Chinese yuan set to join IMF’s reserve currency club

Currencies listed in the SDR basket of IMF can be used as an alternate means to settle international transactions among member countries

The Dollar Business Bureau shutterstock_190668482_650  Yuan The International Monetary Firm (IMF) will consider the inclusion of Chinese renminbi (RMB) into the list of its global reserve currency along with the US dollar, British pound, euro and Japanese yen. IMF Managing Director Christine Lagarde on Friday said that the issue is a “key focus” of the quinquennial review of the SDR (Special Drawing Rights) basket. Currencies listed in the SDR basket of the global lender can be used as an alternate means to settle international transactions among member countries. The IMF revises its SDR list after the interval of five years and the next review is scheduled to be held on November 30. Ahead of the SDR review, the IMF staff issued a paper to its Executive Board, suggesting that yuan meets the two major criteria —“widely used” and “widely traded”— to be part of the global currency reserve. “A key focus of the Board review is whether the Chinese renminbi (RMB), which continues to meet the export criterion for inclusion in the SDR basket, also meets the other existing criterion, that the currency be “freely usable”, which is defined as being “widely used” for international transactions and “widely traded” in the principal foreign exchange markets,” Lagarde said. According to analysts, the inclusion of RMB will be a landmark development for the international foreign exchange. Last time, the IMF had added euro in the elite currency club in 1999. “In the paper, IMF staff assesses that the RMB meets the requirements to be a “freely usable” currency and, accordingly, the staff proposes that the Executive Board determine the RMB to be freely usable and include it in the SDR basket as a fifth currency, along with the British pound, euro, Japanese yen, and the US dollar,” she said. The IMF chief also said that the Chinese authorities have addressed all operational issues identified in an initial staff analysis submitted to the Executive Board in July. “I support the staff’s findings. The decision, of course, on whether the RMB should be included in the SDR basket rests with the IMF’s Executive Board. I will chair a meeting of the Board to consider the issue on November 30,” she added.  

November 14, 2015 | 2:43pm IST

The Dollar Business Bureau - Nov 14, 2015 12:00 IST