Mega announcement  for the year is scheduled for November, when International Monetary Fund (IMF) will take decision in its review, whether to add Chinese currency Yuan or Renminbi in its Special drawing Rights (SDR) or not.

If IMF choose to include Yuan, in its SDR basket, it would be a milestone decision and the impact will not only be felt in financial markets but to global trade as well as geo-politics.

In previous part, named Renminbi series: Yuan into SDR - Fact set, we discussed general facts on SDR and Yuan's probable inclusion in the basket, and in this one we would discuss what could be the various possibilities and probabilities of an inclusion.

One thing can be said with certainty, impact of an inclusion will reverberate globally through years to come.

For better understanding, it is best to classify the probabilities as short and long term.

In the near -

In the short term, most important will be portfolio flows and key players in these segment are fund managers, investment houses, central banks and IMF, itself and one of the key determinant would be weightage given to Yuan in SDR basket.

Direct from IMF 

As of now 204 billion SDR is outstanding, which is valued on a daily basis. As of today, one unit of SDR is valued at 1.38408 US Dollar equivalent, which brings the value of the SDR outstanding at $282.3 billion roughly. So 10% weightage to Yuan to lead to $28.23 billion Dollar flow into China's liquid assets, next to paper currency.

This much can be said with some surety, while rest of the flow would depend on various factors beyond just inclusion in SDR basket. State of the Chinese economy and accessibility and acceptability of Yuan would be other two key determinant issue. However still some flow can be said to be assured.

FX turnover 

In general inclusion into SDR by IMF (actual inclusion may not occur till next year) will be a stamp that the currency is sufficiently convertible and freely accessible and that would come in the back of further reforms from China.

With this inclusion and Yuan's convertibility, FX turnover would also move up rapidly. In August, Yuan turnover has reached more than $50 billion daily which remains in sharp shoot-up from $10-20 billion expected by most analyst by year end. Doubling of that figure (at least) is highly possible next year. This is likely to lead to Yuan inventory pile up, which may benefit Yuan in the near term.

Fund managers 

Fund managers and investment houses, with the view that Yuan addition would be beneficial to China going ahead even in the long run, may start taking positions. Reforms such as more foreign participation such as increase the current 2% investment limit in China's $7 trillion onshore bond market would likely to bring inflows.

So for the fund mangers' money, just addition to SDR basket won't be enough, reforms would prove to be more vital.

So Yuan can benefit from the flows in the short term, however fallacy is that many have taken position already, taking a positive view of the review of IMF.

Central Banks 

Central bank theory, that they would jump in to build up or diversify reserve to Yuan may not hold true as they are more likely to be vigilant in the near term and prefer to hold swap agreements than actual bonds. Nevertheless, with IMF's inclusion central banks would be more comfortable to hold Yuan.

Saying all that, there could be numeral possibilities, given the rarity of the event and global impact. Other than changing Mark and Franc to Euro no major inclusion has happened in the basket in last 35 years.