International Monetary Fund includes Yuan in reserve currency basket

(Stand-up) “And the inclusion brings Korea a step closer to its goal of emerging as an worldwide hub for offshore yuan transactions, as the country marks the one-year anniversary of its direct trading market with the Chinese currency”.

The head of the IMF, Christine Lagarde noted that the inclusion was “an important milestone in the integration of the Chinese economy into the global financial system”.

The IMF announced on Monday that China’s currency renminbi (RMB) is eligible for joining the Special Drawing Rights (SDR) basket as an global reserve currency.

The IMF’s move to include the yuan in its basket of reserve currencies will not only dilute the power of the Us dollar as the currency of global trade, but may also make worldwide trade more robust and benefit smaller developing countries.

Many central banks follow this benchmark in building their reserves, which countries hold to help protect their economies in times of trouble.

Beijing has been working for years to achieve SDR designation for the renminbi, which analysts say could challenge the US dollar as one of the world’s top currencies.

The ChiNext Index, which tracks China’s NASDAQ-style board of growth enterprises, dipped 0.64 percent to close at 2,655.35 points.

The Japanese yen is included in the SDR weighting because of the strength of the Japanese economy. The IMF chief said the decision was an “indication of the reforms that have been implemented and will continue to be implemented”.

That sentiment was echoed by Jin Liqun, president-designate of the Asian Infrastructure Investment Bank (AIIB), who told reporters on Tuesday that China must push ahead with economic reform.

“It also means that the worldwide community expects China to play a bigger role in the global economic and financial system”, the statement said.

Volatile cross-border capital flows and more fluctuations in exchange rates are likely following the move, which will also lead to a further opening of the Chinese financial market, according to economists. The Chinese government, however, still pegs its currency to the dollar.

Susin added that China had been lobbying this decision since “it will strengthen China’s position in the world markets and will reduce the risks that are associated with changes in the policy of the US Federal Reserve and other central banks” and increases Chinese influence in the world.

“Following the successful SDR inclusion, China may further loosen its grip on the CNY and allow material currency depreciation over the coming year”.