The Yuan’s Graduation
By Isaac Cohen*
At the end of November, the International Monetary Fund admitted the yuan, the Chinese currency also known as the renminbi, to the basket of currencies it uses to determine the exchange rate of its own Special Drawing Rights (SDRs). This last is the virtual currency used to denominate the Fund’s lending and which member countries can include as reserves. Therefore, the yuan has become the fifth member of an exclusive group, which by order of importance will include the US dollar, the euro, in third place the yuan, the yen and the pound sterling.
As of October 2016, the relative weight of each currency within the basket, in a certain way, reveals the relative weight of each participant in the world economy. The dollar still leads with 41.73 percent, followed by the euro with 30.93 percent, the yuan with 10.92 percent, the yen with 8.33 percent and the pound with 8.09 percent.
The factsheet released by the Fund explains the decision was based on two fundamental inclusion criteria. First, for the last five years the Chinese economy has been the world’s third largest exporter and second, by next October, the yuan should be “freely usable.” This last criteria means that the currency should serve as means of payment in international transactions and it should be traded in the principal exchange markets. Notice, full convertibility is not required, which indicates certain capital movements may still be restricted.
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.