Renminbi Joins the IMF’s Reserve-Currency Basket

Only a few goods and services are priced in what are known as Special Drawing Rights, or the mix of currencies used by the International Monetary Fund as a unit. Transit through the Suez Canal are one such service. The Chinese renminbi joins other currencies like the US dollar, the euro and Japanese yen for the IMF basket. Because so few items are priced such way, the Economist points out many won’t hurry to stock up on the currency, and the IMF decision could lead to the renminbi’s depreciation: “the People’s Bank of China (PBOC) will now find itself under more pressure to manage the yuan as central banks in most developed economies do: by letting market forces determine their prices. In bringing the yuan into the SDR, the IMF had to determine that it is ‘freely usable’… a large leap of faith in a currency which is still heavily managed.” The currency remains tied with a rising US dollar. China will be under increasing pressure to let the currency respond to market forces. The Economist notes: “With the Federal Reserve set to start raising interest rates, at the same time as China is loosening its monetary policy, the yuan is likely to come under more downward pressure, at least against the dollar.” – YaleGlobal