Inclusion of the Chinese yuan in the IMF's benchmark currency basket would eventually lead to global demand for the currency reaching over $500 billion, Reuters reported Monday citing currency analysts, but experts told the Global Times Tuesday that it will take time for the yuan to become established in offshore markets.
The IMF is set to make a decision in November on whether to include the yuan in its Special Drawing Rights (SDR) currency basket.
"SDR inclusion would be good for the internationalization of the yuan, as it would boost the level of acceptance among foreign investors," Xu Gao, chief economist at China Everbright Securities, told the Global Times on Tuesday.
The Reuters report said analysts estimated that total global foreign exchange reserves currently stand at around $11.46 trillion and that the proportion of the yuan in the reserves could eventually hit around 5 percent, which would be equivalent to over $500 billion.
The IMF is expected to give the green light for the yuan's inclusion in the SDR basket in November.
"The work on the SDR basket review continues as scheduled," the IMF said in an e-mail reply to the Global Times Tuesday.
"IMF staff are currently finalizing a report to be considered at a formal board meeting scheduled for November. The decision on the possible inclusion of the yuan in the SDR basket will be made by the executive board of the IMF in November," it said.
On October 19, the US Treasury softened its tone on the yuan's exchange rate, following recent Chinese efforts to allow a greater role for the market in setting the rate.
The UK, Germany and France have also voiced their support for the yuan's inclusion in the SDR basket.
Liu Dongliang, an analyst at China Merchants Bank, said global demand for the currency of $500 billion is possible.
"SDR inclusion would represent recognition of the yuan's international status, thus spurring interest and demand from investors in pursuing yuan-denominated assets and for using it as a reserve currency," Liu told the Global Times on Tuesday. "But this will take a long time."
"The process of the yuan becoming established in the global markets will be gradual and is connected to the expansion rate of Chinese investment and trade on the global stage. This won't be achieved overnight," Liu noted.
Another prerequisite is that the yuan must be allowed to be traded freely, according to Liu.
SDR inclusion has no corresponding relations with, let alone compulsory requirements, for reserve managers in other countries and regions to use the yuan in their portfolio, Xu said.
The SDR is a virtual currency that values IMF reserves and emergency payouts to member economies.
"What really affects foreign investors' choices about reserve currencies is the level of acceptance among global investors for a certain currency. A reserve currency is one that people like to accept, use, and store," Xu said.
Meanwhile, the yuan has replaced the Japanese yen as the world's fourth most-used currency for international payments, global transaction service provider Swift reported on October 6.
Data from Swift showed the yuan recorded a record high of 2.79 percent of all global payments by August, up from 0.6 percent at the start of 2013.
Four currencies - the dollar, euro, pound sterling and Japanese yen - are currently in the SDR basket, and the yuan is expected to become the fifth.
China has been pushing reforms to support the yuan's inclusion in the SDR basket.
On October 8, China announced it would adopt the IMF's Special Data Dissemination Standard to enhance its ability to provide timely and comprehensive statistics.
On October 20, the People's Bank of China, China's central bank, issued its first offshore yuan-denominated bonds in London, marking the nation's first issuance of yuan-denominated bonds outside China.
On October 20, HSBC, one of the largest investors among foreign banks in the Chinese mainland, said in a report that the yuan is on track to be included in the IMF's SDR basket.
