Fri, 26th August 2016

Anirudh Sethi Report


Archives of “special drawing rights” Tag

China marks time in march toward international yuan

In the year since China’s surprise devaluation of its currency, the yuan’s troubles going global have become all too apparent.

With the yuan continuing to lose strength as the Chinese economy slows, Chinese authorities have become reluctant to further expose the currency to market forces — a step necessary to achieve true reserve currency status.

 Last month, the People’s Bank of China gathered local bank executives here for a meeting to inform them of de facto regulations on transactions that could facilitate capital flight. Officials from the central bank reiterated administrative guidance on a prior reporting requirement for large foreign-currency purchases or outbound fund transfers by corporations.

This guidance would not be put in writing, but banks were expected to comply, the officials said, according to people familiar with what transpired at the meeting. Banks were also instructed not to sell foreign currency to companies not registered in Shanghai.

In its 2016 report on internationalizing the yuan, released Wednesday, the PBOC hails rising cross-border transactions and the currency’s progress toward global status. The Chinese leadership, under President Xi Jinping, has set a goal of having “a convertible, freely usable currency” by 2020.

But in a seeming contradiction to this aim, the central bank early this year introduced nationwide restrictions meant to block capital outflows, and has since tightened them. The yuan has been hit with bursts of activity that appear the work of short-sellers. Clearly afraid of letting the currency weaken or allowing capital outflows, the PBOC has put a halt to the liberalization on which the drive for a global yuan depends.

India -Forex Reserves Down By $387.5 Mn To $355.55 Bn

In the week ended March 18, the country’s reserves had increased by USD 2.539 billion to USD 355.947 billion, a record high.

The decline in forex reserves was on account of fall in foreign currency assets (FCAs), a major component of overall reserves.

FCAs dropped by USD 358.1 million to USD 332.146 billion in the reporting week, RBI said in a release today.

FCAs, expressed in dollar terms, include the effect of appreciation and depreciation of non-US currencies, such as the euro, pound and the yen, held in the reserves.

Gold reserves remained unchanged at USD 19.325 billion in the week.

India’s special drawing rights with the International Monetary Fund (IMF) dipped by USD 10.7 million to USD 1.488 billion, while the country’s reserve position with the Fund was down by USD 18.7 million to USD 2.599 billion, RBI said.

India’ Forex reserves fall $3.57 billion to $346.78 billion as on Feb 26

Foreign exchange reserves as on February 26 fell by $3.57 billion from a week ago to $346.788 billion, according to data from the Reserve Bank of India.

This is the biggest weekly decline in reserves since August 2014 when it had fallen by $3.79 billion, Bloomberg data showed.

It is noteworthy that in days prior to the Budget, the rupee was close to its all-time lows, led by selloff by foreign investors, and market participants had indicated the RBI was intervening to keep the currency from falling further.

Foreign currency assets (FCAs), which form a key component of the reserves, fell by $3.55 billion from the previous week to $325.02 billion.

FCAs are maintained in major currencies such as dollar, euro, pound sterling, Japanese yen, etc. Foreign exchange reserves are, however, denominated and expressed in US dollar only.

BREAKING -China Foreign exchange reserves fall $99.5 bn in Jan.Forex Reserves -Now Lowest since May 2012

China’s foreign exchange reserves, the world’s largest, fell by $99.5 billion in January, the central bank said in a statement on Sunday.

     Foreign reserves fell to $3.23 trillion at the of January, the lowest level since May 2012. 

     The figure was higher than a Reuters poll forecast of $3.20 trillion.

     China’s gold reserves rose to $63.57 billion at the end of January, from $60.19 billion at the end of 2015, the People’s Bank of China said on its website.

     Gold volume stood at 57.18 million fine troy ounces at the end of January, up from 56.66 million fine troy ounces in December.

     China’s International Monetary Fund (IMF) reserve position was at $3.76 billion at the end of January, down from $4.55 billion in the previous month. The bank held $10.27 billion of IMF Special Drawing Rights at the end of last month, compared with $10.28 billion at the end of 2015.

India : FOREX RESERVES SLUMP BY $1.4 BN AT $351.106 BN (Around Market cap of Facebook and Twitter )

After rising for two consecutive weeks, country’s foreign exchange reserves fell by $1.4 billion to $351.106 billion in the week to December 18 on account of fall in foreign currency assets (FCAs), according to an RBI data. In the previous week, reserves had increased by $407.9 million to $352.51 billion.

FCAs, a major component of overall reserves, declined by $1.368 billion to $328.27 billion in the reported period, RBI said in a release here on Friday.

FCAs, expressed in dollar terms, include the effect of appreciation and depreciation of non-US currencies such as the euro, pound and the yen, held in the reserves. The gold reserves remained unchanged at $17.54 billion.

India’s special drawing rights with the International Monetary Fund fell by $24.3 million to $3.997 billion in the week, while country’s reserve position with the Fund decreased by $7.8 million to $1.295 billion, the apex bank said.

Yuan falls to 4-1/2 year low

China’s yuan slipped to 6.4520 to the dollar in late morning trade on Friday, its lowest level in nearly four and 1/2 years, raising questions over how far Beijing will let the currency weaken.

At that level, the yuan had depreciated 0.2 percent for the day and nearly 4 percent this year.

The yuan was also on track a loss of 0.8 percent this week, which would be the biggest weekly drop since the People’s Bank of China (PBOC) on Aug. 11 surprised global markets with a nearly 2 percent devaluation.

“The government typically has internal targets for the yuan, though we’re not certain of the ranges,” said a senior trader at a Chinese commercial bank in Shanghai.

“But the market generally agrees that 6.50 may be the upper limit the central bank is willing to permit this year,” he said.

The falling yuan was one factor hurting Chinese stock markets early Friday.

“If the yuan continues to depreciate, that’s negative to stocks as well, because it means investors are not confident about China’s economic restructuring,” said Linus Yip, chief strategist at First Shanghai Securities.


PBOC’s Yi: Don’t worry about yuan depreciation

MNI report on comments from PBOC Vice Governor Yi Gang on the yuan, the IMF and SRD

  • There is no need to worry about yuan depreciation after its inclusion into the International Monetary Fund’s Special Drawing Rights basket of currencies
  • No basis for continuous yuan depreciation because of China’s rate of growth, big trade surplus, continuous increase in foreign direct investment and ample foreign-exchange reserves
  • Yuan exchange rate formation mechanism won’t change after the inclusion into the basket
  • China will continue to implement policy revisions
  • During the transition from managed float to clean float China will take a gradual and prudent approach – helping the yuan’s two-way flexibility while maintaining a stable currency around a balanced, reasonable level

China’s yuan elevated to reserve currency: reaction

China’s renminbi has won inclusion in a an exclusive basket of currencies used by the International Monetary Fund in a move that amounts to official blessing of the yuan as a reserve currency.

The renminbi will now be the third-largest currency in the IMF’s ‘special drawing rights”, trailing the dollar and the euro but with a bigger weighting than the pound and the yen.

Economists give their reaction to the IMF’s decision.

Eswar Prasad, a former senior official for the IMF in China, described it as a “big step for China and a significant one for the international monetary system,” offering reward for the efforts Beijing has made to open up its financial markets.

However, the ex-IMF official also played down the prospect of the renminbi ousting the dollar as the world’s major reserve currency. That’s impossible, he argues:

Unless economic reforms are accompanied by broader legal, political, and institutional reforms that are necessary to inspire the trust of foreign investors. China’s government has made it abundantly clear that such reforms are not on the cards.

Andrew Malcolm, the Asia head of the capital markets team at law firm Linklaters, says its importance is symbolic:

The symbolic importance cannot be overlooked as it sends a strong signal about China’s importance in the global financial markets.

Renminbi wins nod as fifth currency in IMF’s SDR,Yuan to have 10.92% weighting in IMF SDR

It’s official. The IMF a has given the much-anticipated nod to China’s renminbi as the newest member of the elite currency basket used to value its own “special drawing rights”.

The announcement followed a board meeting this morning in DC at which the IMF’s 188 members voted to make the RMB the fifth currency in the SDR basket

Updated IMF SDR weightings

The yuan was approved to be included in the SDR, which was no surprise at all. Here are the new weightings:

  • USD 41.73%
  • EUR 30.93%
  • JPY 8.33%
  • GBP 8.09%

The IMF has more up on their website. It takes effect in 11 months.

Yuan as the 5th International Reserve Currency

If the IMF will endorse the renminbi as a new international reserve currency, the repercussions will be global and historical.

Recently, the International Monetary Fund’s staff and its chief Christine Lagarde suggested that the yuan should join the basket of international reserve currencies (the Special Drawing Rights, or SDR). The inclusion is expected to be approved at the IMF board meeting on Nov 30.

It would make the yuan the first currency of an emerging economy to be included in the basket. And it could unleash three waves of capital inflows into the Chinese currency.

Three waves of capital inflows

In the first wave, the yuan’s inclusion would cause a re-weighting of the SDR basket, which is valued at $280 billion. Currently, it is dominated by the US dollar (42 percent) and the euro (38 percent), followed by the British pound (11 percent), and Japanese yen (9 percent).

The initial weight of the yuan is likely to be about 10-14 percent – as reflected by China’s share in global exports (13 percent), foreign exchange reserves (30 percent) and the use of its currency in global capital flows (1-3 percent). That could mean a shift of $40 billion into the yuan’s assets starting in October 2016, probably gradually over half a decade.

As long as the deceleration of China’s economic growth does not result in a hard landing and financial reforms continue, the IMF endorsement could trigger another wave of larger capital inflows by central banks, reserve managers and sovereign wealth funds.

Today, the allocated part of the global foreign exchange reserves – which the IMF calls the Currency Composition of Official Foreign Exchange Reserves, or COFER – amounts to $6.3 trillion. The US dollar still accounts for nearly two-thirds of the total, against a fourth by the euro, while the pound and the yen are smaller (less than 5 percent each). Assuming that China’s current share of global reserves is about 1 percent, the IMF’s decision could cause a significant capital inflow (4 percent) into the yuan assets, which would translate to some $350 billion by 2020.

A third capital inflow is likely to ensue as private institutional and individual investors follow in the footprints of the IMF and public investors. If these allocations rise to just 1 percent, they could unleash about $200 billion into the yuan assets by 2020.