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.
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Xinhua reported the International Monetary Fund will add the Chinese currency to its SDR basket from Oct 1 next year with a weighting of 10.92 per cent, as the currency has “met all existing criteria”.
Although the renminbi’s inclusion will be viewed as recognition of the strides that the Chinese authorities have made to reform and open up its economy, GaveKal says that the move is “largely symbolic” and challenges remain ahead for the currency.
Special Drawing Right is an worldwide reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves with an asset that could be exchanged for freely usable currencies in order to smooth global trade.
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.
“It also means that the global community expects China to play a bigger role in the worldwide economic and financial system”, the statement said.
China’s leadership has made it a priority to join this group of currencies, naming it in October as one of its highest economic policy priorities in the coming years. China’s stocks closed mixed on Tuesday, with the benchmark Shanghai Composite Index up 0.32 percent to close at 3,456.31 points.
They have also said the yuan’s continuing inclusion in the basket would depend on whether China progresses with its financial reforms.
The move will enable International Monetary Fund members to procure the yuan from others, and the Washington-based multinational lender has urged Beijing to speed up work to remove restrictions on free trade in the currency.
The honour paves way for wider use of renminbi in trade and finance besides exalting China’s standing as a global economic power. The yuan’s weighting surpasses that of the yen at 8.33% and the pound at 8.09%. Money managers also predict central banks will add the yuan to reserve holdings slowly until Beijing lower its financial markets restrictions.
Mr. Yi said China’s long-term goal is to allow a “clean float” of the yuan – meaning the central bank will stop intervening in currency markets to control the yuan’s value.
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“This represents a significant portfolio rebalancing for global bond and equities investors which will have far-reaching effects on China’s capital markets and economy, as well as financial markets and currencies elsewhere”, Mr Briscoe said.
