Chinese currency renminbi was included in the elite club of reserve currencies on Monday, an unexpected decision by IMF surprised the world. IMF chief Christine Lagarde said, it is a “recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems”. The inclusion of Chinese currency in the bucket of world currencies, “will bring more robust international monetary and financial system, which in turn will help to China and world economy grow at faster rate”.
Only three months back, the world economies were surprised with the devaluation of renminbi by nearly 2% in a single day. The speculation around the China’s devaluation was more or less oriented towards the long held dream of inclusion of Chinese currency into the IMF. Only four other currencies – dollar, euro, pond and yen have this status.
Now China will have a special drawing rights in IMF and it symbolizes a global recognition of growing Chinese economy. With the inclusion, IMF suggests that Chinese currency is safe, freely usable and reliable.
The IMF’s decision also reflects the waning influence of European currencies. The renminbi will replace mainly euro’s special drawing rights. The dollar is still a dominant player of trade and finance (Accounts 42% of the SDR), while Chinese currency is taking over the euro in the background.
So now, the renminbi can be used in disbursement and repayments of bailouts, for example Greece can pay his loans in Chinese currency also. So in future we might see renminbi rivalling dollar (not in near future) but it may surely surpass the others. Japanese and European economy are slowing down and British Pond is merely has symbolic value of the past era – China would dominate the world economy along with American dollar.
Currently, America dominates in every economic matter and their allies Britain, Japan and Europe always follow a unilateral policy along with US while sanctioning other countries on the count of human rights or any other financial reasons. But with China coming in the picture, USA and its allies might see a roadblock because of growing Chinese economic interests of China. So, there are few questions which must be a matter of concern for Western Powers.
Overall, the inclusion of Chinese currency is a welcome step and it has become the first developing country to be included in the IMF’s elite club of currencies. But there will be if and buts, because when power grows, it wants to colour the whole world in his own colour.