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CCTV Script 04/11/15

– This is the script of CNBC's news report for China's CCTV on November 4, Wednesday.

Welcome to CNBC Business Daily, I'm Qian Chen.

Including the Chinese yuan in the International Monetary Fund's benchmark currency basket would give it an official seal of approval, eventually leading to global demand worth more than $500 billion in coming years, currency analysts say.

The IMF's executive board is scheduled to decide in November on the yuan's inclusion and is expected to give the green light, although approval could be early next year.

Being able to buy and sell the yuan will require further liberalisation of China's exchange-rate controls, a process that has been years in the making and may take many more.

Earlier this year, analysts at Citi conducted a "very informal" survey of 12 reserves managers with more than $2 trillion of FX reserves under management, asking whether the yuan's SDR inclusion would make them more inclined to add it to their FX reserves. The response was that it would.

"SDR inclusion makes the RMB, by definition, a 'reserve asset', and this should catalyse capital inflows to China, but by how much, it's hard to say," said David Lubin, head of emerging market economics at Citi in London.

The total value of SDRs is only around $280 billion. Its composition, which factors in currency use in international trade flows, is rather different. Last set in 2010, it is 41.9 percent dollar, 37.4 percent euro, 11.3 percent sterling and 9.4 percent yen.

Based on current methodology, the yuan's SDR composition could be around 14 percent, according to HSBC.

But it will be lower if the IMF factors in its use in financial transactions.

Inclusion of the yuan in the holdings of foreign exchange reserve managers would be a gradual process, subject to external factors with high degrees of uncertainty.

But the yuan eventually might comprise nearly 5 percent of global reserves.

That would place the yuan, or renminbi, ahead of the Canadian and Australian dollars (each almost 2 percent of reserves, according to the latest IMF data) and near sterling (4.7 percent), but still well behind the euro (20.5 percent).

The U.S. dollar remains the world's pre-eminent reserve currency, accounting for nearly two-thirds of all holdings.

Based on its inclusion in the IMF's Special Drawing Rights (SDR) basket, a virtual currency that values IMF reserves and emergency payouts to members, the yuan's share of the world's FX reserves could eventually reach around 5 percent, analysts estimate.

Still, demand for yuan from reserve managers could counter the capital outflows from China. Those outflows have accelerated recently to record levels as the economy has slowed and markets have fallen.

[Todd Elmer, Currency Strategist, Citi] "104648 We have to balance that in terms of the impact ont he currency against the push that we've seen from China to internationalize the Renminbi. I think that probably means that we aren't look at big moves, in terms of the value any time soon. 104703"

Against a backdrop of easing monetary policy and narrowing growth differentials with the rest of the world, continued capital outflows should weaken the yuan over the next year, experts said.

And if no inclusion this time, it might accelerate renminbi's outflows and stir another Yuan depreciation storm. Worst scenerio, this would even bring more volitility to the global markets, and concerns the Fed, when making rate hike decisions.

CNBC's Qian Chen, reporting from Singapore.

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