The rapidly rising renminbi came of age with the news that it is to be included in the International Monetary Fund’s basket of currencies with Special Drawing Rights (SDR). Its inclusion may sound like a dry technical measure; it is anything but, and it is changing the landscape of global commerce fundamentally.
- First, it means the renminbi is now being accepted as one of the world’s reserve currencies, bringing liquidity to global trade alongside the US dollar, the British pound, the euro and the Japanese yen. The renminbi’s journey to becoming a globally recognized hard currency has begun.
- Second, it represents a significant vote of confidence by IMF economists for China and its path to economic reform. Clearly the IMF accepts the liberalization of the Chinese economy – as set out in our recent white paper – is irrevocable, and is a process that will continue.
The IMF’s decision certainly came at a pivotal moment for China, as the country is experiencing a significant slowdown in growth for the first time since its economic reforms. In 2016 Thomson Reuters FX analysts predict that growth will hit around six percent, while the RMB may depreciate further.
Most significantly, perhaps, the renminbi’s formal recognition as a global reserve currency provides companies with ever-greater confidence to use the renminbi as a stable and reliable transaction currency.
The renminbi’s rise to become a global currency has in part been a reaction by the Chinese authorities to the needs of the country – a recognition that in order to maintain a country of 1.5 billion people it must participate in global trade. It remains a controlled economy but with a gradually liberalizing currency.
While the global banking system may be less exposed to China than it was to the US mortgage market, those exposures have grown rapidly in recent years. And they are not evenly distributed – more than one-third reside with UK banks.
With over 140 years of history in China, Thomson Reuters is proud to be helping our clients navigate the realities behind China’s breaking developments by providing critical news, information, analytics and transaction capabilities as well as leading regulatory and operational risk management solutions.