The International Monetary Fund (IMF) on Monday decided to add China’s renminbi to the fund’s reserve currency basket, terming the move as a milestone that should encourage Beijing to carry out further reforms.
The widely-expected inclusion of the RMB to the Special Drawing Rights (SDR) basket alongside the dollar, euro, pound sterling and yen will take effect from October 2016.
“The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented [by China] and will continue to be implemented,” IMF Managing Director Christine Lagarde told reporters in Washington.
“It’s a milestone in a journey that will include certainly more reforms,” she said after an IMF executive board meeting.
Reuters cited a source as saying that the decision on the RMB inclusion into the benchmark SDR currency basket was unanimous.
To meet the IMF’s criteria, Beijing has undertaken a flurry of reforms in recent months, including better access for foreigners to Chinese currency markets, more frequent debt issuance and expanded yuan trading hours.
China’s central bank, meanwhile, welcomed the IMF decision and said that the country will continue to deepen economic and financial reforms.
“Going forward, China will continue to deepen and accelerate economic reforms and financial opening up, and contribute to promoting world economic growth, safeguarding financial stability and improving global economic governance,” the People’s Bank of China said in a statement.
The RMB will have a 10.92 percent weighting in the IMF’s reserve currency basket, in line with expectations.
To be included in the SDR basket, the RMB had to meet the criteria to be “freely usable,” or widely used to make international payments and widely traded in foreign exchange markets — a yardstick it missed at the last review in 2010.
The new SDR formula gives more weight to financial variables and less to exports, reflecting long-standing criticism of the methodology but also cutting the euro’s share to 30.93 percent, from 37.4 percent, according to Reuters.
The RMB will come in with a higher weight than sterling and yen, which will drop to 8.09 percent and 8.33 percent respectively, while the dollar remains broadly unchanged at 41.73 percent.
The IMF decision is likely to fuel demand for China’s currency and for RMB-denominated assets as central banks and foreign fund managers adjust their portfolios to reflect the Chinese unit’s new status.
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