IMF staff urges no rush to add China yuan to currency basket

Report comes after Beijing launched a major diplomatic push for the yuan to be added to the basket

The International Monetary Fund should put off any move to elevate the renminbi to its benchmark category of major currencies until after September 2016, an IMF staff report said, citing a mixed performance of the renminbi in meeting important financial norms.

The report, published on Tuesday, followed a major diplomatic push by Beijing for the renminbi to be added to the IMF’s special drawing rights basket of currencies as part of its long-term strategic goal of reducing dependence on the dollar.

The IMF board is scheduled to make a decision in November on whether to include the renminbi in the basket of currencies comprising dollars, euros, pounds and yen, although the decision could be pushed back if policy makers decide they need more information. Delaying any change in the basket for nine months through September 2016 would avoid disrupting financial market trading on the first day of the new year, the staff report said.

The renminbi meets the requirements as a significant currency in terms of international trade, but it also has to be judged to be “freely usable,” or widely used to make international payments and readily traded on foreign exchange markets.

The report shows a mixed performance on financial criteria. Although the currency is increasingly used in cross-border transactions and is heavily traded in Asia, it is only thinly traded in North America and is not commonly used in international debt securities. Data was missing for some variables, the report said.

Analysts interpreted the IMF delay differently, with some inferring the fund wanted to see a more freely traded renminbi before including it as a reserve currency. Others said the delay seemed technical, aimed at giving the market more time to prepare.

The report implies a “large likelihood” of including the renminbi in the special drawing rights, Wang Tao, an economist with UBS, wrote in a note to clients. “Otherwise the technical preparation would not be necessary.”

The IMF’s managing director, Christine Lagarde, has said that adding the renminbi to the basket of currencies is a “question of when.”

The renminbi has made huge strides since Beijing’s last push for more formal international recognition of the currency, as global financial leaders were struggling to deal with the fallout of the mortgage and banking crises. The Chinese premier, Li Keqiang, asked Ms. Lagarde in March to push for inclusion, saying Beijing would speed up the convertibility of the renminbi on the capital account and open domestic individual cross-border investment and foreign institutional investment in China’s capital market.

This year, frustrated by the refusal of the United States Congress to approve a measure to increase the voting rights of emerging markets in the IMF., Beijing announced it would set up its own investment bank, the Asian Infrastructure Investment Bank. Despite pressure from Washington, which along with Tokyo has declined to join the Asian bank, most American allies in Europe have signed up for the Chinese-led initiative, seen as a rival to the World Bank and the Asian Development Bank, which is based in the Philippines.

Siddharth Tiwari, the director for strategy, policy and review at the IMF, said in a document released with the report on Tuesday that the fund’s executive board would decide on the extension proposal this month.