The IMF has just approved the Chinese Renminbi as an international reserve currency, a small list of elite currencies that includes the US dollar the Euro, the British Pound and the Japanese Yen. Notably, the inclusion of the Renminbi marks the first time that a currency that is issued by an American rival has been accepted as a reserve currency.
China’s economic rise has been seen as a severe threat to the US political machine; the Trans-Pacific Partnership was one reaction, being a trade grouping that includes practically all of China’s rivals but tellingly does not include China itself.
This event was foreshadowed, as last year China had overtaken the US as the largest economy in the world, as measured by purchasing power parity, and China had recently overtaken the Yen as the world’s fourth-most used currency. The RMB is also the second most used trade currency.
China has also been working to increase its global role, so that it is proportionate to its substantial economic clout, despite resistance from the US, which has failed to ratify IMF quota reform for the last five years. The reform would have given emerging markets like China greater say in the organisation.
The RMB’s inclusion as a reserve currency is not cosmetic; China will reap real benefits, such as a predicted one trillion USD increased demand for the RMB (according to Standard Chartered) from its 11% allocation of the IMF’s Special Drawing Rights. To make way for the new entrant, The British pound’s allocation will fall from 11% to 8%, the Japanese yen’s allocation will fall from 9% to 8%, the Euro’s allocation will fall from 37% to 31% and the US dollar will remain unchanged at 42%.
The announcement comes at a time when the US and China have come into direct confrontation over China’s land reclamation efforts in the South China Sea, as US debt nears 19 trillion dollars (up 77% under Obama’s presidency), while Russia and China ink deals and sell off US treasuries to reduce their reliance on the US dollar.
Sources: NY Times, Business Insider, The Guardian, Mercopress, Forbes, Sputnik News
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