IMF Lifts Yuan to Elite Lending-Reserve Currency Status

The International Monetary Fund Monday added the Chinese yuan to the basket of elite currencies comprising its lending reserve, marking a milestone in the country’s ascendancy as a global economic power.

Many China watchers say the IMF’s decision is in large part a political one designed to encourage stronger economic overhauls in the world’s No. 2 economy.

For the Chinese, it is a matter of prestige, a plank in Beijing’s strategy to elevate the country’s economic role in the global economy as it challenges U.S. political and economic dominance around the world. The yuan joins the dollar, euro, pound, and yen in the IMF’s reserve-currency basket.

A host of other factors will determine the yuan’s fate as an actual global reserve currency, which is a reliable and well-used foreign exchange asset that central banks stock to buffer against crises.

At this point, the IMF’s action has more symbolic value than practical importance to financial authorities and the markets. The IMF’s designation is purely for denominating its loans and isn’t an internationally-traded asset.

The pace of Beijing’s move to establish a market-determined currency; to deepen its financial system: to strengthen its economic institutions; and to secure healthier long-term growth will be the prime determinants for whether central banks—and investors—trust in the yuan enough to stock up their reserves with China’s currency.

Wall Street Journal

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell