The IMF Executive Board has approved the Chinese yuan to be used as a major world currency to be included in the Special Drawing Rights (SDR) basket. (Photo : www.fxbazooka.com)
A high-level government meeting held recently saw China’s pledge to intensify its efforts in liberalizing its financial market.
China vowed to boost the use of the yuan in cross-border transactions as well as better capital account convertibility, as decided during a State Council executive meeting presided by Premier Li Keqiang. This commitment comes after the Chinese currency has been included in the International Monetary Fund's (IMF) basket of currencies with special drawing rights.
The State Council also decided to ease cross-border lending in the country’s key free trade zones.
According to a statement released after the meeting, more trials will be conducted across the country amid plans to advance reforms in a risk-controlled setting.
For instance, the Chinese government will encourage the direct financing of small and medium-sized enterprises (SMEs) in Zhejiang Province’s Taizhou via special financial institutions. The area is where SMEs are better developed.
Meanwhile, reforms will also be introduced on grain granary Jilin Province’s rural finance.
In the same statement, the government also expressed its remarks, welcoming the IMF’s decision about the Chinese currency and saying that it’s a reflection of the international community’s recognition of China’s financial liberalization.
The statement said that the decision will "further push the internationalization of the renminbi," emphasizing that the government will further carry on its prudent macroeconomic management.
China also plans to “keep the floating exchange rate system under management” in order to maintain it at a “reasonable and balanced level,” the statement added.
For financial analysts, China is likely to witness huge capital inflow into renminbi assets in the medium to long term after the currency has been included in the special drawing rights basket of the IMF.
