Standard Chartered Bank said that central banks in the world could raise their yuan holdings by US$85 billion-US$125 billion worth of the Chinese currency in 2016 with the Chinese unit’s entry into the SDRs scheduled to take effect on October 1 that year. “The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented and is a clear, stronger representation of the global economy”, Lagarde said.
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Lagarde also called the vote a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems, according to Deutsche Presse-Agentur.
The yuan’s inclusion is a largely symbolic move, with few immediate implications for financial markets. The action was taken after the executive board at International Monetary Fund completed the regular five-yearly review of the basket of currencies that make up the Special Drawing Right (SDR).
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.
In August, China made a decision to devalue the yuan, bringing it more in line with market forces and suggesting the currency will be less tightly controlled.
The yuan’s inclusion in the SDR basket is positive for Thailand since China is the country’s largest trading partner, according to the Commerce Ministry.
As a result of the International Monetary Fund decision, China would become a “much more responsible financial power”, Ann Lee, an economics professor at New York University, said in an interview with Al Jazeera. It is perhaps arguable that the Yuan is yet to fulfil the requirement of being widely used in global trade at the moment, but agreements that the Chinese have struck with the United Kingdom are created to boost this in the coming years. Mr. Yi announced that China will maintain a controlled float system before it gradually transfer to a free float which means the central bank stays out of control the value of currency.
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Susin added that China had been lobbying this decision since “it will strengthen China’s position in the world markets and will reduce the risks that are associated with changes in the policy of the US Federal Reserve and other central banks” and increases Chinese influence in the world. Whilst the Yuan has strengthened against other major currencies, this has been on the coat-tails of a strengthening US Dollar that the Yuan has shadowed.
