Chinese Yuan Approved As Reserve Currency

The U.S. Treasury Department is in support of the IMF’s decision to include the renminbi in the SDR.

Mr Bridges argued that the weighting given to the renminbi – 10.92 per cent – and changes made to the weighting of other currencies is also significant.

International Monetary Fund managing director Christine Lagarde described the decision as “an important milestone in the integration of the Chinese economy into the global financial system”.

Lew also said that the Dodd-Frank law of 2010 has made the financial system “safer and sounder”.

According to the International Monetary Fund, the yuan met the criteria to be included in the basket and the inclusion makes it a freely usable currency like the USA dollar, the euro, the Japanese yen and the British pound.

Moreover, investors believe the IMF’s vote which add the yuan to the SDR basket could stimulate overseas demand for the currency in the process of time.

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.

The People’s Bank of China slashed the renminbi’s daily fixed rate to the dollar and said it would allow the currency to depreciate by 2%, at which point it would allow the market to play a bigger role in setting the currency rate.

The announcement marks the start of the journey of the yuan (Renminbi) as one of the most important currencies in the world, although the actual start would be on October 1, 2016 yet, thus there would be no immediate impact on the financial markets around the globe. The yuan’s weighting surpasses that of the yen at 8.33% and the pound at 8.09%.

They’ve also said the continuing inclusion in the basket of the yuan would rely on whether China advances using its fiscal reforms. And two months after, the RMB had become the fourth largest payment currency following the U.S. dollar, the sterling and the euro.

Nikko Asset Management chief global strategist, interest rates and currencies Roger Bridges said the inclusion reinforces the importance of China’s ongoing reform agenda.

The dollar “remains the reserve currency of the world for a good reason”, Lew said in a Bloomberg Television interview Tuesday in Washington when asked if the US would consider converting any of its foreign-exchange reserves to yuan. In addition, the BOT extended a bilateral swap arrangement worth 70 billion yuan (about Bt390 billion) with China, which appointed Industrial and Commercial Bank of China (Thai) as a clearing bank in Thailand.

Experts say that the development was anticipated as the Chinese currency meets major criteria-widely used and widely traded- to be part of the SDR basket.