Chinese yuan becomes fifth International Monetary Fund reserve currency

In a statement, IMF Managing Director Christine Lagarde noted the yuan’s inclusion is a “clear representation of the reforms” taking place in China.

The bank said it will continue to deepen and speed up the efforts to promote financial reforms.

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.

The International Monetary Fund added Chinese renminbi as the fifth currency in its Special Drawing Rights basket, giving the yuan an international status.

“The IMF said the yuan” satisfied with all present standards” and should become section of the basket in October 2016.

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

Lagarde said she expects the measures to continue.

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 USA would consider converting any of its foreign-exchange reserves to yuan.

“There is no basis for continued yuan depreciation, and China is capable of keeping the currency basically stable at a reasonable level”, China’s central bank vice governor Yi Gang told a press conference, citing high-medium growth and foreign exchange reserves as major factors underpinning the currency.

The former chairman of Goldman Sachs Asset Management, Jim O’Neill, said that many investment institutions, including insurance firms and pension fund management companies, that did not have yuan assets would quickly respond to the IMF’s decision and put yuan-denominated holdings in their portfolios.

The move will pave the way for broader use of the yuan in trade and finance, securing China’s standing as a global economic power.

The average is used as a measure of value for the IMF’s “special drawing rights”, which quantify how much reserve currency each of the 188 member countries can call on.

“Credit risks, taking place of currency risk, are becoming increasingly important”, said Chung, adding that interconnectivity between the onshore and offshore markets will open more opportunities.

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.