Happy China assures continuation of renminbi reforms; but rules out sudden depreciation

The new hero in the international currency market- renminbi (RMB) will not undergo sudden changes according to its manager the People’s Bank of China (PCB).

Speaking after the acquisition of RMB’s international status, Mr Yi Gang, deputy governor of PCB, said that the IMF decision was a validation of his country’s reform efforts. He ensured that the reforms will continue though there will not be sudden changes in renminbi. “There is no basis for continued yuan depreciation,” he added.

China is following some sort of a managed floating of its currency and controls the value of renminbi vis a vis the US Dollar. The PCB allows RMB to move within 2% on either side on a daily basis.  

Under the IMF scheme, the role of the SDR basket currencies is to measure the value of SDR itself. Previously, there were four anchor currencies in the SDR basket – the US Dollar, European Euro, British Pound Sterling and Japanese Yen. After the RMB entry, the Chinese currency became the third important currency in the basket with a weight of 10.92 per cent, trumping the yen and pound.

Internationalization of RMB will make China’s economic engagement with the rest of the world quicker and easy.

China is actively engaging in the international sphere economically in recent years. The establishment of Asian Infrastructure Investment Bank is a direct challenge to the West scripted Bretton Woods System where the IMF plays a central role. One belt and one road policy aims to attract more economic and political partners showcasing Chinese wealth.

Internationalization of RMB is a status building exercise for Beijing. Once included within the SDR basket, the rivalry between RMB and Dollar will intensify. Many observers forecasts that the RMB will emerge as the leading currency of the world by 2030 pushing the Dollar to the second position. 

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