International Monetary Fund backs proposal to add yuan to currency basket

The recommendation from the staff and the chief cleared the way for the currency partially and now the Fund’s executive board will have the final say at a meeting that is scheduled on November 30, whether the Yuan will be placed at the platform at par with the US dollar, Japanese yen, British pound and the euro.

The move may make more countries comfortable using the unit or including it in their foreign-exchange holdings.

Christine Lagarde, managing director of IMF, said that a key focus of the board review is whether the yuan, which continues to meet the export criterion for inclusion in the SDR basket, is “freely usable” or “widely used” for global transactions and “widely traded” in the principal foreign exchange markets.

The worldwide Monetary Fund on Friday recommended including China’s renminbi as one of the world’s reserve currencies, a milestone in the nation’s efforts to fully integrate into the global economy. The fund didn’t immediately provide a copy of the report to be presented to the board.

Adding the currency to the basket may also help the International Monetary Fund improve its standing with China, which passed Japan in 2010 as the world’s No. 2 economy.

“We will review the IMF’s paper in that light”.

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.

“The only thing that could deter this is if the USA led a group rejecting the yuan’s inclusion, which could complicate things”.

In August, China announced it would allow its currency to adjust in line with market forces, a move that effectively devalued the yuan.

Chinese officials had since become explicit in their ambitions for the yuan to gain the status at the International Monetary Fund.

An IMF staff-level agreement arrived at with the Jamaican Government, but which is subject to approval by the Fund’s executive board, means that the primary surplus requirement could be reduced by $4 billion for fiscal year 2015-16 and a further $8 billion in fiscal year 2016-17, Finance and Planning Minister Dr Peter Phillips revealed yesterday.