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20 Apr 2015
RMB closer to be included in SDR basket, no secret agreement plan for Greece – TDS
FXStreet (Barcelona) - Richard Kelly, Head of Global Strategy at TD Securities, shares the key developments pertaining to China and Greece form the spring meetings in Washington DC.
Key Quotes
“Outside of this, the Spring Meetings in Washington DC suggested the RMB may be closer to getting included in the SDR basket than previously thought, given comments made by the IMF Managing Director and Deputy Managing Director. But while that would be a political support for China, it is less clear that it would actively lead to changes in CB reserve allocation in the short term, or even how clear it is that it could gather the 70% vote share needed at the IMF when it comes in the fall in the midst of the US presentation campaign.”
“The Meetings also confirmed that there was no secret plan of agreement in waiting for Greece, and coupled with technical meetings over the weekend in Brussels, we seem to be quite far for a workable compromise. This suggests that the odds may now be as high as 50/50 for capital controls to be implemented in Greece by mid-May.”
“We will have Deputy FinMins on a conference all this Wednesday followed by the Riga summit Friday, neither of which looks likely to deliver. But Greece needs to agree to a small package of reforms by the May 11 Eurogroup to get the ECB to release the SMP profits on Greek bonds, otherwise their May 12 IMF repayment looks questionable.”
“Missing that will mean the ECB must decide whether the Greek situation has morphed from one of liquidity to solvency, and cause the “rules-based” framework to turn off the ELA and force Greece into capital controls. Still, rightly or wrongly, there are limited worries in policy circles outside of Greece regarding the impact of direct contagion from such a choice, although it is highly uncertain.”
Key Quotes
“Outside of this, the Spring Meetings in Washington DC suggested the RMB may be closer to getting included in the SDR basket than previously thought, given comments made by the IMF Managing Director and Deputy Managing Director. But while that would be a political support for China, it is less clear that it would actively lead to changes in CB reserve allocation in the short term, or even how clear it is that it could gather the 70% vote share needed at the IMF when it comes in the fall in the midst of the US presentation campaign.”
“The Meetings also confirmed that there was no secret plan of agreement in waiting for Greece, and coupled with technical meetings over the weekend in Brussels, we seem to be quite far for a workable compromise. This suggests that the odds may now be as high as 50/50 for capital controls to be implemented in Greece by mid-May.”
“We will have Deputy FinMins on a conference all this Wednesday followed by the Riga summit Friday, neither of which looks likely to deliver. But Greece needs to agree to a small package of reforms by the May 11 Eurogroup to get the ECB to release the SMP profits on Greek bonds, otherwise their May 12 IMF repayment looks questionable.”
“Missing that will mean the ECB must decide whether the Greek situation has morphed from one of liquidity to solvency, and cause the “rules-based” framework to turn off the ELA and force Greece into capital controls. Still, rightly or wrongly, there are limited worries in policy circles outside of Greece regarding the impact of direct contagion from such a choice, although it is highly uncertain.”