China's renminbi has been approved by the International Monetary Fund as a world currency and will be added to the list of elite world currencies in the Special Drawing Rights basket.

The IMF's decision to consider the Chinese renminbi, also known as yuan, as a world currency will greatly expand its usage in the global trade, alongside other world currencies such as the US dollar, Japanese yen, British pound and the euro.

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However, according to the New York Times, this addition did not come without some difficulty. China is forced to relinquish some of its control over the currency, and will probably allow some uncertainty into the slowed Chinese economy.

Nevertheless, its inclusion makes a historical impact on the Chinese economy, as well as the global international financial system. NPR news reports that the decision will heighten the credibility of the Chinese currency in global markets, and will also increase the demand for it.

IMF Managing Director Christine Lagarde said in a statement that this inclusion marks an “important milestone.”

She added that the decision is a “recognition of the progress” that has been brought about by the reforms that Chinese authorities have made in their finance and monetary systems.

These reform efforts will improve the finance systems, and will ultimately improve the growth and stability of China's economy as well the global economy.

Bloomberg reports that according to the People's Bank of China (PBoC), this inclusion is a “win-win” situation for both China and the world.

Back in 2009, PBoC Governor Zhou Xiaochuan explained that a global system that depended only on one currency will be likely prone to shocks when a global financial crisis occurs, and thus having the renminbi included in the SDR will give countries another alternative usable in supplementing currency reserves.

The U.S. Treasury Department is in support of the IMF's decision to include the renminbi in the SDR.

TagsInternational Monetary Fund, World Currencies list