China’s currency to join the IMF elite

The progress of China’s renminbi (RMB) in joining the US dollar and the euro as a major international currency is set for a further landmark as the International Monetary Fund (IMF) adds it to its basket of reserve currencies, with special drawing rights (SDR).

The move comes less than three weeks after the IMF’s managing director, Christine Lagarde, confirmed that she supported proposals to include the RMB in the elite SDR currency basket.

On the basis that it gets the green light today, the RMB is likely to join the basket from 1st October 2016. Reserve currencies are used by central banks and other financial organisations to help pay down international debt and steady exchange rates.

China, the world’s second-largest economy and only exceeded by the US, requested last year that the RMB become a reserve currency.

“Acceptance into the elite currency club is a recognition of the progress China has made in recent years to liberalise its financial system,” Diana Choyleva, chief economist at Lombard Street Research, told business daily City AM.

“At the behest of the IMF, China has stepped up these efforts since the summer with a view to claiming the prize of SDR membership.”

However, some analysts comment that the IMF move is largely symbolic and that the fund’s SDR, created in 1969 as an alternative to gold as a store for central bank reserves, are something of an anachronism. The elite currency basket was last changed in 2000, when the launch of the single European currency saw the euro replace the German mark and the French franc.


Related reading