Photographer: Tomohiro Ohsumi/Bloomberg

China Says Adding Yuan to IMF Currency Basket Good for Stability

  • Yuan's inclusion in top-rank currency basket `plus' for world
  • China sees IMF board make yuan SDR decision this month

China said adding the yuan to the International Monetary Fund’s reserve currencies would help foster economic stability and President Xi Jinping hopes the board will approve the inclusion when it meets later this month.

QuickTake The People’s Currency

“Our understanding is that the IMF board of directors will discuss the matter and hopefully take a decision on it,” China’s special envoy on Group of 20 affairs, Wang Xiaolong, said on the sidelines of the summit in Turkey on Monday. “We hope for a positive outcome from that discussion.”

IMF staff said in a paper this month that the currency, officially known as remninbi, matched the criteria for inclusion in the Special Drawing Rights reserve-currency basket.

It makes approval by the board all but certain, as major IMF shareholders including the U.S. have said they will support inclusion if the yuan meets IMF criteria. It would be the first change in the SDR’s currency composition since 2001, when the euro replaced the German deutsche mark and French franc.

The Washington-based fund’s endorsement would mark a major milestone for the yuan, which was created after World War II and for years could be used only domestically in the Communist-controlled nation. Approval probably will make more countries comfortable including the currency in their foreign-exchange holdings, while boosting Xi’s drive to open up the world’s second-biggest economy.
 
“When you become part of the SDR basket there’s greater propensity to hold the currency as a reserve,” said Mike Turner, an investment chief at Aberdeen Asset Management Plc in Edinburgh. “People would go ‘Wow, China has become a member of the SDR’ and that might be beneficial to the currency initially, but then as we liberalize capital markets there’s more downward pressure.”

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