As you probably know, the Chinese Yuan (also known as the Renminbi) occupies a considerable part in todays’ global financial system. Yet, its influence is still growing. The Renminbi has already become a regional currency. It is not accidental if to consider the fact that China is the world’s second-biggest economy, creating closer economic and trade ties all around the globe.
Why will the IMF recognize the Renminbi and what will come of it?
It is not only about the fact that such neighbors as Vietnam and Burma use the Renminbi as a foreign currency to sore their savings in as well as to buy and sell products and services. The Chinese Yuan is penetrating deeper into the Asian-Pacific region, only to make bigger rival to the U.S. Dollar and the Japanese Yen. With that said, it is not accidental that the International Monetary Fund decided to add the Renminbi to the basket of the world’s major currencies also known as reserve currencies because the central banks and plain folks in other countries prefer to store their foreign currency reserves in those currencies.
This is the first time since 1999 the IMF is about to change its currency basket. Back then, the IMF excluded the German Mark and the Swiss Franc to change them with the common European currency. The current basket incudes EUR, USD, GBP and JPY. Now, a fifth currency is going to be added to the basket. This is a major victory for the Chinese Yuan. China has been looking forward to it over the last 7 years. 7 years ago, China tried to make this ambitious step only to get a refusal.
The thing is that Beijing has been curbing the Renminbi exchange rate for too long. This was done in order to back Chinese exporters since they got paid in USD. Developed economies were indignant at the policy but couldn’t anything about it.
This summer, China raised the bar in order for the Renminbi to be eligible for the status of a reserve currency. So, this status came as the result of China’s increasing role in the international arena.
Apparently, the very fact that the Chinese Yuan will enter the reserve basket will help the Chinese currency to strengthen its position in the international markets. At the same time, China will be able to influence the IMF’s policy. China already expects the IMF to expand its investing in Asian-Pacific nations.
