Experts say move likely to boost yuan internationalization
China has adopted IMF standards to calculate its balance of international payments, the country's top currency regulator announced Tuesday, a move that will help propel the internationalization of the yuan, experts said.
Starting from this year, China will calculate flows in its current account as well as its financial and capital accounts by using IMF standards, according to a statement posted by the State Administration of Foreign Exchange (SAFE) on its website Tuesday.
Based on the new standards, the financial account will include a new sub-category for non-reserve assets and the nation's reserve assets will also be calculated under the financial account. Other changes include moving reselling services from being classified under trade in services to trade in goods while moving value-added services from trade in goods to trade in services.
"The application of IMF standards will not only make China's international payment calculations more transparent, but can also push forward the inclusion of the yuan into the IMF's Special Drawing Rights (SDR) basket and then further the yuan's international usage," Xu Gao, chief economist at China Everbright Securities, told the Global Times Tuesday.
In an attempt to promote the yuan as a global reserve currency and facilitate the reform and opening-up of the domestic financial sector, the Chinese authorities have been working hard to get the yuan into the SDR basket.
Yi Gang, administrator of SAFE and deputy governor of the People's Bank of China (PBC), the central bank, said during the two sessions, meetings of the country's top legislature and the political consultative body in March, that the authorities are in talks with the IMF over inclusion of the yuan in the SDR basket in the foreseeable future.
SDR are foreign exchange reserve assets, based on the US dollar, British pound, euro and Japanese yen at present. Allocated to countries and regions by the IMF, an SDR represents a claim on the fund members' foreign exchange reserves. The selection of currencies used in the SDR basket occurs every five years.
During the IMF's last SDR review in 2010, China's yuan was not included as it was not considered freely usable, according to media reports.
Since then, China has shown its ambition to promote its currency to overseas investors and financial institutions. The country has signed currency swap agreements with over 20 countries and regions including South Korea, Canada, and the EU, the Xinhua News Agency reported on Monday.
By the end of 2014, offshore yuan deposits reached 2.78 trillion yuan ($447.9 billion), increasing about 34 percent from the beginning of 2014, domestic news portal chinanews.com reported on March 20, citing data from Bank of China.
China is doing a good job in furthering the international use of the yuan, which will surely be included in the SDR basket, as the country may become the world's largest economy next year, said Xu.
"It's a question of when, not if [it happens]. Before turning the yuan into a global reserve currency, the country needs first and foremost to fully open up its capital account, which will be carried out at a prudent pace to control potential risks in the financial system," Xu noted.
PBC Governor Zhou Xiaochuan said at the China Development Forum in late March in Beijing that the authorities plan to make the yuan convertible under the capital account by the end of 2015, moving away from the current policy that hinders Chinese residents from buying equity and financial products in foreign markets and also making foreign investment in China more flexible.
Based on the new accounting standard, China's financial and capital accounts had a $78.9 billion deficit in the first quarter, while there was a $78.9 billion surplus in the current account during the quarter, SAFE said in Tuesday's statement.
Liu Dongliang, a senior analyst at China Merchants Bank, told the Global Times Tuesday that the figures show that China has seen continued net capital outflows since the third quarter of 2014, as the economy is still slowing and local enterprises have been encouraged to expand overseas investment.
"The capital outflows will increase in the coming months, but the trend may be turned around by the end of the year as investors are expected to regain faith in the Chinese economy," said Liu.
Xu agreed with Liu, noting that the increasing recovery of the US economy and US tightening of money supply are also causes for the net outflows.
