The Beginning of the Future? – read to the end….
The news that the RMB is about to be included as a part of the Special Drawing Rights (SDR) of the IMF is news that China and the RMB has arrived in the global economy in a significant place. Nations will now keep the RMB as part of their national reserves. It is a very significant moment if and when this is confirmed in November.
Bellow and attached is Dr Shen’s report and comments which always appear well founded.
His report suggests that the new five year plan has been announced in a much lower profile way than previous ones, even though this one covers the biggest changes to China as it completes its transformation to its first target of 2021 announced by Deng Xiaoping at the famous 1978 Third Plenum.
By 2049 China plans to be “an early form of socialism” and 2021 is achieving a managed market economy on its way to 2049. This Five Year Plan will take China to its first target of 2021.
These are no longer slogans . They have real meaning. Mrs Merkel knows and so does President Hollande who have both just visited China again.
If the UK is to be central to China’s development we have still to up our game and make personal relationships very real. We need to rethink how we approach China. I have said it for years – a Minister for China.
On behalf of Dr. Jianguang Shen:
The SDR and internationalization of the renminbi
Bloomberg reported on 23 October that the International Monetary Fund (IMF) has told China that the renminbi will be included in the Special Drawing Rights (SDR) as a reserve currency in November.
n This is in line with our view back in 2011, when we anticipated the renminbi joining the SDR in 2015. We had expected the renminbi to achieve basic convertibility in 2015, after significant progress was made in all four pillars: 1) exchange-rate liberalization; 2) interest-rate liberalization; 3) capital account convertibility; and 4) development of an offshore renminbi market (see The RMB’s roadmap towards full convertibility 7 April 2011).
n The breakthroughs in the final sprint to the finish in 2015, in particular, were remarkable. The renminbi now clearly meets the export criterion of SDR basket currencies and significant progress has been made in meeting the freely usable criterion. In fact, major advanced economies have expressed their support for the renminbi.
n The renminbi’s inclusion in the SDR will increase demand for the currency and help support the exchange rate in the near term. Beyond that, we believe it could help China conduct structural reforms and further advance the renminbi’s internationalization, gradually transforming the international monetary system.
A blueprint has been released on the 13th Five Year Plan (FYP) at the end of the Fifth Plenum. Broadly consistent with our expectation, emphasis was placed on maintaining medium- to high-speed economic growth through innovation and a rebalancing of China’s demographic gridlock. The blueprint also highlighted the need to: 1) improve social welfare; 2) enhance environmental friendliness; and 3) continue structural reforms. We expect more details to be released in the coming days.
The PBoC cut its benchmark lending rate and required reserve ratio (RRR) on 23 October. While it does not come as a surprise, we view this latest move as very positive. We do not expect any more interest rate cuts this year, but do look for one more RRR cut by the end of the year. We believe these latest cuts, coupled with other easing measures, will stabilize the economy in 4Q, and boost growth in 2016.