This paper critically assesses the potential role of renminbi as a future international reserve currency and evaluates pros and cons of such change of the role of Chinese currency. There are many reasons, specified in the paper, for the yuan to be considered as a viable alternative to dollar…
Download file to see previous pages...
These are large economic base, political stability, and a low rate of inflation (IMF, WB & World Bank Group, 2009). It should also be backed by a joint international monetary authority that is capable of asserting compliance among its member states, which must in turn comprise a significant number of nations in the world (Finance and Development, 2009). The currency must be sellable or tradable without limitation (Levine, 2009). Since the currency is supposed to be, according to Levine, a “safe haven” for other currencies, they should be able to have access to huge sums of it without restriction. This is because inadequate reserves of the currency would compromise the ability of that country to trade in that currency or participate in international transactions denominated in it. The international currency’s home economic and political systems must also be stable enough and fundamentally sound to support international transactions among countries. In order to engender confidence in the reserve currency, the valuation of said currency must be transparent to all for them to consider holding that currency in significant quantities. Because the determination of value is for the most part subjective, the matter of the country’s governance may not be concealed from the world, and therefore the political ideology of the country must be supportive of full disclosure (Cohen, 2007). Recent developments that triggered the search for a substitute It has already been mentioned that the large current account deficit and huge public debt of the United States are primarily responsible for the weakness of the dollar as the primary medium of exchange. Ordinarily,...
This paper presents a comprehensive analysis, that aims to determine whether or not the renminbi would provide a real substitute for the dollar as principal international reserve currency within the next ten years, and whether such a substitution will stabilize the global currency market and prevent further recurrences of financial crises as the world had experienced in the past.
The international reserve currency performs three vital functions of money – that is, as medium of exchange, as unit of account, and as store of value.
There are many reasons for the yuan to be considered as a possible alternative, the most important of which is its position as the top trading country in the world. It has amassed some 3 trillion dollars worth of international reserves, two-thirds of which is in U.S. dollars, thus this country is capable of exerting economic pressure on the U. S. Yearly it experiences record current account surpluses, compared to the U.S.’s accumulating current account deficit and public debt.
Despite these positive factors, there are also serious concerns. China’s financial markets are still highly restricted, and its currency is still unable to trade in open market, let alone be freely converted into other currencies. Other than currency concerns, China’s economic and political infrastructure are in need of a fundamental change. Corruption must be addressed, and the system made more transparent, in order to afford investors and fund managers a clearer view by which to assess the political risks of the currency.
...Download file to see next pagesRead More
Cite this document
(“Potential Role of The Yuan as the New Reserve Currency Essay”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1404929-potential-role-of-the-yuan-as-the-new-reserve-currency
(Potential Role of The Yuan As the New Reserve Currency Essay)
“Potential Role of The Yuan As the New Reserve Currency Essay”, n.d. https://studentshare.org/macro-microeconomics/1404929-potential-role-of-the-yuan-as-the-new-reserve-currency.
Multinational corporations who have denominations in different currencies are largely exposed to foreign exchange risk and they need to eliminate the impact of severe losses due to adverse movements in foreign exchange rates. Various other forms of managing currency risk have been compared with currency futures to determine that which form is the most credible one.
Both the Keynes’ and the White’s plans give much proof the experiences of the interwar period have been analyzed in great detail. Both recognize the need to control short-term capital movements and to a degree to drift away from the hypothesis of a free exchange system.
This currency is based on the national currencies of the 20 largest national economies measured by gross domestic product (GDP). The main understanding is that the implementation of the Wocu would alleviates political currency manipulations and also should smooth trading idiosyncracies caused by investors and political entities; ultimately these measures would reduce currency volatility.
China government approximates the international trade industry hires more than eighty million employees, of which twenty-eight million people work in internationally-invested enterprises. The present international economic hold back is having substantial unconstructive effects on China’s export industries, and sectors that rely on international direct investment flows
This dominance has been of tremendous benefit for the financial system of the U.S. and her consumers. The U.S. government has gained tremendous influence and power around the world because of use of the dollar. Today, the U.S. dollar accounts for more than 60% of foreign currency reserves in the world.
Even developed countries and rapidly emerging countries are not free from the problems generated by inflation. China is the most rapidly developing country in the world at present. Yet, “China's inflation rate hit a 10-month high in February, as Lunar New Year festivities drove up food prices.
The use of the Chinese Yuan as the legal tender and its pegging against the US dollar in the exchange markets contributed to the economic rise in the country. The Chinese Yuan is also referred to as the Renminbi that forms the core foundation of trading arrangements between China and the US (Zhang 2004).
government debt (Zeng, Nielsen 2007). Less dramatic, but also worrisome, are declines against the currencies in major industrialized nations such as Australia, China, and Japan. The world currently undermines the importance of the dollar depreciation over the other currencies.
e that developing countries have been the worst affected by the loss of value of the dollar in the past decade, because these countries had accumulated “vast amounts” of this currency in an effort to protect themselves against commodity market volatility and variability in
However, the system once adopted and appreciated by governments and their civilians many years down the line is in the modern times questioned, over its suitability in remaining the global reserve currency, come 2050.
5 Pages(1250 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic Potential Role of The Yuan as the New Reserve Currency for FREE!