IMF: Yuan is no longer undervalued; Chances to win reserve currency status increase

“The substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued,” said the IMF mission to China, which is led by its deputy director of Asia and Pacific Markus Rodlauer.

“We believe that China should aim to achieve an effectively floating exchange rate within two to three years.”

In the five years through March, the yuan saw a rise of 33 percent in real effective exchange rate terms, according to data from the Bank for International Settlements.

Central bank Governor Zhou Xiaochuan and a number of Chinese officials have called for the IMF to include China's renminbi in its Special Drawing Rights basket of currencies at a review later this year, says Bloomberg.

Meanwhile, Rodlauer added that China should allow more flexibility in its exchange rate, with intervention limited to avoiding disorderly market conditions or too much volatility.

The IMF will now work closely with the Chinese authorities on adding the yuan to the SDR basket. The inclusion is not a matter of “if” but “when,” he said.

The SDR basket is reviewed every five years, and currently it comprises the dollar, euro, yen and British pound.