The renminbi joins the Us dollar, the British pound sterling, the euro, and the Japanese yen in this club.
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She added that the decision is a “recognition of the progress” that has been brought about by the reforms that Chinese authorities have made in their finance and monetary systems.
China’s central bank on Tuesday dismissed concerns over yuan depreciation after the currency’s entry to the IMF’s Special Drawing Rights (SDR) basket.
Lagarde and the United States had supported its inclusion in the basket, known as Special Drawing Rights (SDR). The inclusion of the RMB will enhance the attractiveness of the SDR by diversifying the basket and making it more representative of the world’s major currencies.
Martin Wolf, the chief economic commentator for the Financial Times newspaper, said the IMF’s decision will have little impact on the use of the yuan internationally given that the SDR regime has been marginalized in the global monetary system. “It’s going to gain recognition from the global market that the IMF recognizes it as an worldwide reserve currency”. The offshore yuan traded in Hong Kong weakened by 0.2 percent to 6.4369.
“The IMF endorsement is a bright spot in what has been a tumultuous year for the world’s second-biggest economy, which has been buffeted by slowing growth, a tumbling stock market and a shift by authorities toward a more market-oriented exchange rate”.
The yuan ” s inclusion is a largely symbolic move, with few immediate implications for financial markets. “The WTO had a huge number of members, while the SDR had only four currencies representing the most powerful economies”.
He went on to say, however, that “the most likely scenario is that the renminbi will erode but not seriously rival the dollar’s status as the dominant global reserve currency”. Beginning in October, the dollar will account for 41.73% of the SDR basket, the euro 30.93%, the yuan 10.92%, the yen 8.33% and the pound 8.09%.
The IMF director explained that the new SDR basket will be launched next October to provide sufficient lead time for the IMF, its members and other SDR users to adjust to these changes. It said the main point is that the decision is “a new way of conveying the increasingly apparent message that China has a central role in driving the performance of the world economy”.
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The Chinese government, however, still pegs its currency to the dollar.
