A better internationalized Chinese currency and a more representative special drawing rights will definitely help deliver better economic and financial performance within and beyond China in the long run.

The International Monetary Fund’s decision on Nov. 30 to include the renminbi in its SDR reserve currency basket from October next year ushers in a new era for the Chinese currency and the SDR. 

The renminbi joining the U.S. dollar, the euro, the pound and the yen in the SDR basket is significant as it will have real and far-reaching effects. 

The more internationalized renminbi will bring enormous changes to the Chinese economy, and the more representative SDR may play a better role in helping reduce global financial instability and boost world economic growth in face of increasing uncertainties.

It is our belief that its new status as a global reserve currency is only one of the many factors that reflect and influence the strength of the Chinese currency, also called the yuan, which has grown considerably on the back of the country’s fast economic growth in the past decades.

As the world’s largest trading nation with the largest foreign exchange reserves, it is more than obvious that China’s deeper integration into the world economy will naturally give rise to more international use of its currency in trade and overseas investment.

For those who may worry about an adequate supply of the Chinese currency to allow its free international use, they need look no further than the growing army of Chinese tourists who are shopping in an increasing number of foreign destinations, and the manifest eagerness of Chinese companies to invest overseas.

With the U.S. Federal Reserve set to raise interest rates and probably rock the global financial market at a time when China is loosening its monetary policy to arrest its economic slowdown, the renminbi will likely come under greater downward pressure. Its inclusion into the SDR does not prevent future short-term adjustments in its value against other major currencies.

But at a time when the central banks in some Western countries have cut interest rates to zero or even below, forcing depositors to choose between banks and mattresses, the IMF lending its imprimatur to the renminbi as a reserve currency, so other governments can park some of their wealth in such a safe and liquid asset, should be welcomed.

Editorial
(China Daily/Asia News Network)