Moody’s hosts IMF’s decision since 2016 to include yuan in SDR basket

But both the USA and China stand to benefit if and when it does, Bernanke said, adding that the financial benefits conferred by the dollar’s reserve status were largely superficial.

It is also recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems, she added.

 The inclusion of the yuan was backed by the US, Japan and Britain, reflecting expectations that China will play a bigger role in the management of the global economy. The yuan CNH= CNY= would not join until October 2016, allowing reserve managers time to prepare. This elite list is called the Special Drawing Rights basket, the group that is used to value the assets managed by central banks to help the countries defend against fluctuations in exchange rates.

The SDR is an global reserve asset which was created by the IMF in 1969 to supplement its member countries’ official reserves.

Many observers say it’s the market itself, rather than the renminbi’s addition to the SDR basket, will determine whether or not the yuan will become a major global reserve currency.

To ensure inclusion, Beijing has undertaken a flurry of reforms in recent months, including better access for foreigners to Chinese currency markets, more frequent debt issuance and expanded yuan trading hours.

Earlier this week, the International Monetary Fund (IMF) executive board announced renminbi would weigh 10.92 percent in its new SDR basket, putting the currency only after U.S. dollar and the euro, effective from Oct 1, 2016. These are challenges that the Chinese government has to now take up to improve the popularity of the Renminbi across the globe and make it a truly worldwide reserve currency like the U.S. dollar. China did so partly to meet the IMF’s rule that a currency must be “freely usable” before it can be included in its benchmark.

It is used for transactions between central banks and the International Monetary Fund, as well as to decide the currency mix that countries like Greece, for example, receive when the International Monetary Fund provides financial aid.

Nevertheless, its inclusion makes a historical impact on the Chinese economy, as well as the global worldwide financial system. China on November 12 put into circulation a new version of its 100-yuan banknote – the highest denomination available in the world’s second-largest economy – with added golden touches that the government said was harder to forge.

Xinhua said following the announcement, the central parity rate of the yuan weakened by 11 basis points to 6.3973 against the USA dollar today, according to the China Foreign Exchange Trading System.

The BOT has gradually invested in yuan-denominated-bonds for diversification of international-reserve management while promoting the Chinese currency as an alternative for payment since 2010, he said.