Specifically, it wants to be included in the fund’s own reserve currency, the Special Drawing Rights (SDR). As usual with the IMF, this is more a matter of prestige, rather than practical value—there are only $285 billion worth of SDR in circulation worldwide.
For now, however, China, is fine with gaining international recognition for its currency and by extension for its economy. The country this year has officially asked to be included in the SDR, which is formally reviewed at the end of the year.
Here is where it becomes interesting. Although the IMF has gradually removed opposition to including the yuan in the SDR, for example by saying the currency is no longer undervalued, other elements haven’t proceeded as smoothly.
This has been an ongoing issue for the United States, but in secret, U.S. officials in Beijing have admitted the United States doesn’t oppose the yuan becoming part of the SDR, maybe because it agrees with the IMF assessment.
However, the executive board of the IMF was supposed to meet in May to formally recognize China’s aspirations and the meeting has now been postponed.
This does not mean the process will be stopped, as there is more time until the formal review in fall, however, it gives China more time to comply with other reforms and it won’t have to disclose sensitive data until the very last moment.
IMF spokesman Gerry Rice recently noted that the most important criterion for SDR ascension is the so-called free usability. The currency needs to be “widely used to make payments to international transaction, and is widely traded in the principal exchange markets,” according to the IMF.
The yuan has gained as a global trade currency and China has established clearing centers worldwide to fulfil this criterion.
However, China’s capital account is still closed—restricting transfers in and out of the country—and the yuan is lagging in the use of derivatives as well fixed income securities.
By postponing the meeting, the IMF might have given China more time to fix these issues. Many gold fans in the West have also hoped China would disclose its holdings of gold in the process.
According to IMF protocol, however, China won’t have to do this, despite not having updated its official reserves since 2009.