The International Monetary Fund should put off any move to add the yuan to its Special Drawing Rights currency basket until September 2016, an IMF staff report said, a move that would effectively end the Chinese currency's chances of an early inclusion.
The report, published on Tuesday, comes after Beijing launched a major diplomatic push for the yuan's inclusion in the IMF basket as part of its long-term strategic goal of reducing dependence on the dollar.
The report said the implementation of any formal decision to add the yuan to a basket ofcurrencies comprising dollars, euros, pounds and yen should be delayed so as not to disrupt financial market trading on the first day of 2016.
"The proposed extension, which will be decided by the Executive Board later this month, would not in any way prejudge the timing of conclusion or outcome of the review," said Siddharth Tiwari, director of the IMF's strategy, policy and review department.
It said that while the yuan, also known as the renminbi, met the requirements as a significant currency in terms of international trade, it did not meet criteria that it should be "freely usable".
"If the RMB (renminbi) were determined to be a freely usable currency, it would play a more central role in the Fund's financial operations going forward, and it would qualify for inclusion in the SDR basket," the report said.
European members of the Group of Seven major industrialized economies - Germany, Britain, France and Italy - favor adding the yuan to the basket this year. Japan, like the United States, is more cautious, officials have said.
The yuan has made huge strides since Beijing's last push for more formal international recognition of the currency, as global financial leaders were struggling to deal with the fallout of the sub-prime and banking crisis.
The IMF staff report recognized progress made by Beijing, noting that it was already the fifth most-used currency for international trade.
Chinese Premier Li Keqiang in March asked IMF Managing Director Christine Lagarde to push for inclusion, saying Beijing would speed up the convertibility of the yuan on the capital account and open domestic individual cross-border investment and foreign institutional investment in China's capital market.
Earlier this year, frustrated by the refusal of the U.S. Congress to pass reforms to increase the voting rights of emerging markets in the IMF, Beijing announced it would set up its own investment bank, the Asian Infrastructure Investment Bank.
Despite pressure from Washington, which along with Tokyo, has declined to join AIIB, most U.S. allies in Europe have signed up for the Chinese-led initiative, seen as a rival to the World Bank and Japan-based Asian Development Bank.