IMF puts Chinese yuan in SDR currency basket

The International Monetary Fund has decided to include the Chinese currency in its Special Drawing Rights (SDR) reserve on Monday.

The SDR is the right to draw foreign reserve currencies without collateral by countries suffering from the currency crisis. The Chinese yuan is now in the basket of reserve currencies, which currently includes the U.S. dollar, the euro, the British pound and the Japanese yen.

The IMF held an executive board meeting in its headquarters in Washington on Monday, and decided to add the yuan to its basket of reserve currencies starting from the end of September next year.

It is the first time in 35 years that a new currency is added to the SDR basket. BBC said this was the IMF`s biggest transformation since 1980. In addition, it is expected to be another milestone of the surge of China that became the world`s second economic power beating Japan in 2010.

Consequently, the share of the yuan in international trade and countries` foreign reserve holdings will increase, and the internationalization of the yuan will also accelerate.

Korean economists have mixed views on the Chinese yuan`s inclusion in SDR, with both expectations and concerns persisting. "The Chinese government won`t be able to artificially manipulate foreign exchange rate when the yuan is included in the SDR," said Heo Moon-jong, senior researcher at Woori Finance Research Institute. "If the yuan stabilizes, then uncertainties will be reduced."

"There could be capital outflow from the Korean stock markets," said Yoon Chang-yong, researcher at Shinhan Financial Investment. "Some shock will be inevitable unless the Korean stock markets are included in advanced country markets in advance." Some critics say if the yuan declines after the yuan`s addition to the FX reserve basket, it could weaken Korean exporting companies` competitiveness, ultimately adversely affecting the real economy.