Tuesday, December 1, 2015

IMF inclusion of yuan as SDR unit draws mixed reaction

IMF inclusion of yuan as SDR unit draws mixed reaction

Some say it's a further step towards the currency's internationalisation; others say event is purely symbolic

By
btworld@sph.com.sg
Tokyo
MONDAY'S decision by the International Monetary (IMF) fund to admit the Chinese renminbi (RMB) to the basket of leading international currencies making up the IMF's special reserve unit known as Special Drawing Rights (SDRs) was greeted with mixed reactions on Tuesday.
Some experts said the move, which takes effect from next October, marks an important step along the road toward full internationalisation of the Chinese currency, but others said it could crimp China's freedom of monetary policy action at a time when its economic slowdown calls for flexibility.
China surprised markets several months ago when it suddenly devalued the RMB (also known as the yuan) under a slew of reforms designed to bring about a more market-determined exchange rate. Since then, Beijing has appeared to support the RMB in the runup to the IMF's decision.
Tim Adams, president and chief executive of the Washington-based Institute of International Finance (IIF), an influential voice in global finance, told The Business Times on Tuesday: "This is a big win for Beijing as they look to further internationalise the renminbi."
The former undersecretary for international affairs at the US Treasury added: "Now, China watchers will focus on officials' continued efforts to reform the (Chinese) economy."
But Yuqing Xing, a China expert and economics professor at the Graduate Research Institute of Policy Studies (GRIPS) in Tokyo, told BT that the SDR status of the RMB is purely symbolic and helps little in the internationalisation of yuan, which will be eventually determined by market forces.
The IMF's eagerly awaited decision on the RMB came in the early hours of Tuesday in many Asian capitals. The currency market reaction was muted, and the Chinese currency itself, virtually unchanged.
The currency will, from October 2016, join the four major international reserve currencies - the dollar, euro, yen and pound - in the SDR, which is not itself a reserve currency but a composite unit representing the value of the basket, and which can be swapped by IMF member countries for hard currencies.
China attaches great importance to the fact that the inclusion of the RMB in the SDR basket acknowledged its status as a "freely usable" currency, and marks a step toward its acceptance as an international reserve currency in its own right, analysts said.
This would, in time, enable China and other countries to reduce their reliance on the dollar, by far the world's leading global reserve currency; this dependence has left China and others feeling vulnerable in the wake of the global financial crisis in 2008.
The IMF said in a statement after the decision to include the RMB was made known: "A key focus of the executive board review was whether the renminbi met the existing criteria to be included in the basket. The board decided that the RMB met all existing criteria and, effective Oct 1, 2016, the RMB is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the dollar, euro, yen and the pound."
Launching the new SDR basket on Oct 1, 2016 will provide sufficient lead time for the IMF, its members and other SDR users to adjust to these changes, the IMF added.
Meanwhile, IMF managing director Christine Lagarde described the decision to include the RMB as "an important milestone in the integration of the Chinese economy into the global financial system".
"It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China's monetary and financial systems.
"Continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy."
Mr Xing at GRIPS said the development boosts the confidence of the Chinese government, which firmly believes that political moves such as the endorsement of the IMF are necessary on the way toward the yuan's internationalisation.
"The inclusion of the yuan in the SDR basket may create an illusion that it has turned into an international currency like others in the basket," he said, adding that the currency was overvalued either in absolute or purchasing power parity terms.
With the yuan's accession to the SDR, the Chinese authorities will have less ability to let the yuan follow market forces and depreciate, he added.
The Monetary Authority of Singapore welcomed the development on Tuesday, saying: "This is a momentous and positive development for the international monetary system and reflects the growing use of the RMB as an international payments currency for trade and investment. MAS has worked closely with the People's Bank of China on initiatives to promote greater use of the RMB in Singapore and the South-east Asian region, and we look forward to further strengthening cooperation in the coming years to help foster a resilient and thriving RMB ecosystem in the region."
Japanese Finance Minister Taro Aso was among those who also welcomed the IMF's decision.
Darryl Hooker, co-head of EBS BrokerTec Markets, a leading electronic trading platform, described the IMF's decision as a key milestone in the internationalisation of the yuan: "The speed at which the renminbi has reached major currency status on the global stage has been unparalleled."
Meanwhile, the global transaction services organisation SWIFT said China's yuan has become the second-most used currency for payments between Japan and China plus Hong Kong, behind only the Japanese yen
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Yahoo board to weigh potential sale of Internet business

Yahoo board to weigh potential sale of Internet business   

[BENGALURU] Online search and advertising company Yahoo Inc's board plans to weigh the potential sale of its Internet business when it meets Wednesday through Friday, The Wall Street Journal reported on Tuesday the company's shares were up 5.2 per cent at US$35.45 in extended trading.
People familiar with the matter told the newspaper that the board was expected to discuss whether to proceed with a plan to spin off more than US$30 billion in shares of Alibaba Holding Group Ltd or find a buyer for its core business of web properties or both.
In November, activist investor Starboard Value LP asked Yahoo to drop plans to spin off its stake in Alibaba due to tax concerns, and instead urged the company to sell its core search and display advertising businesses.
Yahoo's core business could attract private equity firms, media and telecom companies as well as firms such as Softbank Group Corp, analysts have said in the past.
Apart from its core Internet business, Yahoo's other emerging businesses include what its CEO Marissa Mayer calls Mavens - mobile, video, native and social advertising.
REUTERS

Bank of China faces daily contempt fines in US: court ruling

Bank of China faces daily contempt fines in US: court ruling

[NEW YORK] A US judge will impose a daily fine of US$50,000 against Bank of China Ltd starting next week after holding it in contempt for refusing to turn over account information on Chinese customers accused of selling counterfeit luxury goods.
In a decision made public on Tuesday, US District Judge Richard Sullivan in Manhattan said the "coercive fine" will be imposed starting on Dec 8 unless the state-run bank complies with subpoena requests for the records.
Bank of China is appealing the civil contempt order and fine.
The records come from Chinese entities that were sued in 2010 by Gucci, Yves Saint Laurent, Bottega Veneta and other units of Paris-based Kering SA for trademark infringement over their sales of knockoff handbags, briefcases and other products.
Bank of China, which is not a defendant, said it could not turn over the records without violating Chinese privacy law and that the judge lacked jurisdiction to force compliance.
Judge Sullivan said, however, the bank's "manifest determination"to ignore the subpoenas and his orders has made it hard for the Kering plaintiffs to pursue their claims against "rampant counterfeiters," and could harm consumers who fall victim.
"BOC's refusal to comply with US law, while it continues to receive the benefits attendant to its banking activity in the United States, has inflicted a significant harm on plaintiffs and the general public," Judge Sullivan wrote. "Only a large fine will have a coercive effect on BOC at this stage."
Judge Sullivan also ordered the bank to cover the plaintiffs'costs of litigating the contempt issue.
He noted that the fine represents a tiny fraction of Bank of China's roughly US$27.8 billion of profit in 2014.
The dispute is part of a larger conflict over financial transparency between China and the United States, which employs a disclosure-based regulatory regime. Clashes have grown more frequent as Chinese companies expand beyond their country's borders and raise more capital internationally.
Allen & Overy, the law firm representing Bank of China, in a statement called the contempt order and sanctions unwarranted.
It also said Judge Sullivan should have invoked the multilateral Hague Evidence Convention to resolve the dispute, and respect the bank's "responsibility" not to violate Chinese law by turning over the account information.
Gucci and the other plaintiffs had asked Judge Sullivan to order Bank of China to reimburse US$12 million to cover their losses from the counterfeiting, or else to impose a fine.
Judge Sullivan initially ordered Bank of China to turn over customer records in 2011. He renewed his order in September, after a federal appeals court told him to revisit the matter in light of a recent US Supreme Court decision.
REUTERS

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