The Chinese Yuan now joins the elite IMF reserve currency basket

We know that China is now one of the most significant players of the world economy, however news this week that its currency the Yuan (or Remnimbi) has been accepted into the International Monetary Fund's elite basket of international currency reserves signals a new era in Chinese influence.

The international currency reserve (or Special Drawing Right, SDR) is a fund set aside by the IMF to assist global economies when they are attempting to influence the value of their currency. By purchasing the IMF recognised currencies from the reserve, rather than relying on buying and selling of gold, world economies have been able to expand at a greater rate and have greater control of their currency.

The currencies allowed in this reserve, accepted as being the most influential and stable and belonging to the major economic powers, have remained the same since the late 1990s. Until this recent announcement, the reserve consisted of the dollar, the euro, the pound sterling and the Japanese Yen. When the Yuan is finally accepted in to the reserve (in October 2016) it will be the third largest currency in the basket.

The IMF will expect a greater degree of transparency within the central bank of China in order to justify its inclusion in this elite club.

Click here for the IMF Factsheet on the SDR