The executive board of the International Monetary Fund on Monday added China’s yuan to the basket of official world reserve currencies.
Effective Oct. 1, 2016, the yuan — the basic unit of the renminbi — will join the U.S. dollar, the euro, the Japanese yen, and the British pound in the elite group of currencies making up the IMF’s Special Drawing Right (SDR) lending basket.
“The executive board’s decision … is an important milestone in the integration of the Chinese economy into the global financial system,” IMF managing director Christine Lagarde said in a news release. “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 predicted.
The fund said the yuan will make up 11% of the SDR basket, more than the currencies of Japan and the United Kingdom.
The Wall Street Journal said the IMF had conferred “a measure of international legitimacy to China’s currency as the government starts to liberalize its rigidly controlled exchange rate and financial system.”
“For the Chinese, it is a matter of prestige, a plank in Beijing’s strategy to elevate the country’s economic role in the global economy as it challenges U.S. political and economic dominance around the world,” the WSJ added.
But 24/7 Wall St. said the move “is more symbolic than anything else” to financial authorities and the markets.
“Will demand suddenly jump for renminbi-denominated assets? No. Will global asset managers rush out and buy up yuan? No,” the publication commented.
Over the past year, China has rolled out a series of policies — including freer interest rates and easier foreign investor access — to meet the IMF’s criteria for yuan inclusion in the SDR lending basket.