China's central bank has announced on Oct. 23 a cut in its benchmark interest rates and the amount of cash banks must maintain as part of measures aimed at boosting the country’s economy, the Want China Times reported.
The People's Bank of China (PBOC) said during the announcement that lending and deposit interest rates will be reduced by 25 basis points and its reserve requirement ratio by 50 basis points, a major move in the government's campaign to have interest rates determined by market mechanisms.
According to the report, the move is significant as the International Monetary Fund meeting is set to make its final decision on whether to include the renminbi in the basket of currencies that make up its special drawing rights (SDR), a major goal in making the yuan an international currency.
Following the article written by PBOC governor Zhou Xiaochuan in March 2009 challenging the U.S. dollar's prominence as the world's primary currency, the yuan has undergone various stages as world trade settlement currency, an international investment currency and a global reserve currency.
Part of China's long-term strategic goal of reducing dependence on the dollar and the coming of age as an economic power is to be included in the SDR basket, the report said.
The report added that if the renminbi is included in the SDR basket, it will be placed in the foreign currency portfolio of other countries' central banks and will reduce the share of the U.S. dollar as the world's reserve currency.
At present, there are 17 renminbi offshore markets and 14 settlement banks in the world.
This year, more than 1,000 banks around the world have used the yuan as the currency of payment in trading with China, compared with more than 800 banks two years ago, statistics from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) showed.
The report added that the renminbi is now taking the same path that the U.S. dollar had taken before it gained worldwide prominence.