According to Fox Capital Partners, the International Monetary Fund (IMF) has agreed to include China’s currency, the yuan or renminbi, in its reserve currency basket.

The decision represents the latest step in China’s emergence in the global economic hierarchy and sees the yuan join the Japanese yen, the US dollar, the Great British Pound and the euro in the group of currencies that make up the IMF’s Strategic Drawing Rights (SDR).

“The yuan’s inclusion in the SDR is recognition of China’s standing and increasing influence on the global economic stage. The inclusion will almost certainly attract inward investment and increase demand for the yuan” explained Gordon Li-Chao, chief economist at Fox Capital Partners.

The SDR is a form of international reserve asset launched by the IMF in 1969 to augment the Bretton Woods fixed exchange rate architecture that had until then been backed by a currency’s exchange rate against gold. While not a currency in its own right, the SDR can be exchanged by governments for currencies that make up the reserve basket.

Fox Capital Partners says China’s status as the world’s second biggest economy was not enough to justify its inclusion in the reserve currency basket and both the US and the IMF itself had urged its government to allow the currency to float more freely against those of its biggest trading partners.

China has long faced accusations of manipulating the value of its currency to give its export sector a competitive advantage over other exporting rivals.

“Although China’s policymakers have never freely admitted to practicing currency manipulation, the general rebalancing of the Chinese economy towards more domestic consumption and less reliance on exports means there is less need to keep the currency under-valued,” explained Li-Chao.

About Fox Capital Partners
Fox Capital Partners is a successful, independent investment management practice established in Shenzhen City, China and headquartered in Shenzhen. Our highly-qualified professionals advise on a wide array of wealth accrual, preservation and portfolio management solutions aimed at affluent individuals and families in Asia and elsewhere.