Until China’s currency joined the International Monetary Fund’s Special Drawing Rights on Monday the term rarely attracted headlines. This event drew so much attention because many see its inclusion as an acknowledgment of China’s status as a global economic power. The renminbi is the first emerging market currency to be added to the elite basket and the first new one since the SDR’s creation, nearly 50 years ago. For China, it has been a much sought after goal. In financial significance, however, it is still largely symbolic since it will be decades before the renminbi becomes a major international currency.

Including the renminbi in the basket of reserve currencies — to join the dollar, euro, yen and pound — would seem to be an obvious move given’s China’s economic weight in the global economy, and.it might be viewed as a gift from the western financial powers — but it also carries a heavy burden that Beijing may come to regret. Under the qualifying rules a new entrant has to meet two criteria. The candidate must be a major trading nation, which China clearly is. And its currency must be “freely usable”. Initially this was understood to mean “freely convertible or tradable” and if so, the renminbi would not qualify given China’s extensive capital controls. But the IMF came out with the interpretation that it means widely used in international transactions — and this condition was met given its use in trade finance, swap arrangements and currency spot markets.

That the major powers were willing to go along with this might seem surprising given the past practice of dealing firmly with China on global economic concerns, including its adherence to World Trade Organisation guidelines. But it was not really a concession since the ultimate objective was to use SDR inclusion as a means to push for more market reforms, in particular improving the country’s financial markets and eliminating its capital controls.