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IMF Approves Yuan as a Reserve Currency
Dec 02, 2015

The International Monetary Fund has approved China's Yuan (Renminbi) into its elite reserve currency, in a decision described as "an important milestone" for the world's second largest economy. Christine Lagarde, IMF managing director, called the decision an important milestone in the integration of the Chinese economy into the global financial system.

Key Points

  • The Yuan will join the US dollar, Euro, Japanese Yen and British Pound next year in the list of currencies the IMF uses as an international reserve asset.

  • It is also a recognition of the progress that the Chinese authorities have made in the past years.

  • The IMF executive board solidifies China's ambition to see the government-controlled Yuan achieve global status as one of the world's top currencies alongside the US, Europe and Japan.

  • China asked last year for the Yuan to be added to the Fund's Special Drawing Rights list.

  • In August 2015, the IMF considered the currency too tightly controlled to qualify. Now, the IMF says China had taken the steps necessary for the yuan to be called "freely usable.”

  • Yuan's inclusion in the basket was expected to help China open up further to the world economy.

  • As a result of the IMF decision, China would become a much more responsible financial power.

  • The unexpected devaluation of the Yuan last August received good accolades from the IMF as it expanded the currency's movements based on market forces.

  • China also recently announced that an initial group of foreign central banks has been allowed to enter the Chinese currency market, which likely will promote further internationalisation of the yuan in global trading.

  • IMF members can use the Special Drawing Rights (SDR) list to obtain currencies to meet balance-of-payments needs.

  • The Fund also issues its crisis loans –crucial to struggling economies like Greece—valued in SDRs.

  • The Yuan's entry into the IMF list takes effect on October 1, 2016.

The decision puts the Bank of China under pressure to provide more transparency in line with its peers, such as the Federal Reserve and the European Central Bank.

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