The International Monetary Fund has announced that China’s currency the yuan will be included in its group of reserve currencies.
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“The IMF said the yuan” satisfied with all present standards” and should become section of the basket in October 2016.
But in the long term, its inclusion could encourage the Chinese central bank to take a more hands-off approach to the currency’s movement and stay on the financial reform track, he said, adding that the yuan would then play a greater role in worldwide trade and financial markets. To meet the criteria of IMF, Beijing undertook many reforms in recent months including better access for foreigners to Chinese currency markets.
Hong Hao, chief strategist at Bocom International Holdings, says the yuan’s inclusion in the exclusive currency club isn’t likely to have an immediate impact on the value of the renminbi or its use as an international reserve currency. The Chinese yuan’s entry to the worldwide reserve set underscores the ascension of the Chinese economy and global recognition of its growing power by anointing the yuan – the first from the developing category – as a major reserve currency.
“The Executive Board’s decision to include the RMB in the SDR basket is an important milestone in the integration of the Chinese economy into the global financial system”.
Mingtai Fan, the head of the Quantitative Finance Research Center of the Chinese Academy of Social Sciences’ Institute of Quantitative and Technical Economics, agreed that the IMF decision corresponded to the global realities.
The special drawing rights (SDR) system was created by the International Monetary Fund in 1969 to support the Bretton Woods fixed exchange rate system.
“Following the successful SDR inclusion, China may further loosen its grip on the CNY and allow material currency depreciation over the coming year”.
Several countries have a trade deficit with China, and need the Yuan; on the other hand, many countries in Africa have a trade surplus with China, and have been accumulating Yuan.
Some analysts have suggested that by 2030 the yuan will become one of the top three major worldwide currencies, together with the dollar and the euro.
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(Chinese) “We completely have the ability to maintain renminbi (yuan) exchange rate stability at a reasonable and balanced level”. As of October, the PBOC has swap arrangements with 33 countries and regions that have involved more than 3.3 trillion yuan. “It’s going to gain recognition from the global market that the IMF recognizes it as an worldwide reserve currency”.
