"The inclusion into the SDR is a milestone in the internationalization of the renminbi, and is an affirmation of the success of China's economic development and results of the reform and opening up of the financial sector"
"The new IMF status recognizes the "enormous" change in China in the last 10 years that had made the yuan more open, but Beijing still had work to do to make its currency and its economy more market-driven.Being part of the SDR basket at the IMF is quite a ways away from being a global reserve currency."
In an interview, Siddharth Tiwari (Director of the IMF’s Strategy, Policy, and Review Department) and Andrew Tweedie (Director of the IMF’s Finance Department) explain why this change took place and its significance for the IMF, the SDR, China, and the international monetary system as a whole.IMF News: What does the renminbi’s inclusion in the SDR basket mean for China?Tiwari : The RMB’s inclusion is an important milestone in the integration of the Chinese economy into the global financial system. The IMF’s determination that the RMB is freely usable reflects China’s expanding role in global trade and the substantial increase in the international use and trading of the renminbi. It also recognizes the progress made in reforms to China’s monetary, foreign exchange, and financial systems and acknowledges the advances made in liberalizing, integrating, and improving the infrastructure of its financial markets. We expect that the inclusion of the RMB in the SDR basket will further support the already increasing use and trading of the RMB internationally.In addition, while data disclosure is not a formal criterion for a currency’s inclusion in the SDR basket, issuers of reserve currencies generally meet high transparency standards. The Chinese authorities have recently taken welcome steps to increase data disclosure and enhance their commitment to multilateral data initiatives; for instance, reporting the currency composition of reserves to the IMF. Also, the Chinese authorities continue to work with the Bank for International Settlements on their reporting of the Chinese banking sector statistics. These developments will lead to increased acceptance of the RMB among official holders of foreign exchange reserves.IMF News: Stepping back a bit, what are the criteria for inclusion in the SDR?Tweedie : There are two main criteria for a currency to be included in the SDR basket.The first is the export criterion, which requires that the currencies in the basket be issued by the top exporters of the world. It has been part of the SDR methodology since the 1970s and it aims to ensure that the currencies that qualify for the basket are those issued by members or currency unions that play a central role in the global economy.The second is the requirement for currencies in the SDR basket to be determined by the Fund to be “freely usable”—that is, widely used to make payments for international transactions and widely traded in the principal exchange markets. This criterion became part of the SDR methodology in 2000 to capture the importance of financial transactions in the global economy.IMF News: How is the renminbi’s inclusion expected to impact the international monetary system?Tiwari : There are several benefits to the international monetary system.First, the inclusion of the RMB in the SDR basket consolidates the RMB’s internationalization process. The internationalization of a currency imposes strong requirements on its markets and institutions. Experience shows that some of these elements include developing deep and liquid financial markets, achieving a certain degree of openness of the capital account, delivering predictable macroeconomic outcomes, strong and credible institutions, and securing the integrity of the markets—for example, by putting in place a reliable rule of law. Thus, consolidating and further strengthening the RMB internationalization process will help strengthen the Chinese economy, and therefore the global economy.Second, the inclusion of the RMB in the SDR basket enhances the attractiveness of the RMB as an international reserve asset. This will help with the diversification of global reserve assets.
"The first impact of the RMB's entry into the International Monetary Fund's currency basket will be that loans the IMF grants from now on will be related to the Chinese currency," said Martinez."That, without a doubt, reflects China's monetary power around the world. If China didn't have a strong economy, if China's currency didn't have strong backing, the RMB wouldn't have the 10.92 percent share it has as of Oct. 1," .