China’s interventionist attitude likely to Keep Yuan away from SDR seat

China has long been trying to make its currency Yuan globally acceptable and a place in IMF's SDR (special drawing rights) basket would surely ensure that it happens.

Every year International Monetary Fund (IMF) reviews the SDR basket every 5 year to adjust weightage and to consider any addition. As of now SDR contains four currencies - Dollar, Euro, Pound and Yen. Yuan is likely to be considered this year.

However IMF as well as US officials has long been critical of China's practices and its interventionist attitude. People's bank of China (PBOC) intervenes in the currency market to make Yuan steady against dollar. China's trillions of dollars of foreign exchange reserve makes it not difficult for PBOC to exert its dominance on the currency.

US treasury secretary Jack Lew and several IMF officials have warned that China need to reform its capital market as well as open up its capital account and to drop the interventionist attitude.

However, recent stock market crash in China saw flurry of official intervention in last week to stem the crisis, which is against free market principles. In last two weeks Chinese officials threw almost everything to stem the crash.

As of now,

Larger stake holders (above 5%) are barred from selling positions.

50% of the stocks are suspended from trading.

Banks and insurance houses have been asked to refinance/restructure margin financing.

Short selling is banned.

Direct intervention in blue chip stocks.

Easing margin financing rules.

And many more.....

This interventionist attitude is likely to Keep Yuan away from gaining a seat in SDR basket this year when IMF reviews the basket in November.