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Yuan’s Slow Rise Could Mean Trouble for Western Economies

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Yuan’s Slow Rise Could Mean Trouble for Western Economies

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The Chinese yuan’s inclusion in the IMF’s Special Drawing Rights could have real-world implications for global finance.

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Recommendation

The yuan’s inclusion in the International Monetary Fund’s Special Drawing Rights solidifies China’s place as the world’s third-largest economic superpower, behind the United States and the European Union. At first blush, the IMF’s decision appears little more than a symbolic triumph for China. But as this thought-provoking article from economist Enrico Colombatto reveals, the decision may be far more significant for China and the global economy’s future than many expect. getAbstract recommends this brief but cogent essay to policy makers and executives.

Summary

As of October 2016, the International MonetaryFund’s Special Drawing Rights (SDRs), “the accounting unit the organization uses to carry out financial operations,” will include the Chinese yuan – or renminbi, its official name. Allocations of the US dollar, the euro, the yuan, the Japanese yen and the British pound, in descending order, will constitute an SDR. The yuan’s addition comes at the expense of the euro and the pound, both of whose SDR weightings have declined as a result.

While seemingly an act of symbolic value, the inclusion does elevate China’s economic status. Its timing is propitious, given China’s current...

About the Author

Enrico Colombatto is an economics professor at the University of Turin, Italy.

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    V. R. 2 months ago
    The author, Enrico Colombatto, emphasizes the significance of China's rise and explores the conditions necessary for the yuan to become a top global currency.