IMF decides to extend current SDR currency basket until September 2016

The move also creates potential headaches for US President Barack Obama as he prepares to host Chinese President Xi Jinping at a summit in September.

Although Beijing has outlined plans to liberalize its financial markets, the yuan doesn’t meet the IMF’s key criteria for reserve currencies to be “freely usable”, meaning countries could face problems trying to buy and sell the currency in a pinch.

When talking about ‘s recent reform in forex policy, which brought last week’s depreciation of the yuan, Rodlauer called the move praiseworthy as it allows a greater role for market forces in ‘s currency.

“It’s unfortunate the equity bubble burst when it did and that we are on the cusp of a [US Federal Reserve] rate hike, which along with a weak China, is scaring investors away from emerging markets“, said Mr Peng.

The temporary freeze on the current basket of reserve currencies comes just a week after Beijing’s surprise decision to devalue the yuan by about 3 per cent and change the way it sets the exchange rate. The Washington-based fund only conducts its SDR review every five years and that may have accelerated China’s efforts to get the yuan included in the group of currencies held as reserves by the world’s central banks that currently includes the US dollar, euro, yen and British pound.

China has strict controls on capital flows across its borders and on the amount its currency can move against the dollar.

The Chinese government is targeting economic growth of 7 per cent this year, the slowest pace since 1990.

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.

UBS economist Tao Wang is forecasting China’s economy will grow 6.8 per cent this year.

The IMF noted that its review of the method of valuation of the SDR was ongoing, and the approved extension of the current basket did not in any way prejudge the outcome of the review. He expected China to further widen exchange rate trading band in the future.