China's yuan joins elite club of IMF
reserve currencies
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[October 01, 2016]
BEIJING (Reuters) - China's yuan
joins the International Monetary Fund's basket of reserve currencies on
Saturday in a milestone for the government's campaign for recognition as
a global economic power.
The yuan joins the U.S. dollar, the euro, the yen and British pound in
the IMF's special drawing rights (SDR) basket, which determines
currencies that countries can receive as part of IMF loans. It marks the
first time a new currency has been added since the euro was launched in
1999.The IMF is adding the yuan, also known as the renminbi, or
"people's money", on the same day that the Communist Party celebrates
the founding of the People's Republic of China in 1949.
"The inclusion into the SDR is a milestone in the internationalization
of the renminbi, and is an affirmation of the success of China's
economic development and results of the reform and opening up of the
financial sector," the People's Bank of China said in a statement.
China will use this opportunity to further deepen economic reforms and
open up the sector to promote global growth, the central bank added.
The IMF announced last year that it would add the yuan to the basket, so
actual inclusion is not expected to impact financial markets. But it
puts Beijing's often opaque economic and foreign exchange policy in the
international spotlight as some central banks add yuan assets to their
official reserves.
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Critics argue that the move is largely symbolic and the yuan does not
fully meet IMF reserve currency criteria of being freely usable, or
widely used to settle trade or widely traded in financial markets. U.S.
Republican presidential nominee Donald Trump has said he will formally
label China a currency manipulator if he wins November's election.
China stunned investors by devaluing the currency last year and the yuan
has since weakened to near six-year lows, adding to worries about
already feeble global growth.
Some China watchers also fear that Beijing's commitment to further
market opening and financial sector reforms will fade after its
diplomatic success, despite repeated reassurances from Beijing it will
continue with the process.
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A 100 Yuan note is seen in this illustration picture in Beijing
March 7, 2011. REUTERS/David Gray/File Photo
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U.S. Treasury Secretary Jack Lew said on Thursday the yuan was
"quite a ways" from true global reserve currency status. The new IMF
status recognizes the "enormous" change in China in the last 10
years that had made the yuan more open, but Beijing still had work
to do to make its currency and its economy more market-driven, he
said. "Being part of the SDR basket at the IMF is quite a ways away
from being a global reserve currency," he said.
Capital Economics said inclusion of the currency in the IMF's SDR
basket will have minimal impact on foreign demand for yuan assets,
so "offers little support" for the currency.
"If anything, the risk is that official intervention to keep the
renminbi stable ahead of its inclusion will subsequently be paired
back, allowing for renewed deprecation," it said in a research note.
The IMF on Friday fixed the relative amounts of the five currencies
in the basket for five years, based on their average exchange rates
over the past three months.
(Reporting by Nathaniel Taplin; Additional reporting by Ben
Blanchard; Editing by Neil Fullick)
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