IMF Sets New Currency Rates to Reflect Yuan’s Debut as a Global Reserve

Posted: October 1, 2016 in Uncategorized
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The International Monetary Fund on Friday announced a recalculation of its stable of major currencies ahead of the Saturday debut of the Chinese Yuan in the prestigious collection of reserve assets.

The inclusion of the Yuan, the world’s fifth most widely used currency, marks the first time the fund has adopted a new currency to what it calls the Special Drawing Right valuation basket since the euro was added in 1999. It’s predicted that the move will mean the demand for the currency will increase for global transactions.

“The expansion of the SDR basket is an important and historic milestone for the SDR, the fund, China and the international monetary system,” IMF Managing Director Christine Lagarde said at a press conference Friday.

The IMF in November announced plans to add the Yuan to the U.S. dollar, the euro, the Japanese yen and the British pound in its elite basket of global reserve currencies, which are widely used in trades and held by governments and institutions as a foreign exchange reserve.

A currency needs to be “widely accepted” and “freely usable” to enter the SDR basket. The entry of the Yuan means the IMF believes the currency meets the two requirements, and Lagarde on Friday acknowledged the Chinese government’s efforts to increasingly internationalize the Yuan and spoke highly of China’s economic reforms.

“The continuation and deepening of these efforts, with appropriate safeguards, will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy,” she said.

The IMF also announced the weight of the five currencies within the basket – the percentage of each based on its relative importance in the world’s trading and financial systems – would be set at 41.73 percent for the dollar, 30.93 percent for the euro, 10.92 percent for the Yuan, 8.33 percent for the yen, and 8.09 percent for the pound.


Currency components of the IMF's special drawing rights

(Ethan Rosenberg for USN&WR)


The inclusion of the Yuan is not without controversy. China for years has been criticized for manipulating the currency and its interest rate. Some analysts are concerned that the Yuan’s entry into the SDR basket may threaten U.S. dollar’s global status in the future. But former Fed Chair Ben Bernanke has said it “confers no meaningful additional powers or privileges on China” and he denied that will “rival the dollar as an international currency.”

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