Chinese yuan becomes fifth IMF reserve currency

Beijing, Dec 1 (IANS) The International Monetary Fund (IMF) has decided to include the Chinese currency, the yuan, in its Special Drawing Rights (SDR) basket, a media report said on Tuesday.

During a meeting on Monday on the regular five-yearly review of the SDR basket, the IMF executive board, which represents the fund’s 188 members, decided that the yuan “met all existing criteria”, the Global Times reported.

Effective from October 1, 2016, the yuan will be included in the SDR basket as the fifth currency, along with the US dollar, the euro, the Japanese yen and the British pound.

IMF managing director Christine Lagarde described the decision as “an important milestone in the integration of the Chinese economy into the global financial system”.

“It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems,” she said.

The yuan will have a weightage of 10.92 percent in the new SDR basket, while respective weightings of other currencies in the basket are 41.73 percent for the US dollar, 30.93 percent for the euro, 8.33 percent for the Japanese yen and 8.09 percent for the British pound.

Created by the IMF in 1969, the SDR is an international reserve asset to supplement its members’ official reserves. It can be exchanged among governments for freely usable currencies in times of need.

The long-awaited outcome came as China has been pushing its currency to wider use on the global stage.

The yuan became the world’s No.2 currency for global trade finance in 2013, and overtook the yen to become the fourth most-used world payment currency in August, only after the US dollar, the euro and the sterling, according to the global transaction services organisation SWIFT.

To meet the IMF’s “freely usable” criteria, Chinese authorities undertook a series of reforms in recent months, such as improving its foreign exchange rate formation system, opening up its interbank bond and forex markets, and improving data transparency by subscribing to the IMF’s Special Data Dissemination Standard (SDDS).

China’s central bank, the People’s Bank of China (PBOC), announced on Tuesday that it welcomes the IMF’s decision and said that the move shows the IMF’s recognition of China’s economic development and reform achievements.

“The joining of RMB in the SDR basket means the international community has greater expectations on China to play an active role in the world economic and financial arena,” the PBOC said in a statement.

Offshore yuan strengthened sharply on Monday ahead of the decision, with the currency rising 0.4 percent against the US dollar during the trading, marking the biggest gain in a month.

In a muted reaction to the inclusion news, the central parity rate of the yuan weakened on Tuesday by 11 basis points to 6.3973 against the US dollar, according to the China Foreign Exchange Trading System.

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