In a quiet but significant marker for China, the yuan has become a reserve currency: On 1 October, the International Monetary Fund (IMF) officially included the yuan in the currency basket for its Special Drawing Rights, alongside the U.S. dollar, euro, yen and British pound.
The IMF’s decision to include the yuan last November made headlines and came in the midst of a tumultuous year for the currency and for China’s financial markets. Relative calm has returned in recent months: The yuan has continued to depreciate against major currencies but in a more gradual and orderly way than the sudden devaluations in August 2015 and early 2016. And China’s stock market has largely recovered from its steep plunge early this year.
Indeed, despite the bumpy road over the past year, the promise held out by the IMF’s decision is gradually being realized: China’s presence in global capital markets is increasing. Earlier this year, China announced that it would open the interbank bond market to foreign investors much sooner than expected. Chinese equities appear to be on track for inclusion in MSCI’s widely used emerging market equity index over the next year or two. And now that the currency has achieved reserve status, the yuan is likely to be used more widely in international transactions going forward.
