by Lady Michelle Jennifer Santos
30 November 2015 (TSR) – The International Monetary Fund (IMF) announced today that China’s Renminbi (RMB) met all existing criteria and decided that it will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the euro, the Japanese yen and the British pound.
Effective October 1, 2016 the RMB is to be a freely usable currency according to the Executive Board decision after the regular five-yearly review of the basket of currencies that make up the Special Drawing Right (SDR).
According to the press release, the timeline given of launching the new SDR basket on October 1, 2016 will provide sufficient lead time for the Fund, its members and other SDR users to adjust to these changes.
“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,” stated Christine Lagarde, Managing Director of the IMF at the conclusion of the meeting.
“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. The continuation and deepening of these efforts 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 added.
The statement said that the value of the SDR will be based on a weighted average of the values of the basket of currencies comprising the U.S. 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,” the statement continued.
The organisation also noted that 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.