International Monetary Fund Will Not Include Yuan in Reserve Currency Basket Until October 2016

Global markets spun into turmoil, even though the yuan stabilized. China strictly controls its currency exchange rate and the flow of currency in and out of the country. We have been writing about currency manipulation by China as a main reason our economy is weak and good paying jobs are rare.

China’s ambitions include an inclusion in the worldwide Monterey Fund’s (IMF) pool of global reserve currencies, a key requirement for which is a yuan more closely aligned with market rates.

The currency club China wants to join is known as the IMF’s Special Drawing Rights basket. Beijing said it was a move toward a more market-oriented method of determining exchange rates. This was the biggest one-day loss since 1994. This had led to a delay in the Chinese yuan being introduced to basket until at least September 2016. “Trump, who is leading in opinion polls to become the Republican nominee for president, injected the i ssue into the 2016 campaign, saying August 11 that “‘devalued” means “sucks the blood out of the United States.'” Charles Schumer of New York – the third-ranking Senate Democrat – has threatened legislation to punish China with import tariffs.

While it was welcomed by the International Monetary Fund and is generally seen as a positive policy change, traders said the PBOC has still been intervening in the onshore yuan market to guide the currency to an acceptable close.

Now, the IMF’s latest move adds to investors’ worries about Chinese policy makers’ actions to rein in its unpredictable stock market and inconsistently manage its currency policy.

The devaluation may ensure there’s enough time for the emotions to ebb before the Xi-Obama summit, said Arthur Kroeber, Beijing-based managing director at GaveKal Dragonomics, an independent global economic research firm. Goldman Sachs said the yuan will hit 6.60 per dollar over the next 12 months while analysts at ANZ Bank lowered its forecast for the yuan to 6.55 against the U.S. dollar by the end of the year. In an April 2015 report, the International Monetary Fund noted the yuan is fairly valued, while the Treasury Department’s report to Congress called it undervalued. Since 2010, China has begun implementing cross-border trade renminbi settlement and within just four years 15% of the nation’s exports have adopted renminbi for settlement.

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“After many years of feeling the waters ourselves and observing the U.S. subprime crisis and problems in Greece, there’s a sense there’s no particular checklist for what a market economy is”, said Zha Daojiong, an worldwide political economy professor at Peking University. Before the Chinese central bank acted Bloomberg data shows a sustained difference between the markets pricing of the yuan, which was about 2 percent lower than the fixed peg.