22:17 GMT26 September 2020
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    China's currency is looking to become the reserve currency as Chinese influence on global market continues to expand.

    China has made a request to the International Monetary Fund (IMF) asking the IMF to recommend the Chinese renminbi as a reserve currency.

    If Chinese yuan becomes a reserve-currency economy it would give China simpler and cheaper access to capital. But the drawback of that would be that the reserve currency will become high in demand, result of that would be that exports become less competitive and imports more competitive.

    Poll

    Could a Sino-Russian partnership eclipse US's international influence?
    • Yes, the future belongs to strong economical partnerships in the Asian region
      68.3% (1559)
    • Both Russia and China can achieve great things alone
      18.0% (410)
    • It's too early to say
      13.7% (313)
    Voted: 4
    Whether the IMF will say yes is still unclear, although it is possible that the IMF would consider adding renminbi to its Special Drawing Right (SDR).

    The SDR is an IMF reserve currency comprising specific allocations to stable, global currencies, a guide to what global central banks should hold for reserves. Currently, this is the yen, euro, pound sterling and US dollar.

    Currently, China is involved in two major new institutions the so-called ‘BRICS’ bank and the Asian Infrastructure and Investment Bank (AIIB).

    These institutions may be considered counterpoints to related Western establishments such as the IMF itself or the World Bank.

    These new institutions are important, not only for their potential influence on development in emerging Asian economies, but also for the renminbi.

    If the renminbi gets approved as a reserve currency, it is likely to seize this as a chance to use it in trade with primary trading partners.

    Following the European crisis and the possibility of Greece exiting the Eurozone, there is the possibility of a euro currency collapse. In the event of this collapse, China could emerge as the principal beneficiary of the situation in the long run.

    It is possible that renminbi would gain shares because the central banks like stability and China may actually provide the stability that is needed. China also has the highest yields, further making the Chinese currency appealing.

    Economic hegemony may soon be coming to an end, regardless of the IMF’s decision.

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    Tags:
    currency exchange, economic expansion, imports, reserves, Asian Infrastructure Investment Bank (AIIB), Eurozone, BRICS, International Monetary Fund, China
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