IMF Names Yuan Reserve Currency

By Taylor Garland
Nov 30 2015 |
100 Yuan Chinese note | Photo via David Dennis

The move will ideally encourage China to continue reforms to a market-driven economy.

The International Monetary Fund (IMF) on Monday announced that China’s yuan will become a world reserve currency, a reliable and well-used foreign-exchange assets that central banks stock as a buffer against crises.

The renminbi joins the dollar, euro, pound, and yen as part of the IMF’s reserve currency basket, and will make up 11 percent of the basket, more than the currencies of Japan and the U.K., according to the Wall Street Journal.   

Even with the IMF decision, there is uncertainty about whether Beijing will backtrack on its promises to liberalize its economy. — The Wall Street Journal

“The addition and inclusion of the renminbi in the SDR basket is a recognition of the significant reforms that have been conducted,” said Christine Lagarde, the IMF managing director. “[It’s a recognition] of the financial, more market-driven principals that are being used by the Chinese authorities going forward.”

The move is a largely political, and meant to encourage further reforms in China’s economy. It will also force the People’s Bank of China to be more transparent on its policy. Think: currency manipulation.

We’d like to remind Ms. Lagarde and others that China will act in its own self-interest when necessary. Remember, in August, China wiped out nearly four years of yuan-appreciation in just three days. 

And Sen. Chuck Schumer (D-NY) agrees, “With this decision, the IMF is choosing to reward China’s currency manipulation instead of combatting it."

“Even with the IMF decision, there is uncertainty about whether Beijing will backtrack on its promises to liberalize its economy,” the Wall Street Journal reports. “As China’s economic slowdown deepens, authorities recently decided to slow down the pace of opening up financial markets, fearing such actions could exacerbate capital outflows.”