The U.S. Treasury Department said it supported the recommendation by International Monetary Fund staff that China’s currency – also known as the renminbi – be included in the Special Drawing Rights basket.
Advertisement
The weighting of the other currencies in the basket is 41.73 percent for the United States dollar, 30.93 percent for the euro, 8.33 percent for the Japanese yen and 8.09 percent for the British pound.
The move makes sense for the IMF since it recognizes China’s increasing economic power and the steps the government has taken to “open up their capital markets, to meet global norms in financial regulation, and to increase the extent to which market forces help determine the renminbi’s value, Bernanke admits, but argues that it doesn’t suggest that the renminbi “will rival the dollar as an worldwide currency, at least not any time soon”. Barry Eichengreen a professor at the University of California Berkeley told Chinese news agency Caixin that the IMF’s decision is symbolic because many investors were already aware of the rising status of the yuan as an worldwide currency. China is the world’s second largest economy behind the USA and had asked for the yuan to become a reserve currency past year.
“They recognised some remaining operational challenges, but expected their impact to be mitigated by a number of factors, including the unencumbered access of fund members and SDR users to both onshore and offshore markets”, the IMF said in a statement, summing up Monday’s board discussion. As China’s share of the global economy grows and its financial markets develop, we can expect global reserve managers to invest more in China, an MAS spokesperson said in November. It can be exchanged among governments for freely usable currencies in times of need.
That compares with over 43 percent for the US dollar, and almost 29 percent for the euro, global transactions organization SWIFT said in October.
While spurring global yuan investment, the SDR inclusion will commit China to liberalizing its financial system, making it more sophisticated and efficient.
The Chinese yuan will join a basket of the world’s leading currencies, the International Monetary Fund announced Monday.
The Monetary Authority of Singapore welcomed the development on Tuesday, saying: “This is a momentous and positive development for the global monetary system and reflects the growing use of the RMB as an worldwide payments currency for trade and investment”.
Advertisement
Darryl Hooker, co-head of EBS BrokerTec Markets, a leading electronic trading platform, described the IMF’s decision as a key milestone in the internationalisation of the yuan: “The speed at which the renminbi has reached major currency status on the global stage has been unparalleled”.
