Chinese yuan enters IMF’s reserve currency club

Yuan’s inclusion in the list of global reserve currency will be effective from October 1, 2016, said the Executive Board of the IMF Himanshu Vatsa | The Dollar business Bureau

The inclusion of RMB in the SDR basket is an important milestone in the integration of the Chinese economy into the global financial system, said IMF Managing Director Christine Lagarde

In a landmark development, the International Monetary Fund (IMF) has included Chinese renminbi (RMB) into the elite global currency reserve along with the US dollar, British pound, euro and Japanese yen. The decision which came on Monday after the quinquennial review of the SDR (Special Drawing Rights) basket of the IMF is expected to strengthen the Chinese yuan’s position in the global exchange market. Currencies listed in the SDR basket of the global lender can be used as an alternate means to settle international transactions among member countries. The IMF revises its SDR list after every five years. Euro was the last currency which was added to the SDR basket in 1999. Yuan’s inclusion will be effective from October 1, 2016, the IMF said after the review meeting of its Executive Board. “Launching the new SDR basket on October 1, 2016 will provide sufficient lead time for the Fund, its members and other SDR users to adjust to these changes,” the global body said in a statement on Monday. According to Christine Lagarde, Managing Director of the IMF, it is 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 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. Experts say that the development was anticipated as the Chinese currency meets major criteria—widely used and widely traded— to be part of the SDR basket. It will also diversify the SDR basket and make it more representative of the world’s major currencies. “The inclusion of RMB in the global reserve currency list will put pressure on China to open up its market and bring more transparency in its financial system,” Rakesh Mohan Joshi of the Indian Institute of Foreign Trade (IIFT) told The Dollar Business. He said the move will have major impact on dollar dominated trade. Since the whole world including the US has trade deficit with China, the international exposure of yuan will give competition to the US dollar. On the possibility of rupee’s devaluation to keep pace with Chinese currency, Reserve Bank of India Governor Raghuram Rajan on Tuesday said the exchange rate is always market driven and it cannot be manipulated. “Chinese devalued initially, but it stopped; and in fact, it came up a little since then. And perhaps with the inclusion of Chinese (currency) in the SDR basket, you may see a little more of it. We don't see the exchange rate that is something we can manipulate in a significant way to attain whatever the macro objectives we have,” he said responding to a question after announcing the bi-monthly monetary policy. After the IMF’s decision, Chinese central bank has also pledged to open its market and take steps to overhaul its financial system.

December 01, 2015 | 4:05pm IST

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The Dollar Business Bureau - Dec 01, 2015 10:37 IST

Chinese yuan enters IMF’s reserve currency club

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