IMF approves RMB for currency basket

Christine Lagarde, managing director of the International Monetary Fund (IMF), announced on Monday noon that the IMF Executive Board, which convened in the morning, has voted to include the Chinese currency, RMB, into IMF's SDR (Sprecial Drawing Right) basket. Chen Weihua/China Daily

The International Monetary Fund (IMF) on Monday admitted China's yuan into its benchmark currency basket, after completing

the regular five-yearly review of the basket of currencies that make up the Special Drawing Right (SDR).

A key focus of the board review was whether the Chinese renminbi (RMB) met all existing criteria and to be included in the basket. The Board today decided that RMB met all existing criteria and, effective October 1, 2016 the RMB is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the US dollar, the euro, the Japanese yen and the British pound.

The weight of the RMB in the SDR basket is 10.92%, whereas the weights of the U.S. dollar, the euro, the Japanese yen and the British pound are 41.73%, 30.93%, 8.33% and 8.09% respectively.

"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," said Christine Lagarde, managing director of the IMF.

"It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China's monetary and financial systems, " she said.

The value of the SDR will be based on a weighted average of the values of the basket of currencies comprising the US dollar, Euro, the Chinese renminbi, Japanese yen, and British pound.

The inclusion of the RMB will enhance the attractiveness of the SDR by diversifying the basket and making it more representative of the world's major currencies.

The SDR interest rate will continue to be determined as a weighted average of the interest rates on short-term financial instruments in the markets of the currencies in the SDR basket.

Authorities of all currencies represented in the SDR basket, which now includes the Chinese authorities, are expected to maintain a policy framework that facilitates operations for the IMF, its membership and other SDR users in their currencies. The paper presented to the Board will be released soon.