Northeast Asia

While it’s a now presumed the renminbi will make it into the IMF’s Special Drawing Rights (SDR) basket, one thing still up for debate is the size of inflows into the currency. GlobalRMB rounds up some of the predictions in the market.

Chinese authorities are expected to allow the renminbi to depreciate following the decision on the IMF Special Drawing Rights (SDR) basket, though there is a debate about how severe that fall will be. Either way, it is likely a hike in rates by the Federal Reserves (Fed) could hold more sway on the RMB's future than SDR inclusion.

The People’s Bank of China (PBoC) admitted a first batch of seven foreign central banks, sovereign wealth funds (SWF) and supranational agencies to the onshore interbank foreign exchange (FX) market, according to a November 25 announcement.

China's Ministry of Finance (MoF) is set to auction the second batch of CNH government bonds this year in Hong Kong on November 23. Although it seems the renminbi has secured its inclusion in the IMF’s Special Drawing Rights (SDR) basket, market participants doubt this will give an immediate boost to the CNH market.

The RMB passed through another goalpost on its path to inclusion in the International Monetary Fund’s Special Drawing Rights (SDR) facility on Friday, with the IMF staff saying that the currency meets all the criteria to join the basket. The fund's executive board will make the final call on the issue when it meets on November 30.

The Standard Chartered Renminbi Globalisation Index (RGI) rose 3.26% month on month in September due to the jump in FX turnover for a second consecutive month. However, the bank expects the RGI to fall in Q4 as RMB depreciation expectations are likely to persist in the market.

China’s decision to reform its parity mechanism has ushered in a new phase of volatility for both the onshore RMB (CNY) and its offshore counterpart (CNH). Beijing has said markets should welcome the volatility as a signal of its reduced influence on the currency. For market watchers, external forces will be equally crucial to its success.

The question about whether the renminbi will be included the IMF Special Drawing Rights basket of currencies has already been decided. At least that’s the view from industry experts who are preparing for life after the RMB becomes a reserve currency.

The global financial crisis has accelerated the transition to a multipolar and multi-currency system, with the RMB being one if its new components, according to former Bank of Pakistan governor Yaseen Anwar, now a consultant for ICBC.

The days of the renminbi as a stable currency with high investment yields are gone, but this is good in the long run for banks that want to have a healthier CNH balance sheet, says Andrew Fung, executive director and head of global banking and markets at Hang Seng Bank.

The People’s Bank of China announced just ahead of the Chinese national holiday of October 1 that it would allow foreign central banks, sovereign wealth funds and international financial organisations to trade in the onshore foreign exchange (FX) markets.

Renewed confidence about CNY inclusion in the IMF's SDR has supported offered side interest in short-end CNY NDIRS today. A preference for the 3-year tenor has flattened the 1s/3s curve slope, writes Deirdre Yeung of Total Derivatives.