WASHINGTON (Reuters) - International Monetary Fund chief Christine Lagarde on Friday backed adding China's yuan CNY=CFXS CNY= to the global lender's benchmark currency basket after staff found it met the criteria for inclusion.
The move lays the groundwork for the Fund's board, which Lagarde stressed will make the final decision, to put the yuan on a par with the U.S. dollar .DXY, Japanese yen JPY=, British pound GBP= and euro EUR=.
Beijing has been campaigning for its currency to join the Special Drawing Rights (SDR) basket, which could increase demand for the yuan among reserve managers and mark a symbolic coming of age for China’s economy.
staff had found the yuan, also known as the renminbi, met the criteria of being “freely usable”, or widely used for international transactions and widely traded in major foreign exchange markets, Lagarde said.
“I support the staff’s findings,” she said in a statement.
The IMF’s Executive Board would meet on Nov. 30 to consider the proposal. Staff also gave the green light to Beijing’s efforts to address operational issues identified in a report in July, she said.
Policymakers are seen as unlikely to go against a recommendation by IMF staff and countries including France and Britain have already pledged their support for the change, which, if backed by the board, would take effect in October 2016.
A U.S. Treasury spokesperson said Washington had always said it would back the yuan’s inclusion if it met the IMF’s criteria, and would “review the IMF’s paper in that light.”
If the yuan’s addition wins 70 percent or more of IMF board votes, it will be the first time the number of currencies in the SDR basket - which determines the composition of loans made to countries such as Greece - has been expanded.
China has rolled out a flurry of reforms recently to liberalize its markets and also help the yuan meet the IMF’s checklist, including scrapping a ceiling on deposit rates, issuing three-month Treasury bills weekly and improving the transparency of Chinese data.
Currency analysts say making the yuan the fifth currency in the basket could eventually lead to global demand for the currency worth more than $500 billion.
Reporting by Timothy Ahmann and Krista Hughes; Editing by Chris Reese and James Dalgleish