FXStreet (Delhi) – Zhiwei Zhang, Research Analysts at Deutsche Bank, suggests that the SDR inclusion of the RMB on November 30 is a structurally positive development for China. Key Quotes “The most significant macro implication is on reform outlook. The progress of structural reforms has been slow. There is doubt among investors about whether China is truly committed to market oriented reforms. Such doubt heightened in the summer after what happened in the equity market. The SDR inclusion may work as a catalyst to boost the momentum of reforms in China. It indicates that the authorities are keen to integrate China's economy further with the global economy, which may help better align China’s domestic market operations with international best practices. The size of capital inflows in the short term may not be high, as the SDR inclusion itself will only begin effective Oct 1 2016. But China has opened its fixed income and foreign exchange markets to foreign central banks and sovereign wealth funds this year. We expect these institutions will start investing in 2016. Some argue that the market expectation of RMB depreciation may jeopardize the inflows. We do not think this is the key constraint, as central banks hold Euro and Yen assets despite these currencies also facing depreciation expectations. In our minds, the key constraint is that the domestic market is not ready for foreign reserve managers yet. Infrastructure needs to be established, liquidity condition needs to improve, and rules need to be revised to facilitate trading. This will take time, but we have no doubt it is doable. We maintain our view that the Chinese government will not allow sharp RMB depreciation in the rest of the year. As the market expectation for a December rate hike heightens, RMB depreciation would cause high volatility in the financial market, which is damaging to China's economy. We believe the PBoC may want to wait for the Fed to hike rate first and see how risks in the emerging markets evolve, before it takes the next move on the exchange rate.” For more information, read our latest forex news.