The move by China’s central bank on Tuesday to change the mechanism for setting the daily reference rate for the yuan “appears a welcome step” as it should allow market forces to have a greater role in determining the exchange rate, the International Monetary Fund (IMF) said on Wednesday.
“Greater exchange rate flexibility is important for China as it strives to give market-forces a decisive role in the economy and is rapidly integrating into global financial markets.
“We believe that China can, and should, aim to achieve an effectively floating exchange rate system within two to three years,” an IMF spokesperson said in an emailed statement.
Referring to the IMF’s consideration of whether to include the yuan, officially called the renminbi, in its Special Drawing Rights (SDRs), the spokesperson said:
“Regarding the ongoing review of the IMF’s SDR basket, the announced change has no direct implications for the criteria used in determining the composition of the basket. Nevertheless, a more market-determined exchange rate would facilitate SDR operations in case the Renminbi were included in the currency basket going forward.”