IMF admits China’s Yuan into its currency basket

Newsroom24x7 Desk

SDRWashington, DC : The International Monetary Fund (IMF) admitted China’s Yuan into its benchmark currency basket and gave China’s currency a prized reserve asset status. This came in as a successful culmination of Beijing’s campaign for recognition as a global economic power and rendered Beijing’s endeavors victorious. The decision to add the Yuan, also known as the renminbi, to the Special Drawing Rights (SDR) basket alongside the Dollar, Euro, Pound Sterling and Yen, is an important milestone in China’s integration into global finances and a nod to the progress it has made with reforms. China thus has been able to carve a niche seat within the currency basket of global platform, and therefore, Yuan is now poised to equate itself at levels parallel to the likes of Dollar, Euro, Pound Sterling and Yen.

Beijing had worked hard towards meeting the IMF’s criteria. for this, Beijing had undertaken a variety of appropriate reforms in recent months, namely — making Chinese currency markets more friendly for access by foreigners, detailed debt issuance on a more frequent basis and increasing trade timings for currency trading which resulted in expanded Yuan trading hours.

IMF chief Christine Lagarde, who along with in-house experts had previously given her support for the inclusion, made it clear she did not expect Beijing to stop there. She said — The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented.

People’s Bank of China said the move, which was backed by countries including the United States, Britain and Japan, showed the willingness of inclusion by international community; and the expectations arising out of this inclusion in terms of China now getting an opportunity to cast a bigger role in world economy. A statement released from their offices read — Going forward, China will continue to deepen and accelerate economic reforms and financial opening up, and contribute to promoting world economic growth, safeguarding financial stability and improving global economic governance.

PBOC’s vice governor Yi Gang said he expected that inclusion would make Yuan more stable and would serve as a stabilizer in preventing it from further devalueation, contrary to beliefs of one class of traders.

Yuan will have a 10.92 percent share, in line with expectations, after a review of weightings formula for SDR that also cut euro’s share by more than 6 percentage points. To be included in the SDR basket, the Yuan had to meet the criteria of ‘freely usable’ currency cadre, meaning to say — to be able to widely be used for making international payments and widely traded in foreign exchange markets — these were few yardsticks China could not tick upon and ended missing out of the last review in 2010.

The yuan’s inclusion from October 2016 is largely symbolic, with few immediate implications for financial markets. But it is the first time an additional currency has been added to the SDR basket, which determines which currencies countries can receive as part of IMF loans.

China’s response from the economy perspective stands at an elated ground of inclusive growth. China views this decision as a landmark recognition of its increased role in global economy. China believed that the Chinese Yuan clearly deserved a place in that grouping. China is world’s second-biggest economy and top trader, and its currency is liquid and stable enough to serve as a store of value, according to Chinese press agencies.

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