Renminbi

The Renminbi Goes Forth

The Nobel laureate Robert Mundell once said, “great powers have great currencies.” As China aims to position itself among the world's great powers, its efforts to build a great currency – efforts that recently got the renminbi added to the currency basket that determine the value of the IMF's reserve asset – have taken center stage.

LONDON – The Nobel laureate Robert Mundell once said, “great powers have great currencies.” China, whose government Mundell long advised, seemed to take this notion to heart, prodding the International Monetary Fund for years to add the renminbi to the basket of currencies that determine the value of the IMF’s reserve asset, the Special Drawing Right (SDR). And now the IMF has decided to do just that, in what amounts to a huge vote of confidence in China’s capacity to play a major role in international finance.

Many market participants, however, remain skeptical about the decision. Does the renminbi really belong in the same category as the US dollar, the euro, the Japanese yen, and the British pound in the international monetary system?

No doubt, China has made remarkable progress over a relatively short period. Since 2009, the share of China’s trade settled in renminbi has increased from less than 1% to more than 20%. And the renminbi now ranks fourth among the world’s currencies used for international payments.

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