Updated 11:29 AM EDT, Tue, Jun 16, 2020

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IMF Not Yet Ready to Add Chinese Yuan in Currency Basket

Yuan, IMF, SDR,

(Photo : Reuters/Stringer/Files) Major members of the European Union such as the United Kingdom and Germany are amenable to adding the Yuan to the IMF's basket this year.

The International Monetary Fund (IMF) has released its findings on Tuesday and concluded that it will not add the Chinese Yuan to the currencies with Special Drawing Rights (SDR) until the latter part of next year. This is a clear setback for the Chinese government after ardent campaigns for the Yuan to be added in the currency basket as soon as possible.

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Reuters reported that the reason why the IMF decided against the Yuan is due to its negative effect on the first day of next year's foreign exchange transactions.

The IMF executive committee has yet to decide the exact date when the Yuan will finally be added in its basket next year.

The findings acknowledged that the Chinese renminbi is already being used in financial transactions by many countries. However, IMF officials said that the Chinese currency must be "freely usable" in order to qualify for the SDR package. The currency basket includes currencies of the United States, European Union and Japan.

Major members of the European Union such as the United Kingdom and Germany are amenable to adding the Yuan this 2015. The U.S. and Japan, however, do not favor the move.

The yuan gained international recognition due to China's campaign and the banking and housing credit crisis in the America. Beijing's effort resulted in the renminbi's inclusion in the top five widely used currencies of choice in global finance.

Chinese Prime Minister Li Keqiang talked with IMF officials with regards to putting the yuan in the currency basket. Li promised that the Chinese government would put in place laws and regulations that will open up China's capital account and make it easier for foreign investors to exchange the Yuan into other currencies.

Meanwhile, the Chinese Yuan's value has remained largely unchanged against the United States dollar despite the disappointing news from the IMF. The Chinese central bank pegged the U.S. dollar at around 6 yuan onn August 5, which is almost the same as the day before.

Joey Chew, an HSBC foreign currency analyst, believes that the Chinese government will have to make substantial technical adjustments before tge reminbi would be added in the IMF currency basket.

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