HONG KONG, December 2, 2015– This week, the Chinese Yuan, the basic unit of the Renminbi (RMB), was assigned the elite status of becoming one of the world’s reserve currencies. The decision to assign the Yuan reserve status, made by the International Monetary Fund (IMF), highlights China’s increasing economic clout.
The Renminbi’s new status, however, does create uncertainty for China’s governing doctrine. In order to meet the IMF’s requirements to become a reserve currency, China is forced to loosen its communist control over the currency. This change has created market volatility throughout China in an already slowing economy.
The U.S. Dollar, Japanese Yen, British Pound and Euro remain reserve currencies. However, the addition of China into the reserve basket came at the expense of the Pound and Euro. Effective October 1, 2016, the Renminbi is determined to be a freely usable currency and will be included in the Special Drawing Right (SDR) basket.
“The Executive Board’s decision to include the RMB in the SDR basket is an important milestone in the integration of the Chinese economy into the global financial system. It is also in recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems,” IMF managing director Christine Lagarde said in a statement in Washington. “The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”