IMF Approves Reserve Currency Status for China’s Yuan

The inclusion of the RMB will take effect Oct 1, 2016, the International Monetary Fund said in a press release.

The pledge may ease concern the yuan will weaken amid speculation China’s central bank will rein in intervention now that the International Monetary Fund vote on reserve currency status is out of the way. Since then, Beijing has appeared to support the RMB in the runup to the IMF’s decision. China will continue to extend and accelerate economic reforms and financial opening up, as well as contribute to promoting world economic growth, safeguarding financial stability and improving global economic governance, the PBOC added. The currency market reaction was muted, and the Chinese currency itself, virtually unchanged.

Despite some remaining controls on the capital account, the yuan is already freely usable for countries in global payments and currency trading.

This would, in time, enable China and other countries to reduce their reliance on the dollar, by far the world’s leading global reserve currency; this dependence has left China and others feeling vulnerable in the wake of the global financial crisis in 2008. Weightings will be 41.73 percent for the dollar, 30.93 percent for the euro, 8.33 percent for the yen and 8.09 percent for the British pound.

While spurring global yuan investment, the SDR inclusion will commit China to liberalizing its financial system, making it more sophisticated and efficient.

IMF Managing Director Christine Lagarde said the inclusion was “clearly an important milestone in a journey that had begun months, if not years ago” to a “market-driven” economy in China.

Central banks are likely to favor products such as yuan bonds issued by the Chinese government, state banks, high-quality corporate bonds and multinationals, Standard Chartered said.

The Chinese yuan will join a basket of the world’s leading currencies, the International Monetary Fund announced Monday.

The Chinese yuan clearly deserves a place in that grouping.

Eom Chi-sung, head of the worldwide team at the Federation of Korean Industries (FKI), said 90 percent of trade carried out by local companies with China uses the dollar.

MAS said it looked forward to further strengthening co-operation to help foster a resilient and thriving yuan ecosystem in the region.

Japanese Finance Minister Taro Aso was among those who also welcomed the IMF’s decision.

The yuan can only move up or down 2 percent against the US dollar from a mid-rate set daily by the central bank.

Others pointed out that China is South Korea’s No. 1 export market and that Asia’s fourth-largest economy has been moving to increase use of the Chinese currency for some time.