RMB goes global, SDR entry milestone

Photo taken on Nov 30, 2015 shows a woman walking past the headquarters of the International Monetary Fund (IMF) in Washington DC, the United States. The International Monetary Fund (IMF) announced on Monday that Chinese currency renminbi (RMB) is eligible for joining the Special Drawing Rights (SDR) basket as an international reserve currency. [Photo/Xinhua]

The International Monetary Fund (IMF) executive board has decided to include the Chinese currency, the yuan, to its Special Drawing Rights (SDR) basket, marking a milestone in the renminbi (RMB) global march and a vote of confidence in China's ongoing financial reforms.

During a meeting on the regular five-yearly review of the SDR basket, the IMF executive board, which represents the fund's 188 members, decided that the RMB "met all existing criteria," the Washington, DC-based international lender said in a statement afterwards.

Effective from Oct 1, 2016, the RMB will be included in the SDR basket as a fifth currency, along with the US dollar, the euro, the Japanese yen and the British pound.

IMF Managing Director Christine Lagarde described the decision as "an important milestone in the integration of the Chinese economy into the global financial system."

"It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China's monetary and financial systems," she said.

The RMB will have a weighting of 10.92 percent in the new SDR basket, while respective weightings of other currencies in the basket are 41.73 percent for the US dollar, 30.93 percent for the euro, 8.33 percent for the Japanese yen and 8.09 percent for the British pound.

Created by the IMF in 1969, the SDR is an international reserve asset created to supplement its members' official reserves. It can be exchanged among governments for freely usable currencies in times of need.

The long-awaited outcome came as China has been pushing its currency to wider use on the global stage.

The RMB became the world's No 2 currency for global trade finance in 2013, and overtook the Japanese Yen to become the fourth most-used world payment currency in August, only after the US dollar, the euro and the sterling, according to the global transaction services organization SWIFT.

To meet the IMF "freely usable" criteria, Chinese authorities undertook a series of reforms in recent months, such as improving its foreign exchange rate formation system, opening up its interbank bond and forex markets, and improving data transparency by subscribing to the IMF's Special Data Dissemination Standard (SDDS).

China's central bank, the People's Bank of China (PBOC), announced early Tuesday morning that it welcomes the IMF decision to include the redback in the SDR basket, saying the move shows the IMF's recognition of China's economic development and reform achievements.

"The joining of RMB in the SDR basket means the international community has greater expectations on China to play an active role in the world economic and financial arena," the statement said.