continue growing.
“Inclusion in the SDR basket will also give greater confidence to companies and institutions around the world to settle trade in the renminbi and invest in renminbi assets,” he added.
Business Faculty Dean at the Malaysia University of Science and Technology Dr Yeah Kim Leng said the renminbi’s inclusion in the benchmark currency basket would encourage cross-border investments and further help facilitate trade and investments regionally.
“With the growing trade volume between China and ASEAN, including Malaysia, we will tend to benefit with the stable renminbi as it (currency)also gains wider international recognition,” he told Bernama.
He said given that Malaysia has been China’s largest trading partner for China among ASEAN countries, this recognition would help the government to promote the usage and gain wider acceptance of the renminbi, rather than the US dollar in trade.
China is the world’s second largest economy after the United States.
The IMF announced yesterday that the renminbi or yuan will join the fund’s basket of reserve currencies, namely the US dollar, the euro, yen and pound.
The last change made to the basket was in 2000, when the euro replaced the German mark and French franc.
Global central banks may reallocate one per cent of their reserve investments into renminbi assets annually.
Standard Chartered expects inflows of between US$85 billion-US$125 billion from global central banks in 2016, with at least five per cent of global reserves being denominated in the renminbi by end-2020.
Meanwhile, Moody’s Investors Service says the renminbi’s inclusion in the renminbi in the SDR basket will boost confidence among global investors whose appetite for RMB-denominated assets had been dampened recently.
“The fact that the renminbi is now in the SDR basket, is recognition of China’s commitment to reform its financial sector and liberalise its capital account.
It will support market-oriented reforms.
“We expect China to expedite reforms for both onshore and offshore bond investors and issuers,” said Ivan Chung, a Moody’s Associate Managing Director and Head of Greater China Credit Research and Analysis. — Bernama