Come June, the International Monetary Fund will probably decide to include the Chinese renminbi in its special drawing rights (SDR).
Though the move is largely symbolic, the symbolism is huge. It is another acknowledgment of China’s growing stature in the global economy and financial markets. It is also a marker underscoring how swiftly China is moving to dismantle capital controls, in line with the reform policies of the People’s Bank of China.
That in turn has implications for investors. It will mean China could soon assume an even larger weight in crucial global financial markets. For example, today, China is a mere 2.5 per cent of the MSCI All Country World Index, based on Chinese companies listed in Hong Kong. But, when the powers that be decide the currency is convertible enough, onshore Chinese shares could be included in the index, which means its share of the index could rise to more than 10 per cent, according to Michael Cembalest of JPMorgan Asset Management.