The International Monetary Fund should include the renminbi in its special drawing rights basket of currencies due to the growing significance of the Chinese currency in the international financial system, said Chris Brummer, C. Boyden Gray fellow at the think tank Atlantic Council.
Brummer said that the inclusion of renminbi in SDR will have an important symbolic significance because it is a signal that the currency has developed enough to be a stable store of value, for many leading governments of the world and the IMF.
Beyond this symbolic significance, such an inclusion will also help to push international market acceptance of the currency, he said.
Brummer was speaking on Monday at the launch of the Atlantic Council report "Renminbi Ascending" in London, which detailed the ways in which renminbi's globalization impacts global markets, foreign policy and transatlantic financial regulation.
The report concluded that renminbi internationalization is providing an impetus for the Chinese government to open up its capital market controls, exchange rate controls, and strengthen its legal infrastructure to meet the growing demand and use of renminbi.
Renminbi internationalization will also provide the Chinese government with more tools to reward and strengthen ties with trade partners and potential allies, and help to establish healthier and better balanced global growth through trans-Pacific capacity building, the report said.
"For the most part, China's current account is virtually open. It has taken steps to open up the capital account, which has indicated there will be increasing opportunities for people to invest in renminbi denominated products," Brummer said.
He said the renminbi deserves to be included in the SDR, but the interesting question is what weight it should have in the SDR, and China should continue to enact market reforms and liberalization in order for the renminbi to gradually gain a larger weight in the SDR over time.
China's push to internationalize its currency started in 2008, when the global financial crisis demonstrated the danger of over-reliance on the US dollar. Since then, many overseas financial centers have become offshore renminbi hubs, through accumulating offshore renminbi activities.
Globally, renminbi has moved into the top five global payment currencies in January this year, compared to two years ago when it was ranked the 13th position with only 4.4 percent of total global payments, according to data from the Society for Worldwide Interbank Financial Telecommunication.
"China's efforts to internationalize the renminbi has been by any measure extraordinary. Obviously still things need to be done from capital liberalization perspective, but initiatives like mutual recognition of funds regime and the Shanghai-Hong Kong stock Connect will over the long term probably be more significant," Brummer said.
Mark Boleat, policy chairman at the City of London Corporation, said that the renminbi internationalization is an unprecedented financial event that is irrevocably changing the global market,
"The City of London, along with other key UK-based stakeholders, will continue to support this development and other financial reforms in China, which is in line with China's plan for gradual market liberalization and global integration," Boleat said.
According to most recent statistics from the City of London Corp, renminbi forex trading in London in 2014 averaged $61.5 billion yuan per day, a 143 percent rise over 2013 and nearly six times the volume compared to 2011.
Renminbi deliverable products trading volumes in 2014 also represented a 162 percent growth compared to 2013, and non-deliverable products a growth of 91 percent. Total renminbi deposits in London increased to 20 billion yuan at the end of 2014, a significant increase compared to a stable volume of around 14 billion yuan since 2011.
