The IMF is today expected to approve the inclusion of China’s yuan in its reserve currency basket, rewarding Beijing’s strong pursuit of the global status.
The IMF executive board is scheduled to meet later today to decide on the recommendation by staff experts earlier this month to include the yuan, also known as the renminbi, in its basket of special drawing rights (SDR) currencies, alongside the US dollar, euro, Japanese yen and British pound.
While not a freely traded currency, the SDR is important as an international reserve asset, and because the IMF issues its crisis loans — crucial to struggling economies like Greece — valued in SDRs.
If yuan were to be added to the grouping of world reserve currencies, the decision would not take effect before Sept. 30 next year.
The last time the SDR basket was modified was in 2000, when the euro replaced the German deutschemark and the French franc.
The remaining question is the yuan’s weight in the basket. It could be 10 percent to 16 percent, but the lower estimate is more likely due to the Chinese currency’s limited convertibility.
The basket composition is reviewed every five years. At the last rebalancing in 2010, the US dollar accounted for 41.9 percent, the euro 37.4 percent, the pound 11.3 percent and the yen 9.4 percent.
That weighting revision was based on the value of the exports of goods and services by country or currency zone, and the amount of reserves denominated in the respective currencies held by other IMF members.
Credit rating firm Fitch says it does not expect the yuan’s inclusion in the IMF basket “to lead to a material shift in demand for renminbi assets globally in the short term.”
However, it said, over time the emergence of the yuan as a global reserve currency could support China’s credit rating.
Earlier this month, 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 SDR as a leading unit in international trade.
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