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IMF dashes hopes of China; Yuan still out of fund's currency basket

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August 21
7:21 PM 2015

The world's second largest economy China has to wait for one more year to make its currency 'Yuan' a part of International Monetary Fund's (IMF) currency basket. Dashing the dragon country's hopes, IMF's board favored a decision to keep renminbi as it is until 30 September 2016 year. 

IMF's currency basket comprises top currencies in the world. The exclusive currency club of IMF has US dollar, the euro, British pound and Japanese yen. China wanted to include its currency renminbi in the IMF basket that facilitates Special Drawing Rights (SDRs). The currencies in the IMF basket are considered to be a virtual currency that IMF uses for emergency loans. Being in the basket of IMF, the member countries can enhance their reserves during the crisis days.

Like the US dollar, British pound and euro, China's currency renminbi is not traded freely as the dragon country keeps upper and lower limits of two percent for its currency. China during the last week only devalued its currency. The country claims that such move will enable market forces to determine the exchange rate on a free platform. IMF also supported the China's move on its currency devaluation. 

IMF's executive board has decided to continue the current basket of reserve currencies for one more year. This includes special drawing rights as well. The latest decision of IMF has indicated that Yuan wouldn't be part of its basket of currencies. 

Being part of IMF's basket of currencies would give the member country the fund's seal of approval. This will encourage foreign investors' confidence to use the relevant currency. China is anticipating that its currency Yuan to be a major choice for foreign investors in the global market operations. If Chinese currency made it to IMF basket, it would have further boosted the financial markets in the world's second-largest economy. 

Last week, China created tremors in the global financial markets by devaluing its currency, the Yuan.The Chinese government has tried its best by implementing several economic measures. After trying all these, it has taken a bold step to give a shot in the arm to exports and boost the growth rate. 

All the global markets suffered losses following the devaluation of Chinese currency. Some analysts hold the view that Chinese currency was overvalued against the US dollar and it was unsustainable relating to other major currencies. After the devaluation, Chinese currency hit a four-year low. 

The Chinese government remains positive that after the devaluation, its currency can rise or fall more freely as market forces would determine the real value. The devaluation measure would also include more market information, feels the Chinese government.

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