Yuan joins elite currency basket

Monetary fund recognises rising global status of Chinese economy

THE International Monetary Fund welcomed China’s yuan into its elite reserve currency basket yesterday, recognising the ascendance of the Asian power in the global economy.

The yuan, also known as the renminbi, will join the US dollar, euro, Japanese yen and British pound next year in the basket of currencies the IMF uses as an international reserve asset.

IMF managing director Christine Lagarde called the decision “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.”

The move by the IMF executive board, representing the institution’s 188 member nations, solidifies China’s ambition to see the yuan achieve global status as one of the world’s top currencies.

China, the world’s second-largest economy, asked last year for the yuan to be added to the Special Drawing Rights basket, but until recently it was considered too tightly controlled to qualify. The yuan had already met the IMF’s criteria for being widely used.

The board approval had been widely expected after IMF staff experts earlier last month said Chinese authorities had taken the steps necessary for the yuan to be called “freely usable”, and Lagarde endorsed their recommendation.

Lagarde said the yuan’s inclusion in the basket was expected to help China open up further to the world economy.

“The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy,” she said.

IMF members can use the Special Drawing Rights basket to obtain currencies to meet balance-of-payments needs.

The fund also issues its crisis loans — crucial to struggling economies like Greece -valued in SDRs.

The yuan’s entry into the basket takes effect on October 1 next year and some economists predict that inclusion will boost demand for the yuan, or renminbi, by more than $600-billion (R8.7-billion).

Chinese media predicted entry will draw more than one trillion yuan (R2.25-trillion) of foreign money into China bonds. Both predictions rest on assumptions that more capital account opening is on the way.

China has pushed to make the yuan more international, setting up swap arrangements with countries so trade can be settled in the currency, and has said it will push ahead with financial reform.

Leave a Reply