China’s yuan approved as reserve currency by International Monetary Fund

Under the new weightings, the dollar will share 41.73%, euro 30.93%, yen 8.33% and pound 8.09%.

Zhou said that the decision to make the yuan an SDR currency indeed recognizes it was as an worldwide currency, but it also means China is obliged to align its financial system with global standards via further reforms of the financial market and greater opening up.

China continues to exercise control over the yuan’s value, but hopes to successfully introduce a fully floating system in which the market can determine the currency, Zhu said.

Analysts suggested the addition of the yuan could possibly foreshadow further weakness in the currency as, to be successful, the yuan would have to meet a strict set of criteria that only the pound, euro, dollar and yen have so far been able to achieve.

Giving a stamp of approval of its being a global economic power, the International Monetary Fund (IMF) yesterday recognised Chinese Yuan as a reserve currency – a long cherished dream for the leadership in Beijing.

Xinhua said following the announcement, the central parity rate of the yuan weakened by 11 basis points to 6.3973 against the U.S. dollar today, according to the China Foreign Exchange Trading System. “The Board today decided that the RMB met all existing criteria and, effective October 1, 2016 the RMB is determined to be a freely usable currency”.

If the currency’s elevated status leads to more of it being held by central banks and businesses, it would be helpful for the government’s finances.

If China consistently devalues its currency, it may be a risk to local companies which export heavily to the world’s secondlargest economy or compete with that country in export markets, the analyst said.

In a statement issued by the IMF, Ms Lagarde said the renminbi’s inclusion is a “milestone” in the integration of the Chinese economy into the current global financial system. Any impact from this inclusion on Thailand’s financial market is not expected to be significant, as the move is in line with expectations, Mr Mathee said.

The move (yuan as a reserve currency) would see an improved demand for the currency from 2016 upon implementation.

Created by the IMF in 1969, the SDR is an worldwide reserve asset created to supplement its members’ official reserves.

Washington, however, is wary of China’s growing financial clout and the serious challenge which the dollar faces as more emerging economies are switching to their local currencies in trade.