In a boost to China’s efforts in opening up its financial markets, the International Monetary Fund (IMF) raised the yuan’s weighting in the Special Drawing Rights currency basket. This move prompted the People’s Bank of China to vow to push for further opening of its financial markets.
In a statement last Sunday, the People’s Bank of China said in a statement that the IMF had raised the weighting of the yuan from 10.92 to 12.28 percent, in its first regular review of the Special Drawing Rights evaluation since China was included in the basket in 2016.
While the weighting of the Euro, Yen and British Pound declined, the weighting of the US dollar rose from 41.73 percent to 43.38 percent.
In the statement, it further said that the People’s Bank of China and other regulators would continue to push for the opening of Chinese financial markets, and simplify the process of overseas investment in the Chinese market.
IMF includes yuan in SDR in 2016
Special Drawing Rights, or SDRs, are an international reserve asset that can be converted in to five global currencies. After years of effort by Chinese authorities, the yuan entered the SDR in 2016, making it one of the five global currencies in use.
Since April, the yuan has faced a sharp depreciation, largely due to sluggish domestic growth caused by Covid-influenced lockdowns, and large capital outflows due to monetary policy divergence with the United States. Underlining its support for the currency, the People’s Bank of China set the reference rate for the yuan at a higher than expected level last Friday, which marked a continuation of the previous nine days.
In the statement made on Sunday, the People’s Bank of China asserted that it would extend the trading time of the interbank foreign exchange. It also said that it would improve disclosure of information to provide enhanced investment conditions to foreign institutions, in addition to making more types of assets available.
After the review, the ranking of the currency’s weighting remained the same, with the yuan continuing in third place, said the IMF in a statement issued last Saturday. It also said that the changes will be effective from August 1, while the next review will take place in 2027.
Executive Directors of the IMF stated that neither the effects of the pandemic, nor financial technology development, have had a major impact on the role of currencies in the Special Drawing Rights basket.
