The IMF’s decision to formally include the renminbi as one of five hard currencies in its SDR basket, and the half-decade or so of liberalizing reforms leading into it, is likely to be recorded by economic historians with the corresponding level of attention that is devoted to the establishment of the Federal Reserve System almost-exactly a century ago.

SDR status is only a fresh starting point for transforming China from a big financial entity into a strong financial powerhouse. By adding a currency from the developing world, the SDR much better reflects the functions of emerging economies in global economic and financial affairs.

As China’s renminbi has been included in the IMF elite currencies and the Fed has started its rate hikes, conventional wisdom sees the RMB weakening and U.S. dollar strengthening as simple long-term trends. The realities are far more complex, however.

The International Monetary Fund’s recent decision to add the Chinese renminbi to the basket of currencies that determine the value of its reserve asset, the Special Drawing Right, has captured headlines around the world. But the SDR itself has not exactly dominated discussions – much less transactions – since its creation in 1969. So does the decision really matter?

Now that the IMF has made the RMB its fifth reserve currency, new attention is being paid to the risks associated with cross-border capital flow. Managing these risks requires active participation in global governance and rules making, in particular global exchange rate reform, balance of payment adjustment regime, capital flow management and the reform and coordination of monetary and financial policies on a global scale.

The International Monetary Fund on Monday is adding the Chinese yuan to the basket of elite currencies comprising its lending reserve, marking a milestone in the country’s ascendancy as a global economic power.

The lens of government intervention in China has led foreign observers to misinterpret some of the most important developments this year in the foreign exchange market and the stock market.

The shifting exchange rate reflects the strength of the dollar, not weakness of the RMB. The two nations and business communities should focus on identifying the complementary sectors and products of the two countries and seeking a sustainable pattern of stable growth based on mutual benefit.

A long-term stable RMB exchange rate with a two-way volatility is conducive to maintaining the financial asset price, to preventing a large-scale capital outflow, to controlling foreign-debt risk, to reducing the cost and burden of debt financing and to stabilizing economic growth anticipation.

As China allows more market influence to determine the value of the RMB, the exchange rate will become more volatile. Allowing the market to determine the value of the yuan is precisely what the West has long sought, and it will serve global interests, whether China’s currency rises or falls.