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IMF Adds China's Yuan to Its Basket of Leading Currencies

FILE - A staff member displays the new version of the 100-yuan RMB banknotes (US 15.7 dollars) to photographers at the Bank of China Tower in Hong Kong, Nov. 12, 2015.

The International Monetary Fund added China's yuan to its basket of key global currencies on Monday, a move that gives new status to the world's second leading economy.

The IMF said that the yuan, also known as the renminbi, "met all existing criteria," to be added to the U.S. dollar, Europe's euro, the Japanese yen and the British pound as one of the currencies in the world organization's Special Drawing Rights grouping, the financial standard it uses in issuing crisis loans to its 188 member nations. The action takes effect next October.

IMF Managing Director Christine Lagarde said the decision is "an important milestone in the integration of the Chinese economy into the global financial system.

"It is also a recognition," she said, "of the progress that the Chinese authorities have made in the past years in reforming China's monetary and financial systems."

The Special Drawing Rights are not a freely traded currency, but are important as an international reserve asset. Analysts say the IMF action could push Beijing to live up to its promises to make the yuan even more "freely usable" across the world, a standard the IMF concluded Beijing has already met.

FILE - A woman walks past a yuan (L) and a US dollar (R) currency sign in Hong Kong on August 13, 2015.
FILE - A woman walks past a yuan (L) and a US dollar (R) currency sign in Hong Kong on August 13, 2015.

The yuan will have a 10.92 percent weighting in the IMF's currency basket, a measure that determines which currencies countries can receive when they secure IMF loans. When the yuan is added to the basket of currencies, the dollar will retain its share of about 42 percent, with reduced shares for the euro, British sterling and the Japanese yen.

The addition of the yuan to the IMF basket could give it new respect in world financial markets, possibly fueling demand for the currency and for yuan-dominated assets.