China yesterday welcomed backing from IMF experts that the yuan should be included in its reserve currencies, saying the move would strengthen the world’s financial system.
Now the world’s second-largest economy, China asked last year for the yuan to be added to the elite basket of special drawing rights (SDR) currencies, but until recently it was considered too tightly controlled to qualify.
It now looks likely the yuan is to be formally admitted to the currency basket at the end of the month, which would mark a milestone in China’s efforts to become a global economic power.
Photo: Bloomberg
IMF managing director Christine Lagarde said the fund now deemed that the yuan “meets the requirements to be a ‘freely usable’ currency” — a key hurdle to joining the yen, US dollar, pound and euro as a leading unit in international trade.
The yuan hit headlines in August when China’s central bank devalued the currency and said it would use a more market-oriented system to calculate the point around which the currency can trade each day.
The move sent markets into a tailspin as investors took it as a sign of slowing growth in China, a key driver of the world economy, but the central bank yesterday said such reforms had taken it closer to joining the SDR basket.
“China thinks that the inclusion of the yuan into the SDR basket would strengthen the representativeness and the attraction of the SDR [and] that it would improve the existing international monetary system,” the People’s Bank of China said in a statement. “It would have win-win benefits both for China and the world.”
The yuan has rapidly grown in importance in recent years as China — the world’s top trading nation — has used it to settle more of its commerce, and made it directly convertable with more currencies.
Including the Chinese currency in the SDR would likely boost demand for yuan-denominated assets among central banks and give it a sheen of respectability at a time when many investors are questioning Beijing’s ability to manage the slowing economy.
Lagarde said IMF experts ruled Beijing had addressed “all remaining operational issues” required for SDR inclusion, which would be decided by the executive board at a Nov. 30 meeting.
“I support the staff’s findings,” she said, adding to expectations that the board would also back the yuan.
If a decision to include the yuan is made this month, the actual inclusion could take place as late as Sept. 30 next year, giving Beijing more time to prepare.
The recommendation on Friday was broadly backed by the US, China’s main rival for world economic supremacy.
“We intend to support the renminbi’s inclusion in the Special Drawing Rights basket provided the currency meets the International Monetary Fund’s existing criteria,” the Treasury Department said, using another name for the yuan.
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