China yuan addition to IMF currency basket was 'political': Author

IMF to include Chinese yuan to its reserve currency basket
IMF to include Chinese yuan to its reserve currency basket

The International Monetary Fund's addition of the Chinese yuan to its reserve currency basket this week was a political decision, the author of "The Coming Collapse of China" said Tuesday.

The inclusion — which marks another step in China's global economic emergence — came after the IMF evaluated the Asian nation's standing as an exporter and the yuan's role as a "freely usable" currency.

IMF chief Christine Lagarde and the United States had supported the yuan's inclusion in the basket, known as Special Drawing Rights.

IMF Managing Director Christine Lagarde.
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But author Gordon Chang told CNBC the yuan cannot be considered freely usable because it cannot be converted into other currencies without restrictions. He said Lagarde was determined to include the yuan in the basket in a bid to prod China toward establishing full convertibility for its currency.

That will prove difficult due to problems in China's banking sector and financial markets, Chang said.

"I actually think what Lagarde did — and this is just a real speculation on my part — she realized how bad things are in China, so what she decided to do was to throw China a lifeline," he told CNBC's "Squawk Box."

China's economy is likely growing well below the government's official 6.9 percent rate, and even Citigroup's projection of 4 percent in the absence of stimulus spending, Chang said.

"It's probably like 1 or 2 [percent]. But wherever it is right now, the point is, it's going down and Chinese leaders can't stop it," he said.

In a statement, Lagarde noted the yuan's inclusion is a "clear representation of the reforms" taking place in China.

"The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy," Lagarde said.

Ultimately, the yuan's inclusion in the basket, which will take effect next October, doesn't change much for the currency, Chang said.

The basket determines the currency mix that countries like Greece receive when the IMF disburses financial aid. The decision to add the yuan will likely increase demand for the currency.

—CNBC's Jacob Pramuk contributed to this story.