Yuan set to join IMF’s SDR basket

The Chinese Yuan is set to become part of the International Monetary Fund’s (IMF) special drawing rights (SDR) basket after staff at the IMF said that the currency is seen as “freely usable”.

Christine Lagarde, managing director of the IMF said that a staff paper presented to the executive board had examined the issue ahead of a board review due at the end of the month.
In the paper, IMF staff assesses that the RMB meets the requirements to be a “freely usable” currency and, accordingly, the staff proposes that the Executive Board determine the RMB (Chinese Renminbi) to be freely usable and include it in the SDR basket as a fifth currency, along with the British pound, euro, Japanese yen, and the US dollar.
Chinese authorities have addressed all remaining operational issues identified in an initial staff analysis submitted to the Executive Board in July.
In August, the People’s Bank of China (PBoC) had said that it would allow the value of the yuan to be more closely linked to the market. The reference rate for the yuan would be fixed based on the previous days movement in the spot market, the PBoC had indicated. Analysts had seen that as a move meant to appease the IMF and ensure the Yuan’s entry into the SDR basket.
The SDR is an international reserve asset, created by the IMF in 1969. Its value is currently based on a basket of four key international currencies. Once included, the Yuan would become the fifth currency in the basket. SDRs can be exchanged for freely usable currencies.

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