Chinese yuan to become global reserve currency

[yota691]

Chinese yuan to become global reserve currency

Published time: 30 Nov, 2015 11:29

 

© Kacper Pempel / Reuters

 

The International Monetary Fund (IMF) is expected to give the yuan a vote of confidence on Monday and include the Chinese currency in its Special Drawing Rights (SDR) that unites the US dollar, euro, British pound and the Japanese yen.

Adding the yuan as a reserve currency will allow central banks to buy more of the Chinese currency, and boost investment in the Chinese stock market. According to Standard Chartered bank, within five years market players will invest at least $1 trillion in Chinese assets.

 

The historic decision will come after years of negotiations between Beijing and the IMF. The main obstacle was China’s monetary policy of keeping the yuan artificially low to boost domestic exports.

The list of currencies in the basket hasn’t been updated by the IMF since 2000, when the euro superseded the franc and deutschmark.

 

 

 

The main opponents of including the yuan as reserve currency have been Japan and the US. According to Eswar Prasad, a professor at Cornell University and former head of the IMF's China Division, the two countries are unlikely to thwart the deal this time. "I think it will be very difficult for the IMF, especially given all that China has done this year, to deny China the prize it really wants," he told Reuters in October.

 

Beijing devalued the yuan in August in a shock move to respond to slowing growth. That decision was praised by IMF Chief Christine Lagarde, who said the Chinese currency became more market-oriented. However, the yuan is still tightly controlled by the People’s Bank of China, the country’s central bank.

Although the decision is expected on Monday, the yuan will not officially become a reserve currency until September 2016.

 

[eastcreek]

Yota or others, any educated guess as to what effect, if any, this will have in the IQD ?

[easyrider]

heres my opinion;

 

the IQD will be pegged to the new sdr basket which includes the U.S dollar and the Chinese Yuan also other currencies as well.. The yuan and the USD will BOTH be global reserve currencies.  The dragon has risen.  

Edited November 30, 2015 by easyrider

[easyrider]

[yota691]

GMT 21:36 2015 Wednesday, December 2: Last Updated

It takes time with the lack of possibility to convert freely Starting the yuan a global reserve currency depends on Beijing reforms a. P. B.

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  China will continue efforts to enhance the status of its currency in the world

 

 

 

 

Contribute to the adoption of the International Monetary Fund and the adoption of the yuan as a reserve currency in circulation by encouraging outside China, consolidating its position within the central bank reserves, but its launch will take a long time, with the lack of freely convertible, and will remain subject to financial reforms ahead of Beijing.

Beijing: The International Monetary Fund in Washington Monday annexation of the yuan to the major currencies, which determine the unit of account of the financial institution basket, recognized as a reserve currency alongside the US dollar and the pound sterling and the Japanese yen and the euro.

So, Beijing be achieved great symbolic victory, especially it continues efforts to strengthen the position of the national currency in the world, to match the level of its economic strength. However, a number of experts rule out that China immediately reap the benefits of the decision of the International Monetary Fund, though he would encourage inevitably major central banks to accelerate the diversification of currency reserves of the process.

He strategist at Credit Agricole Bank Dariush Kovalski "The central banks are not obliged to adopt the SDR lineup, it is practically take them into account. It is assumed that it applies to the yuan", due to China's economic weight as the second power in the world.

He believed that "the share of the renminbi (yuan) in these banks reserves could rise in six years, from 1.4% currently to between 4.7% and 10%," translates turnout on the yuan may buy up to $ 110 billion per year. However, economist at ANZ Banking Group Raymond Young warns that this development "will not be between overnight," adding that it will depend on the level of confidence in financial institutions.

Limited ability to convert
Andrew Chiningham of Capital Economics says that the office "central banks like the other companies that manage money, prefer to deal in convertible currencies fully, and that have the exchange markets and markets a wide bonds" can be traded easily. Here precisely lies the problem. As expert explains that "the attractiveness of the yuan as a reserve currency would run into a lack of ability to exchange and limited + Liquidity +" as well as concerns resulting from the slowdown in the Chinese economy.

And it requires the integration of currencies in the basket by the International Monetary Fund to be "widely used" and "used freely." The first condition did not pose any problem to the IMF, as was the yuan in September fifth currency for international payments, and record 2.45% of total trading, though the difference remains vastly with the US dollar (43.3%) and the euro (28.6%), according to Swift financial company.

The second condition, provoking controversy, as the yuan lacks freedom of conversion, and its price fluctuations remain limited within the margin hovered around a central rate determines the day. Eager to avoid capital flight, Beijing continues to impose severe restrictions on the movement of funds out of the country, and in the guide stresses the authorities in this regard, has finally dismantled accused of converting hundreds of billions of yuan illegally overseas networks.

Says Andrew Kolkohon, an analyst at Fitch Ritingz company, "The inclusion of the yuan to the SDR did not compensate for the deep structural reforms" which are essential to open the Chinese financial system. He stresses that "China has promised to lift the censorship on the capital by 2020, which means that we are still far from free transfer capability" of the Chinese currency.

The continuation of the policy of intervention
doubled China's goodwill signals, Fbachert edit basic utility rates, and allowed for many of the central banks and sovereign funds foreign access to its domestic market for currency exchange.

The Chinese central bank announced in August a reduction of about 5% in the Chinese exchange rate, explaining that he had amended the calculation of the reference price system for the yuan, to be closer to the value of "actual", in a move that was welcomed by the International Monetary Fund.

China's central bank also concluded agreements with about thirty of the major central banks to exchange currencies. He welcomed China's central bank Tuesday announcement by the International Monetary Fund with confirmation of his desire to "speed up financial reforms and opening-up."