Earlier this year, the International Monetary Fund (IMF) called for a delay until at least well into 2016 before the Chinese Yuan would be recommended for inclusion in the Special Drawing Rights (SDR) basket of currencies. But with such a rapid increase in RMB acceptance over the past few months, and the creation of Yuan bond hubs in London and Germany, the IMF appears to have accelerated their timeline with IMF Chief Christine Lagarde announcing on Nov. 14 that she is recommending the currency for immediate inclusion in the SDR.
Lagarde cited numerous reforms that China has instituted over the past few months as the catalyst for this swift reversal of opinion on the Yuan’s inclusion occurring now rather than later, and has set in motion the potential for China to compete head on with the dollar’s long-standing reign as the only global reserve currency used as the primary medium for trade.
The People’s Bank of China, the central bank, welcomed on Saturday a statement made by IMF chief Christine Lagarde recommending inclusion of Chinese yuan in Special Drawing Right(SDR) currency basket.
Lagarde said in a statement that the staff experts, in their report to the IMF board, ruled the yuan or renminbi (RMB) now “meets the requirements to be a ‘freely usable’ currency.”
The yuan failed to be included in the SDR in 2010 when the IMF said the currency did not meet the “freely usable” criteria, which was deemed as a key hurdle to the yuan joining the basket.
Seen as the leading currencies of international trade, the SDR basket is currently made up of the dollar, euro, Japanese yen and the British pound. – China.org.cn
China has for awhile believed that acceptance into the SDR would come swiftly, as seen by their recent creation of a new counterfeit proof 100 Yuan currency bill meant to help internationalize the Yuan by exporting it for trade. And with the Yuan already number two in global trade settlement, passing the Euro on the list back in 2013, its star is rising at the same time the dollar’s use in trade settlement wanes.
Over the past three years, China has duplicated nearly all financial infrastructures that the West uses to run the global financial system. And with several more keys pieces nearly ready to go online by the end of the year, or in early 2016, the battle is now on for supremacy over who controls the world’s reserve currency, with the IMF’s approval today only adding to the Yuan’s luster.