China’s Yuan is expected to gain a new status as a member of the International Monetary Fund’s Special Drawing Rights (SDR) basket from October 1. That will make it part of one of the global economy’s most exclusive clubs.
Bloomberg reports the Yuan’s inclusion in the IMF’s basket of global reserve currencies is recognition of China’s importance in the global economy and the steps it’s taken to make the currency more freely traded.
Analysts reportedly argue that for the Yuan to become a major global reserve currency, China needs to further open up to foreign investment and pledge to maintain that access even when markets move in a way that officials don’t like. Heavy-handed state intervention in the wake of last year’s surprise devaluation led some to doubt China’s commitment to giving market forces more sway.
SDRs were created by the IMF in 1969, when the world’s governments needed assets for their international reserves and there wasn’t enough gold or dollars to go round. While the SDR isn’t a currency itself, its holders have a claim on the currencies in the basket. The Yuan’s addition is the first change to the SDR basket since 1999, when the Euro replaced the Deutsche Mark and the French Franc.
