Officials in Beijing said the move was part of a plan to allow the market a greater role in exchange rates.
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China’s yuan will not be added to the global Monetary Fund’s basket of reserve currencies until at least October 2016.
Beijing devalued the yuan in a surprise move last week, causing its biggest one-day loss in two decades and triggering a wave of criticism from U.S. lawmakers and American industries that must compete with cheaper Chinese exports.
China’s botched devaluation of the yuan is widely regarded as a step toward floating the currency, which is also known as the renminbi (or “people’s currency“), and a precursor to it being included in Special Drawing Rights (SDR).
The current SDR basket consists of US dollars, euros, British pounds and the Japanese yen.
Washington has said it hopes Beijing keeps reforming currency policies and meets the IMF’s criteria, but it has not tipped its hand on whether it would back any decision in November to add China.
While not a freely traded currency, the SDR is important as an worldwide reserve asset, and because the IMF issues its crisis loans, crucial to struggling economies like Greece, valued in SDRs.
Joining the basket would give the yuan the IMF’s seal of approval and might encourage foreigners to use the Chinese currency more and to have more confidence in China’s financial markets.
“The PBOC is still intervening”, said Tommy Xie, an economist at Oversea-Chinese Banking Corp in Singapore.
Lagarde has said adding the yuan to the basket is a “question of when”. The fall was attributed to confusion about whether the state-backed equity buying spree and regulatory changes, which stabilised the equity market earlier in the year, will be continued.
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“It’s unfortunate the equity bubble burst when it did and that we are on the cusp of a [US Federal Reserve] rate hike, which along with a weak China, is scaring investors away from emerging markets“, said Mr Peng. However, a run of weak economic data has raised the prospect even this lower target may not be met. However, excluding last week’s volatility, the 0.35 percent increase in USDCNH was the largest in six months.
