The Chinese renminbi, also known as yuan, will soon be among the world’s elite currencies as the International Monetary Fund (IMF) has approved its inclusion in the Special Drawing Rights (SDR) basket.
The yuan will join the US dollar, the Japanese yen, the Euro and the British pound in the SDB. IMF uses these elite currencies to denominate its loans. The addition will go in effect from October 2016.
“The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented and is a clear, stronger representation of the global economy,” IMF Managing Director Christine Lagarde said Monday during a press briefing at the IMF’s headquarters in Washington, according to Bloomberg.
This is the first time that the IMF has changed SDB’s composition since 1999. Back then, euro had replaced the Deutsche mark and French franc.
IMF’s stamp of approval will likely reduce China’s dependence on the US dollar in international trade. It will also make it easier for Chinese companies to borrow in yuan and avoid fluctuating exchange rates.