The IMF’s decision to consider the Chinese renminbi, also known as yuan, as a world currency will greatly expand its usage in the global trade, alongside other world currencies such as the United States dollar, Japanese yen, British pound and the euro.
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“The addition and the inclusion of the renminbi in the SDR basket of currencies is a recognition of the significant reforms which have been conducted, of the significant opening up of the Chinese economy, of the financial, more market-driven principles that are being used by the Chinese authorities going forward”. China requested that the Yuan be given reserve currency status previous year.
According to Sky News report, yuan will have a 10.92 percent share in the International Monetary Fund currency basket, which was last recast in 2010 with 41.9 percent dollar, 37.4 percent euro, 11.3 percent sterling and 9.4 percent yen.
Yuan’s inclusion will be effective from October 1, 2016, the International Monetary Fund said after the review meeting of its Executive Board.
Lew also said that the Dodd-Frank law of 2010 has made the financial system “safer and sounder”.
China shocked markets in August with a surprise depreciation of the yuan.
With only 38 central banks holding yuan-denominated reserves, many say that including the yuan in the SDR basket will prompt central banks and private investors around the world to increase their yuan-denominated holdings.
According to the forex reserves movement figures on the Central Bank of Nigeria’s (CBN) website, the reserves derived mainly from the proceeds of crude oil sale, remained within the band of $30 billion throughout November.
“The South China Morning Post said while any direct impact may not be immediately visible, the IMF’s decision will push the government to continue helping its yuan capital market mature, with more diversified products and active market transactions both onshore and off”.
These include the adoption of a market-oriented daily exchange rate-fixing regime; allowing foreign central banks and worldwide financial organisations to access the onshore bond and foreign exchange markets; and setting freer interest rates. The yuan is expected to become the world’s second-most popular global currency by 2030, in line with China’s current position as the world’s second-largest economy.
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The average is used as a measure of value for the IMF’s “special drawing rights”, which quantify how much reserve currency each of the 188 member countries can call on.
