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| International Monetary Fund (IMF) Managing Director Christine Lagarde speaks during a news conference at the IMF in Washington, Monday, Nov 30, 2015, to announce the Chinese yuan will join a basket of the world's leading currencies. (AP Photo / Susan Walsh) |
WASHINGTON — The International Monetary Fund says the Chinese yuan will join a basket of the world's leading currencies.
The IMF announced that the yuan "met all existing criteria" to be included with the US dollar, euro, Japanese yen and the British pound as one of the currencies used for the global organization's Special Drawing Rights, which is used as the standard for dealing with its 188 member governments.
The SDR is an international reserve asset created by the IMF in 1969 to supplement its member countries' official reserves. It can be exchanged among governments for freely usable currencies in times of need.
China is the world's second largest economy. The IMF's decision is set to take effect in October 2016.
At the last SDR review in 2010, the yuan met the export criterion, but failed to meet the "freely usable" standard.
To pave the way for the yuan's inclusion, the Chinese authorities have stepped up its pace of liberalizing the country's financial market to make the yuan freely usable across the globe.
At the Group of 20 summit held in Antalya of Turkey this month, Chinese President Xi Jinping said the inclusion of the yuan will help increase the representation and attraction of the SDR, improve the international monetary system and safeguard global financial stability.
Adding the yuan alongside the dollar, euro, pound and yen is a symbolic victory for Beijing. It reflects the rising importance of the world's second-largest economy and is an endorsement of gradual Chinese moves toward making the currency freely traded.
TOUGH JOURNEY AHEAD
China started promoting RMB's internationalization since 2009, which has grown at a pretty brisk pace over the past two years, President and CEO of Bank of China USA Chen Xu told Xinhua.
The internationalization of a country's currency usually involves three phrases: being used as an international trade settlement currency, turning into an investment currency, being treated as a reserve currency.
Gaining the status of a reserve currency will prompt central banks to increase their holdings of the yuan in the reserve currency portfolio. Private sectors will also be encouraged to gradually buy more yuan-denominated assets.
The global reserve currency status, however, will not automatically turn the yuan into a major global reserve currency, which is a choice of the market.
Key efforts in 2015
On July 14 , China's central bank - the People's Bank of china - granted foreign central banks, sovereign wealth funds and international financial institutions access to the domestic interbank bond market and further opened the onshore interbank foreign exchange market to such institutions on Sept 30.
On Aug 11 , the PBOC reformed the country's exchange rate formation mechanism to allow the central parity rate of the yuan to better reflect the market rate.
On Oct 8 , the first phase of the Cross-border Interbank Payment System (CIPS), which provides capital settlement and clearing services for cross-border yuan transactions for financial institutions, was launched in Shanghai, promoting the global use of the Chinese currency.
On Oct 20 , the PBOC extended an agreement on a reciprocal currency swap scheme with the Bank of England to promote London as an offshore RMB center. Meanwhile, the PBOC also issued its first offshore RMB note in London.
On Oct 24 , the central bank scraped the ceiling limits on all deposit interest rates, marking the completion of interest rate liberalization.
