A Good Start: China’s RMB Joins the SDR

On November 30th, the IMF board’s decision declared that China’s currency, the RMB, would be incorporated into the SDR. China’s hopes of seeing the RMB become part of the global reserve currency has been partially fulfilled. SDR is, by definition, a book asset that can be used by the members of the IMF for debt repayment and for narrowing the gap of international payments imbalance. China’s financial authority, the People’s Bank of China (PBC) reaction towards IMF’s decision appeared positive, considering that the decision was a recognition for China’s social and economic progress and was conducive for RMB internationalization. Well, China has reasons to be cheerful. On one hand, one of the ways of deciphering whether a currency should be incorporated into the SDR is through assessing the issuer’s world trade share. China is a massive market for global investors, and the trade with China is both significant for the country itself as well as the rest of the world. On the other hand, with the China’s economic power growing, the RMB has been widely used for regional and global economic and financial interactions. However, it is inappropriate to be overoptimistic. The role of a currency played in the world finance is essentially dependent on its competitive power. China is now facing an economic downturn and capital outflow that brings […]