China has a strong desire to incorporate its currency, the yuan, into the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket in order to reduce its dependence on the American dollar. However, according to a report released on Tuesday, the fund believes it is best to wait until after September 2016 to decide on such a move.
The IMF board is set to announce its final decision in November, on whether to incorporate the yuan along the side of key international currencies - US dollar, euro, British pound and Japanese yen.
Initially, Beijing wanted to become part of the SDR on January 1st. However, the IMF report stated that it is best to postpone the move. Trading on the first day of the new year could increase the risk of volatility in the markets.
According to the IMF staff, report also shows yuan displaying a mixed performance on meeting the required financial criteria.
A number of economists believe the fragile Chinese economy will gain momentum once its currency is added to the IMF’s benchmark currency basket, as it will draw the attention of more foreign investors towards trading in its markets.