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Chinese Currency Internationalization: Is the Yuan There Already?

It’s known that China manipulates its currency, and is pulling out all the stops to see its Yuan gain full internationalization. The nation has adopted unpopular techniques to reach that goal, including limiting the availability of the Yuan. This unprecedented approach toward internationalizing a currency has not escaped the attention of scholars such as Chris Brummer, but the big question for now is, will China succeed in the path it’s taking? To put this issue into proper perspective, you need to consider the Yuan relative to the real interpretation of “international currency,” and the prerequisite characteristics that global currencies like the US dollar and British pound demonstrated a long time ago.

For starters, it’s necessary for a currency to be able to effectively function as a medium of exchange, and that’s assessed based on its approval levels among buyers and sellers as a form of payment for products bought, and for other financial matters. Such a currency must be legal tender in the first place, and it must be shown to posses trade value for many categories of economic exchanges, as a matter of business practice. Evidently, how great a means of exchange the Renminbi is proving to be is a reasonable perspective from which to evaluate the viability of its internationalization ambitions or likely achievements.

You may also assess currency internationalization based on its success as a means to measure value for items such as products, services etc. Interestingly, a currency may not be a popular means of exchange despite the possibility of being extensively utilized as measure of value. This means that one currency may be used to measure the value of goods, only for other currencies to be used to make the payments. Be that as it may, any currency that’s popular as a measure of value internationally is likely a preferred point of reference for cross-border transactions, no matter if any specific market players are really holding the currency.

The final and also vital measure of a currency’s international participation is its reliability as a steady store of value. Again, this is not a question of how widely accepted a currency is as a means of trade, but whether it can operate as a reserve asset for longest possible. In a scenario where a currency is utilized only as a medium of commerce, but market players don’t trust it as a reserve asset, it’ll certainly not be very popular considering that traders and people may give it up easily, fearing that it may lose value and negatively impact their capacity to utilize it.

Researchers are still assessing if China may be forced to embrace standard policy for the Yuan to achieve the vital attributes of an international currency.

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