International monetary fund approves China's yuan as elite reserve currency

  • International monetary fund approves China's yuan as elite reserve currency

International monetary fund approves China's yuan as elite reserve currency

As of October 1, 2016, the renminbi will join the pound sterling, Us dollar, yen and euro in the IMF's special drawing rights (SDR) basket.

In 2009, Beijing unsuccessfully pressed for creation of a new reserve currency to cut reliance on dollars after the global financial crisis.

The International Monetary Fund on Monday approved the Chinese yuan as one of the world's main central bank reserve currencies, an acknowledgment of the country's rising financial and economic heft.

According to the forex reserves movement figures on the Central Bank of Nigeria's (CBN) website, the reserves derived mainly from the proceeds of crude oil sale, remained within the band of $30 billion throughout November.

The Chinese government has been touting the inclusion of the renminbi into the SDR basket as a milestone in its push to make the Chinese currency more global.

Lagarde said that the decision was made after RMB met all existing criteria. "As China's integration continues and further deepens, and is paralleled in other emerging market economies, it could bring about a more robust worldwide monetary and financial system which, in turn, would support the growth and stability of the global economy", said the IMF's Director of the Strategy, Policy and Review Department, Siddharth Tiwari.

The IMF requires currencies included in the Special Drawing Rights to be "freely usable" and traded widely in foreign exchange markets. While its inclusion in the SDR basket will lead to a rise in demand and more market-driven volatility for the currency in the years to come, it will still take some 11 months before the renminbi is actually added into the SDR basket in Oct next year, says OCBC economist Tommy Xie.

With its inclusion of the RMB in the SDR basket, the International Monetary Fund is effectively declaring the Chinese currency as safe and reliable.

Many analysts believe this will allow for worldwide use of the yuan in global trade, and will help stabilize the USA dollar.

Since the United States dollar has been strong against all currencies this year, it will keep its coveted 41.73 percent of SDR weighting.

"For the renminbi to become a funding currency and an investment currency, we shall see more deals coming out from the global market to borrow renminbi or to invest in the renminbi-denominated assets".

"Thailand should gain an advantage in terms of trade and investment stemming from growing use of the yuan in the coming periods", he said. If the USA were to declare that the Yuan is being manipulated, the U.S. authorities would be forced to take sanctions against the Chinese, so they have always fought shy of making such a declaration.