China’s Renminbi Is Approved by I.M.F. as a Main World Currency

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from The New York Times,

The International Monetary Fund on Monday designated the Chinese renminbi as one of the world’s elite currencies, a major milestone that underscores the country’s rising financial and economic heft.

The decision will help pave the way for broader use of the renminbi in trade and finance, securing China’s standing as a global economic power. Just four other currencies — the dollar, the euro, the pound and the yen — have the I.M.F. designation.

But joining this group also introduces new uncertainty into China’s economy and financial system, at a time when the country’s growth is already slowing. To meet the I.M.F. requirement, China was forced to give up some of its tight control over the currency, which could inject fresh volatility into the economy.

The I.M.F. designation, an accounting unit known as the special drawing rights, bestows global importance.

Many central banks follow this benchmark in building their reserves, which countries hold to help protect their economies in times of trouble. By adding the renminbi to this group, the I.M.F. effectively considers a currency to be safe and reliable.

It is a “recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems,” Christine Lagarde, the managing director of the I.M.F., said in a statement. “The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”

It is also a point of pride for Beijing, which made the I.M.F. designation one of its highest economic policy priorities.

esides the symbolic weight it carries, the I.M.F. label brings specific benefits. China, for example, will gain more influence in international bailouts denominated in the fund’s accounting unit, like Greece’s debt deal.

While the renminbi may gain favor internationally, the I.M.F. designation doesn’t mean that China’s economic overhaul is complete. China still maintains a heavy hand over the country’s financial system. The country also falls short in legal protections, with the Communist Party continuing to play a strong role in deciding court cases.

Such issues could limit the overall appeal of the renminbi.

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