SDR

In the past week, two Chinese officials have publically acknowledged the possibility of a tax on foreign exchange (FX) transaction to curb capital outflows. Although details on the initiative still scant, views are diverging about whether it is a good measure against foreign speculators or will end up back firing.

China’s reported intention to introduce a Tobin tax on foreign exchange transactions has provoked a somewhat typical rush of condemnation. However, some analysts are already pointing out that pros and cons might indeed balance each other out.

With foreign ownership of Chinese bonds still at very low levels, the decision to open China’s interbank bond market (CIBM) could truly alter global investment strategies. But, at least for now, the devil will be in the details, with analysts saying that foreign ownership is unlikely to surge in the short term.

The renminbi's acceptance into the IMF Special Drawing Rights (SDR) basket and Chinese initiatives such as the Asian Infrastructure Investment Bank, are leading to a new monetary order, according to speakers at the Asia-Global Dialogue 2016 conference, held in Hong Kong on January 28.

There were dramatic moves in the offshore renminbi market on the morning of January 12 as the spread between onshore RMB (CNY) and offshore RMB (CNH) all but disappeared. And, in a radical development, the People’s Bank of China (PBoC) purchases of CNH in Hong Kong drove the overnight CNH Hong Kong interbank offered rate (CNH Hibor) to a record 66.8%.

The China Foreign Exchange Trade System (CFETS) published details of an exchange rate index for the renminbi for the first time on December 11. The index is based on a basket of 13 currencies, including the dollar, euro and yen.

The China Foreign Exchange Trade System (CFETS) published the details of an exchange rate index for the renminbi for the first time on December 11. The index is based on a basket of 13 currencies, with the dollar, euro and yen taking the lion's share.

The IMF changed the weighting formula for its Special Drawing Rights basket ahead of the inclusion of the renminbi last month. However, using the old SDR formula to determine Chinese currency’s weight would have been preferable, according to a former IMF official.

IMF staff have issued a detailed report containing the analysis and recommendations made to the Fund's executive board ahead of its SDR decision. The report offers a useful analysis into the RMB's standing globally, including its importance as a reserve currency and the level of trading it commands in global foreign exchange markets.

The IMF has approved the renminbi as the fifth currency in its Special Drawing Rights (SDR) basket of currencies with a weighting of 10.92%. The new SDR will come into effect on October 1, 2016.

A symbolic rather than market changing move is the general view of the renminbi’s inclusion into IMF’s Special Drawing Rights (SDR) basket. However, many analysts believe impact could be profound if China is willing to take the real test reforming its domestic financial markets.

The Dubai Gold and Commodities Exchange (DGCX) is set to launch trading of offshore RMB (CNH) futures contracts on December 18. The exchange is looking to leverage the RMB’s new-found status as an SDR currency, it told GlobalRMB.