WASHINGTON: The International Monetary Fund's decision to include China's yuan, or renminbi, in its "SDR" basket on Monday marks the currency's climb to elite reserve status alongside the dollar and euro.
The SDR, or Special Drawing Right, plays an influential role in global finance, helping governments protect their financial reserves against global currency fluctuations.
It is also used as the basis of loans from the IMF's crucial crisis-lending facilities.
While not a true currency itself -- there are no SDR coins or banknotes -- the IMF uses it to calculate its loans to needy countries, and to set the interest rates on those loans.
The SDR was created in 1969 after the breakdown of the system of fixed global exchange rates, which meant that the two key reserve assets of the post-World War II period, gold and the US dollar, were no longer adequate alone to support world trade and development.
The SDR is constructed as a weighted basket of the most important currencies, reviewed for composition and weighting every five years. IMF members can use it as their own reserves, effectively insulating themselves from extreme shifts in the values of the major currencies.
Monday's announcement of the inclusion of the yuan alongside the dollar, euro, yen and pound is the first change in the SDR basket's composition since 2000 -- when the new euro replaced the deutschemark and French franc.
The yuan will not be officially included in the basket until October 1, 2016, but the IMF gave it a strong weighting, above those of the Japanese and British currencies.
As usual, in the new makeup, the dollar will be strongest, at 41.7 percent. The euro will be 30.9 percent, the yuan 10.9 percent, the yen 8.3 percent, and the pound 8.1 percent.
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