Yuan joins IMF’s elite reserve currency club in a milestone moment for China

by Enoch Yiu/ 30 September, 2016/ South China Morning Post

China’s yuan joins an elite group of reserve currencies created by the International Monetary Fund on Saturday in a move hailed as a milestone in the country’s rise to global financial prominence.

From tomorrow, the yuan, also known as the renminbi, will become the fifth member of the IMF’s prestigious Special Drawing Rights (SDR) basket of currencies, alongside the US dollar, euro, Japanese yen and British pound.

Analysts say it marks the beginning of a new era for the yuan, paving the way for its wider adoption in international trade and bolstering China’s status as a key player in the global financial system.

However, they also say that Beijing would need to carry out more reforms in the years ahead to push the internationalisation of the yuan, as it is now the only SDR reserve currency that cannot be fully traded. International investors still face a lot of restrictions in trading in yuan-denominated bonds and stocks.

Peter Wong Tung-shun, chief executive of the Asia-Pacific region for HSBC, described the inclusion of the yuan in the SDR basket as “a landmark moment in the renminbi’s journey towards becoming a truly international currency.”

The SDR is an international currency reserve created by the IMF in 1969 to promote trade, increase liquidity and supplement member countries’ official reserves during financial crises.

Beijing first started to allow use of the yuan outside the mainland in 2003 when it let Hong Kong banks conduct certain designated business in the currency. In 2009, it started to push the currency harder, permitting international companies and businessmen to settle trade in yuan, and a year later allowing the yuan to be used in investment. Read more…

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