Yuan edges closer to reserve currency status

Chinese Yuan is very close to join the league of currencies considered as official Reserve. According to IMF officials a deal to add Yuan in IMF's unit of account SDR is possible later this year.

• SDR is special drawing rights are supplementary foreign exchange assets that are defined and maintained by IMF. As of now, USD, Euro, Pound and Yen holds position as official reserve asset.
  
  
• IMF reviews the basket composition ever 5 years. Latest review is due this year. Missing out this year, Yuan might have to wait another 5 years.

In the US, lawmakers are concern of China's growing economic and political power are not yet ready to vote for Yuan to add to the basket of reserve currencies. This still might be hindrance to Yuan. US treasury secretary Jack Lew in latest comments suggested that Yuan is yet not ready to join the league.

• Yuan is still far for freely usable and convertible. China still has strict capital account convertibility guideline in place that is a hindrance to Chinese Yuan's exchangeability.
  
  
• Chinese officials have lobbied heavily in favor of Yuan to be added in the basket, While Germany remains in favor of such, ECB has raised convertibility issue.
  
  
• Germany is interested in Frankfurt being largest offshore Yuan trading hub, however UK is also fighting for London to be such. UK even joined China led Asian Infrastructure investment Bank (AIIB) ahead of European partners.
  
  
• Japan remains cautious over the issue and might lobby against China's bid.
  
  
• US officials not rejected the proposal right away, instead provided strict requirements such financial reforms, regulation and full convertibility before it can vote for Yuan.

Nevertheless Yuan's influence is growing in global market. Last year 25% of Chinese trade were settled in Yuan, up from just 0.2% in 2009.

PBOC has also signed up $430 billion swap agreement with countries across world to promote the currency.