IMF decides in favour of the Chinese Yuan

IMF decides in favour of the Chinese Yuan

China notched an economic milestone on November 30, 2015, with the IMF International Monetary Fund adding the yuan to its elite basket of reserve currencies, a move designed to spur greater liberalization in the world’s No. 2 economy.

The decision—effective next October—confers international status on China’s currency as the government starts to ease restrictions on its rigidly controlled exchange-rate and financial system. It also marks the start of a potentially more perilous course for China. A more freely traded yuan and open markets, down the road, could add volatility to China’s trade picture and raise the risk of capital flight.

The IMF’s decision will eventually put the yuan alongside the dollar, euro, pound and yen in the fund’s reserve-currency basket, with the IMF giving more weight to China’s currency than to either the yen or pound.

“This inclusion is clearly an important milestone in a journey…that will include certainly more reforms,” IMF Managing Director Christine Lagarde said after the board approved the yuan’s inclusion.

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