The IMF announced on Monday that China’s currency the renminbi (RMB), or yuan, is now eligible to join the Special Drawing Rights (SDR) basket as an global reserve currency.
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Nopporn Thepsithar, president of the Thai National Shippers Council, said some traders who do a lot of business with China might negotiate with their trading partners to use the yuan in the near future.
IMF managing director Christine Lagarde said the addition of the currency recognised China’s reforms of its monetary and financial systems, and reflected the huge use of the currency in global trade and the fact its flexibility had increased.
“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”. The changes could inject fresh volatility into the country, at a time when its economy is already slowing.
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 ministry noted that it would continue to carry out the terms of its bilateral agreement, including the issuance of yuan-denominated foreign exchange stabilization bonds, to lay a stronger foundation for Korean financial institutions’ inroads into the Chinese bond market. This will put the yuan in the same grouping as the USA dollar, euro, British pound, and Japanese yen as globally accepted vehicles through which central banks and financial organisations may repay worldwide debt.
In a statement released on Tuesday (Dec 1), the Monetary Authority of Singapore said IMF’s decision is “a momentous and positive development for the worldwide monetary system”.
Premier status for the yuan is a triumph for China, which has campaigned for years to have its currency recognized internationally.
The yuan will account for 10.92 percent of the SDR basket, the International Monetary Fund said at a news conference on November 30.
U.S. lawmakers have repeatedly refused to ratify a 2010 International Monetary Fund reform to give greater weight to the BRICS group of emerging market powers, namely Brazil, Russia, India, China and South Africa.
Beijing has historically kept tight control of its currency – a cheap yuan has helped boost exports and manufacturing – drawing criticism from the USA government for keeping its value artificially low. Because Korea is one of the few financial centers right now which has a yuan market, that allows Korea to have more direct dealings with the yuan and perhaps gain more stability than perhaps if we just stick with the USA dollar.
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‘On the other, the market consensus is that by following the USA dollar higher, the renminbi has become overvalued and is now primed for a sizable depreciation.
