Yuan included in ‘historic’ IMF currency basket
October 1, 2016, 9:37 am

The yuan is the currency of choice for the BRICS New Development Bank. It is the fourth most used currency in the world [Xinhua]

The decision to add the yuan to the IMF’s basket of four reserve currencies, known as Special Drawing Rights, or SDRs, was taken last December.

SDRs are global reserve assets established in 1969 to supplement member countries’ official reserves.

Beginning October 1, “the renminbi will be considered by the international community as a freely usable international currency, and will join the basket of the Special Drawing Right together with the US dollar, the euro, the yen and the British pound,” IMF chief Christine Lagarde announced on Friday.

This is the first time the SDR has been expanded to include an additional currency.

The yuan will have a 10.92 per cent weighting in the basket, the IMF said.

After the renminbi’s inclusion in the SDR, weightings will be 41.73 per cent for the dollar, 30.93 per cent for the euro, 8.33 per cent for the yen and 8.09 per cent for the British pound. The weighting will affect the interest countries pay when they borrow from the IMF.

Why the yuan?

The yuan is currently the fourth most used currency around the world, according to the Society for Worldwide Financial Telecommunications (SWIFT)

More than 100 countries used the yuan for payments in 2015, of which over 90 per cent of flows were concentrated in 10 countries.

Singapore processed 24.4 percent followed by the United Kingdom with 21.6 percent.

The yuan, not the dollar, is also the currency of choice for the BRICS New Development Bank (NDB), which announced its first investment in April.

More than 1,700 financial institutions made worldwide payments in the yuan in 2015, up 14 per cent from a year earlier.

In her announcement on Friday, Lagarde hailed the inclusion of the yuan in the SDRs as a testament to how far China has moved in developing its financial systems.

She also said that the yuan as the fifth currency in the SDR can also be seen as a means to integrate China’s economy into the global financial system.

The BRICS Post with inputs from Agencies