From today, October 1, 2016, Chinese Renminbi, the official currency of China, joins the SDR Basket of the International Monetary Fund (IMF).
Flag of the People’s Republic of China (Credit: Skopp, Source: Wikipedia)
SDR is the ‘Special Drawing Right’ Created by IMF in 1969 to supplement the existing official reserves of member countries. To make it simple, it’s the ‘Reserve Basket’ of IMF. The vlaue of the SDR is defined using a basket of major currencies, which are selected based on their importance in the world’s financial and trading systems, says the IMF.
So now Chinese Renminbi is the fifth currency in the SDR basket along with the U.S. Dollar, the Euro, Japanese Yen, and the British Pound Sterling.
The inclusion of Renminbi in the IMF’s trading basket is significant for two main reasons:
- it shows China is now a stable financial powerhouse with all the developments it made in the last decades, status of ’emerging power’ is far behind. China will now enjoy ‘greater authority’ in international business and trading.
- second, global economy is dynamic and evolving, what currency will join next, will depend on the progress of that nation (will the Indian Ruppee be the next? – definitely not in the next 20 years!)
China can be the best example of self-development, a nation that carefully avoided all military confrontations or engagements, took Hong Kong back peacefully from Great Britain in 1997, exercised patience, and concentrated solely for its progress and development.
But that’s not all, alongside its powerful economic position, China has now the 3rd strongest military power in the world. So when the Chinese claim the ‘South China Sea’, what Japan and US can do? China has long prepared for it. They are not going ‘silly’ after something for what they are not ready (at all). If you understand that, you may guess what the Chinese are still hiding and what surprises you may encounter tomorrow. China might be already two- to twenty-times more powerful and advanced in it’s military power and future economic plans to capture and bring largerer portion of the Earth under its direct control. Huge Chinese investments in Africa only echos that.
PS.
By the way, Yuan is the basic unit of Renminbi although in the international financial market it is often referred to as the Chinese currency.