The IMF on Monday gave a major vote of confidence to China and its reform efforts, giving the renminbi greater weighting than the yen or pound as it included the currency in its elite basket of reserve currencies.
The vote by the board to make the renminbi the fifth currency in the basket used to value the IMF’s own de facto currency followed months of deliberation at the fund and years of lobbying by a Beijing eager for the recognition.
“The Rmb’s elevation to the club of elite global reserve currencies is a big step for China and a significant one for the international monetary system,” said Eswar Prasad, professor of economics at Cornell University and a former IMF China mission chief.
The renminbi will become the third biggest currency in the “special drawing rights” basket when it takes effect on October 1. The move is largely symbolic but Christine Lagarde, IMF managing director, called it a “milestone” in China’s economic reform “journey” and its integration into the global financial system.
Following the move the currency slipped 0.19 per cent to Rmb6.4374 against the dollar in offshore trading in Hong Kong.
The People’s Bank of China set its daily “fix” — the onshore rate around which the currency can trade 2 per cent either side — at Rmb6.3973 per dollar, its fourth consecutive slightly weaker rate.
Investors generally expect China to allow its currency to weaken gradually but few see much likelihood of a repeat of its 3 per cent August devaluation, which sent shockwaves through global markets.
CHINDIA ALERT: You'll be living in their world, very soon 