The Chinese currency Renminbi was selected to become one of the ones the globe’s respected currencies by the International Monetary Fund (IMF). The move apparently conforms to Chinas undisputable emerging front in economic dominance globally. The crucial impact of the move falls in the widening of the use of Renminbi in commercial purposes and enhancement of the finance segment. The new transformation has numerous effects. It upgrades and secures China’s worldwide stature in terms of global economic supremacy. The currency joins four other respected currencies that include America’s dollar, the euro, Japanese yen and pound that had been previously designated by IMF. The recognition of Renminbi creates a reflection of new improbability regarding China’s economic stands and uncovers a perusal into the country’s financial system and structure. To eventually reach the IMF targets, China has been compelled to restructure its strong grip and tight control on the currency that resulted in the immediate devaluation of the Renminbi. This move had shaken the worldwide market in August 2015.
The impact of the move is also notable in term of the injection of fresh volatility China’s economy. The China economy has been slowing down. According to I.M.F. designation, it has the sole mandates of bestowing global significance under its accounting segment. The standards under which Renminbi was promoted serves the benchmark ranks and rules that entails measuring reserves that countries have in holding safeguarding of the home economies during financial troubles. The promotion of the Renminbi also indicates that China had surpassed the safety, reliability and freely usability that considerable demands outlined by IMF. The new roles of the currency entail adoption as the currency for disbursement and paying of the international bailouts properly denominated IMF’s accounting segment. Such tasks ignite memories of Greece’s debt deal where IMF intervened to help the nation financially. The commencement of the use of the currency commences in September 2016 and has significant benefits to China. The change lifts Renminbi’s new ranking to elevate the international monetary arrangement and preserve global financial steadiness. The recognition of the currency has effects in portraying the position of China in the global map of business and perhaps global control. It denotes the warning control of Europe and emerging economic block in Asia.
The adjustments also define the IMF new stabilized currency to use at eight percent (8%) -British pound, eight percent for Japanese yen, eleven percent (11%) Chinese Renminbi. Euro has thirty-one percent (31%) and American dollar has forty-two percent (42%) use. According to IMF, the uplifting of Renminbi does not necessarily show that China’s economic renovation and transformation has been achieved. The change only allocates new favors to the currency internationally. China has ensured massive control of the monetary structure in the country especially with its regards to its Communist Party entrenched roles in swaying the court and legal protections in the country. Such typical sticky issues may limit the international appeal to the currency. There are also new impacts and effects in the emerging transformation in the currency dynamics that may lead to the creation of new geopolitical concerns. As now, China sits back and celebrate its new success after Beijing’s enhanced effort of raising Renminbi as a strong challenger to the American dollar that can be traced centuries back.
I.M.F’s primary responsibilities were to ensure that there was adequate stability in the global monetary system, where all exchange rates were transacted between the state and its citizens including international payments. In a bid to achieve its goals, it considered adding the Yuan as one of the global currency. This was one of the milestones aimed to ascent towards achieving international reliability for a stronger representation in the global economy (International Monetary Fund, 2015).
- To support worldwide monetary cooperation;
- Aid in the growth and balanced expansion of global trade;
- To support trade stability;
- To avail resources that will help members with their payments challenges
The Yuan now officially recognized as one of the global currency. This move showed a promising indication of the changing vibrancy of the world’s economy. Its introduction implied that most of the central banks that were likely to withhold much of their reserved foreign exchange in the dollar will have a different alternative currency to consider. This is because most of the emerging economy countries have strong relationships with China, and their reserves could replicate in this relationship (International Monetary Fund, 2015). With now China’s currency approaching the criteria of freely usable, and the pace at which it’s gradually rising as the Chinese global currency will be equaled by the open outflows. The Chinese bond market is now rated as the third but only a foreign ownership of only 3 percent. As countries will increase the number of reserves parked in the Yuan this percentage will rise to even 20 percent of the owed bonds.
In conclusion, as China is aiming to crucially honor other nation’s sovereignty and make policies without fear of global criticism or any intervention, the RMB will reserve a great percentage in the international currency market. It will remain other countries who have been sanctioned from doing business to the west hence making sanction rules unstable ground value.