The IMF announced this week that the renminbi will now be considered a world reserve currency.
China — In a move that has been expected for many years, the International Monetary Fund (IMF) announced this week that China’s currency, the renminbi (yuan), will now be considered a world reserve currency. The Chinese Renminbi joins four other worldwide currencies, including the dollar, the euro, the pound and the yen.
Christine Lagarde, the managing director of the IMF, said in a statement that the announcement was a “recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems.”
“The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy,” she added.
The Chinese government has had to jump through many hoops over the past several years in order to be considered. The requirements included loosening controls on the currency and complying with various IMF regulations.
“China thinks that the inclusion of the RMB (yuan) into the SDR basket will strengthen the representativeness and the attraction of the SDR (and) that it will improve the existing international monetary system,” the People’s Bank of China said in a statement.
In reality, a currency earning world reserve status is just an arbitrary IMF distinction, though it does come with many advantages not afforded to other currencies. These advantages mostly apply to large corporations and businesses that are trading internationally and are more or less irrelevant to the average person living paycheck to paycheck.
While a development like this will have only a small impact on the everyday lives of people in any country, it is a symbolic milestone for people in China who have struggled for generations to obtain a more free society and economic system. Though a relationship with the IMF is far from freedom, the Chinese economy has become significantly more free in recent generations.
There are many nationalists in the U.S. who might argue that a more successful Chinese economy somehow means trouble for other countries. However, life is not a zero-sum game and economics is not really a competition; it is a struggle for survival and growth. The success of one economy does not guarantee the doom of another.
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