Published Date : Dec 07, 2015
The International Monetary Fund has confirmed that it will include Yuan in its basket of reserve currencies. The move has fueled the hopes for the further expansion of the Chinese bond market; however, investors are not going to roll over it as the regulation is still very heavy and the direction of Yuan is not clear.
The central banks across the globe are likely to add more assets in terms of Yuan to their reserves after the announcement of IMF. According to the announcement, IMF will be including the Chinese currency as the seventh currency in the world reserve in its Special Drawing Rights (SDR). Others are the U.S. Dollar, Euro, Pound Sterling, Yen, Swiss Franc, and Canadian Dollar.
The Yuan will be having a 10.9% weightage among all the currencies in the basket, occupying the third highest position, standing only after the U.S. Dollar and Euro. The move, though, had little impact on the currency or the markets immediately, but is slated to drive a huge amount of investment in renminbi bonds from global investors in the long run.
Mr. Neeraj Seth, Asian credit head at BlackRock stated that once the fixed income market in China opens up, global investors won’t be able to ignore the market. He further added that this move is going to bring a change in the market structure for the Asian as well as global markets for fixed income.
Central banks around the world that haven’t joined their peers, already putting their reserves into Yuan-led debts, are likely to be the first movers and are projected to raise the proportion of global reserves held in RMB from around 1.4%, estimates the People's Bank of China.