Yuan could get IMF blessing as reserve currency

For the first time, China has a real shot at getting the International Monetary Fund to endorse the yuan as a global reserve currency alongside the dollar and euro.

In late 2015, the IMF will conduct its next twice-a-decade review of the basket of currencies its members can count toward their official reserves. Including the yuan in this so-called Special Drawing Rights system would allow the IMF to recognize the ascent of the world's second-biggest economy while aiding China's attempts to diminish the dollar's dominance in global trade and finance.

China would need to satisfy the Washington-based lender's economic benchmarks and get the support of most of the other 187 member countries. The Asian nation is likely to pass both tests, said Eswar Prasad, who until 2006 worked at the IMF, including spells as head of its financial studies and China divisions.

"It will certainly help China's objective of making the renminbi a more widely used currency," said Prasad, a professor of trade policy at Cornell University and senior fellow at the Brookings Institution in Washington. Renminbi is China's official name for the yuan.

Reserve-currency status for the yuan would make central banks more eager to hold yuan assets and "diversify at the margin away from dollars," as well as euros, yen and Swiss francs, Prasad said.

Approval hinges partly on whether the IMF reverses its 2010 decision that the yuan wasn't "freely usable." There's growing evidence that the currency may now pass this test, after already qualifying on the IMF's other condition of being a large exporter.

The IMF said in a statement that since the last review, "there have been a number of developments regarding the RMB's international use, and the upcoming review would take stock of these developments." The IMF's board will conduct the review in October after an informal briefing in May, Managing Director Christine Lagarde said in a report last week.

The yuan is still dwarfed by the dollar in terms of usage in international trade and finance. When quoting countries' foreign reserves, the IMF lumps it into its "other currencies" category, which accounts for just 3 percent of the $6.3 trillion in allocated holdings. The dollar has a 60.7 percent share, with 24.2 percent taken up by the euro and 3.9 percent by the British pound.