The International Monetary Fund has included the Chinese yuan, also called Renminbi, in its reserve currency basket, which is a historical moment for this currency.
IMF Executive Board on Monday said the yuan is included in the special drawing rights basket together with the US dollar, euro, pound sterling and yen.
To meet the requirements of the fund, in recent months, China has undertaken a number of reforms, easing foreign access to its foreign exchange market, participating in bond issue and extending trading session.
The inclusion of the yuan in the basket of currencies the IMF is largely a symbolic gesture that is unlikely to have an immediate impact on the financial markets. However, this is the first case of including a new currency in the basket of the IMF in 35 years.
Recently, the finance ministers and central bank governors of the G7 have announced that they agree that the Chinese yuan to become a reserve currency of IMF. This inclusion will put further pressure on Beijing authorities, who will have to change the way they communicate with investors and the world, says the Wall Street Journal.
China has pledged to alleviate the tight control on the value of the yuan and to open its financial system.
"We will have to enhance investors’ confidence in yuan assets, and at the same time to prevent financial risks associated with a more global currency. These demands require various financial reforms, carried out in a coordinated manner," said Sheng Songcheng, head of the statistics department from China's Central Bank.
The expected inclusion of the yuan among SDR (Special Drawing Rights) basket currencies used by the IMF in international transactions would represent a major achievement for PBOC Governor, Zhou Xiaochuan, and his deputies. Analysts say that Zhou Xiaochuan and his successors will have to push for more changes in the Chinese economy in order to transform the yuan into a global currency.
The worst year in the last decade for euro looks even darker after inclusion of the Chinese yuan in the IMF basket, writes Bloomberg. Euro share will drop to 30.93%, from 37.4%. The yuan will have a share of 10.92%, while the dollar of 41.73%, Japanese yen of 8.33%, and the British pound of 8.09%.