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China's Yuan Joins Elite Club Of International Monetary Fund Reserve Currencies

(Credit: (Photo by VCG/VCG via Getty Images) ) HUAIBEI, CHINA - JULY 26: (CHINA OUT) An employee counts money at a branch of Industrial and Commercial Bank of China Limited (ICBC) on July 26, 2011 in Huaibei, Anhui Province of China. According to the China Foreign Exchange Trading System, The Chinese currency, Renminbi (RMB), Tuesday rose 33 basis points from previous trading day to a record high of 6.4470 against the U.S. dollar. (Photo by VCG/VCG via Getty Images)
China's Yuan Hits New Record High Against The Dollar
October 6
6:00 AM 2016

Chinese currency has just entered a new phase in its journey to become more important to the world economy. Yuan is now officially a member of the International Monetary Fund's basket of global reserved currencies.

This group of currencies known as Special Drawing Rights(SDR), forms a pseudo--currency--used only by the IMF-to supplement countries official reserves. These are also given weighting towards the final calculation.

For the IMF's new Special Drawing Rights basket with the Yuan joining US dollar, Euro, Yen and Pound. US Dollar is 41.73%, Euro is 30.93%, Yuan 10.92%, Yen is 8.33% and Pound is 8.09%.

For this, Yuan will not be threatening the dollars reserve status and will have a hard time doing so. China said that they will use this opportunity to further deepen economic reforms and open up the sector to promote global growth.

China stunned investors by devaluing the currency last year and the yuan has since weakened to near six-year lows. U.S Treasury Secretary Jack Lew said the yuan was "quite a ways" from true global reserve currency status. I

It has been seen intervening heavily even offshore-driving yuan interbank rates to more than 20 percent in Hong Kong. The median estimate in a Bloomberg survey is for the Chinese currency to decline 1.1 percent the rest of this year to 6.7 per dollar.

There were 204.1 billion SDRs allocated to IMF members as of March, equivalent to around US$285 billion, compare with about US$11 trillion of global reserves.

The Chinese currency constituted 1.1 percent official reserves in the latest IMF survey compared with 63.7 percent for the dollar.

The IMF on Friday fixed the relative amounts of the five currencies in the basket for five years, based on their average  exchange rate over the past three months.

At the very least, Beijing can say it has won a hard-fought battle to have its currency recognized by the IMF, which rejects its application to SDR in 2010.

 

 

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