Seven things you need to know about yuan's inclusion in SDR basket

How does the IMF define the concept of "freely usable"?

A clerk counts yuan bank notes and US dollar bills at a bank of the Industrial and Commercial Bank of China in Huaibei, East China's Anhui province, Nov 28, 2012. [Photo/IC]

A "freely usable" currency is defined in the IMF's Articles of Agreement to mean a currency that the IMF determines is widely used to make payments for international transactions, and is widely traded in the principal exchange markets.

The concept of a freely usable currency is different from whether a currency is either freely floating or fully convertible. A currency can be widely used and widely traded even if it is subject to some capital account restrictions. In the past, currencies such as the pound sterling and Japanese yen were determined freely usable when some capital account restrictions were in place. On the other hand, a currency that is fully convertible is not necessarily widely used and widely traded.