The International Monetary Fund’s decision this week to add the yuan to the dollar, euro, yen and pound as a reserve currency was acknowledgment of China’s progress toward superpower status.
The International Monetary Fund’s decision this week to add the yuan to the dollar, euro, yen and pound as a reserve currency was acknowledgment of China’s progress toward superpower status.
At the same time, the designation — effective next September — will impose limits on the Communist Chinese government’s economic and political maneuverability. For the world, the change should be seen as positive, although with costs and benefits.
The IMF is only being realistic in its designation, given China’s status already as an important world trader. By accepting its currency as “freely usable,” the IMF is catching up on an evolving reality. The designation means, for example, that the yuan can be used in the disbursement and repayment of international bailouts, such as the Greek rescue.
Also on the international benefit side, but on the debit side for the Beijing government, China will find it more difficult to fiddle with the yuan’s exchange, an action it has taken sometimes to improve the position of its exports on world markets.
China’s currency will become much more susceptible also to free market developments and trends, which is desirable to the world market but perhaps not so much to Chinese leaders.
In fact, Beijing might have to enact regulatory reforms and legal protections if the yuan is to continue toward full respectability as a world currency. It is one thing for the IMF to say it is so, but something else for the yuan to gain international acceptance.
The yuan’s addition to this elite group of currencies will make it more difficult for the United States to lead efforts to impose economic sanctions on countries it doesn’t like, such as North Korea and Sudan, which then would be able to turn to the yuan for trading if they want.
Although such sanctions were a major factor in producing the Iran nuclear deal, it is arguable whether they work in general.
— Pittsburgh Post-Gazette