Reserve currency status to unleash capital inflows

Recently, the International Monetary Fund's staff and its chief Christine Lagarde suggested that the yuan should join the basket of international reserve currencies (the Special Drawing Rights, or SDR). The inclusion is expected to be approved at the IMF board meeting on Nov 30.

It would make the yuan the first currency of an emerging economy to be included in the basket. And it could unleash three waves of capital inflows into the Chinese currency.

In the first wave, the yuan's inclusion would cause a re-weighting of the SDR basket, which is valued at $280 billion. Currently, it is dominated by the US dollar (42 percent) and the euro (38 percent), followed by the British pound (11 percent), and Japanese yen (9 percent).