IMF Director Lagarde: China’s Yuan Should Join Reserve Basket

Christine Lagarde IMF China

Christine Lagarde, the International Monetary Fund’s Managing Director, said Friday that China’s yuan should join the agency’s basket of reserve currencies after a staff report bolstered its case.

IMF staff reviewed the Chinese currency’s readiness for inclusion in the Special Drawing Rights (SDR) basket of world currencies. The staff report concluded that the yuan, also known as the renminbi, did meet all requirements, including whether it was “freely usable” and traded on foreign exchange markets.

Along with meeting those criteria, Lagarde said that “Chinese authorities have addressed all remaining operational issues” that had been raised earlier this year.

If the IMF’s executive board approves the addition of the yuan when it meets this month, it would join the euro, British pound, Japanese yen, and U.S. dollar in the SDR basket. That decision would be a┬ásignificant one, fulfilling a goal for which Beijing has long pressed. It would also further strengthen China’s position in the world economy.

According to Eswar Prasad of Cornell University (and, previously, the IMF), who spoke to the Wall Street Journal, “China’s currency is now at the threshold of becoming a significant global reserve currency both in principle and in practice.”

While the Chinese economy has opened significantly in the past few decades, officials in Beijing have still maintained a heavy presence. That was particularly noticeable when the government stepped in to bolster the country’s stock markets earlier this year.

In a statement, the People’s Bank of China welcomed the assessment of IMF staff and Lagarde.

“The inclusion of the RMB [renminbi] in the SDR basket would increase the representativeness and attractiveness of the SDR, and help improve the current international monetary system, which would benefit both China and the rest of the world.”