Finally, the Chinese renminbi has claimed its pride of position as one of the world’s powerful currencies, underlining China’s clout in the global scheme of things. The International Monetary Fund added Chinese renminbi as the fifth currency in its Special Drawing Rights basket, giving the yuan an international status.
According to the IMF, the yuan met the criteria to be included in the basket and the inclusion makes it a freely usable currency like the U.S. dollar, the euro, the Japanese yen and the British pound.
The yuan will be included into to the basket effective October 1, 2016. It will provide sufficient lead time for the IMF, its members and other users of SDR to adjust to the changes.
The yuan will have 10.92 percent weight in the basket. The yuan has more weight than the yen and pound.
IMF Chief Christine Lagarde, said it is a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems.
“The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy,” she said.
The People’s Bank of China welcomed the IMF decision. The bank said it will continue to deepen and speed up the efforts to promote financial reforms.
“This may be of symbolic significance to some but we think it will make hardly any difference to currency demand,” Chang Liu, an economist at Capital Economics, said.
The direct repercussions of the move are small. Demand for the renminbi is unlikely to be affected, the economist said.
The yuan weakened against the dollar as traders turned cautious that the central bank will reduce its support for yuan going forward. The PBoC set today’s central parity rate for yuan at 6.3973 per dollar, compared to Monday’s reference rate of 6.3962.
The material has been provided by InstaForex Company – www.instaforex.com