When Deng Xiaoping set China on the course of market-oriented reform nearly 40 years ago, he called his pragmatic and incremental approach “stepping on stones to cross the river.” The Chinese currency’s much-ballyhooed entry into global finance has landed on a very small stone indeed.
The yuan accounted for just over 1% of global foreign-exchange reserves in the fourth quarter of 2016, according to the International Monetary Fund’s first such breakout, released on Friday. The $85 billion worth of renminbi holdings reported by countries who disclose the currencies of their reserves was barely half what they keep even in Canadian dollars, and a tiny fraction of the $1.6 trillion worth of euros and $5.1 trillion of dominant US dollars.
Beijing has actively promoted international use of its currency, extending swap arrangements with foreign central banks, encouraging trade settlement in yuan and opening its stock and bond markets somewhat wider to foreign investors. The IMF endorsed those measures last year when it included the renminbi in its internal currency, known as the special drawing-right basket. It gave the renminbi a weight of 11% – a third the share of the euro and a quarter of the dollar’s – suggesting a belief that the currency of the world’s second-largest economy would become a significant force.
Such shifts happen slowly, of course. However, the tiny impact so far may also reflect how much shine has come off the yuan’s international credentials. The authorities’ clumsy effort to halt a stock-market swoon in 2015 worsened the selloff. Their heavy intervention to prop up the renminbi subsequently burnt up about a trillion dollars of reserves. Lately the government has sought to stifle efforts by companies and individuals to move money offshore.
The use of the yuan in global trade has, if anything, gone into reverse. It accounted for 1.7% of payments in December, down from 2.3% a year earlier, according to payments network SWIFT. That’s consistent with the weak uptake shown in the IMF data.
Over time, the renminbi’s global role can only increase. But at least until Beijing turns back toward liberalization, the stones will be small and the river wide.
– Reuters Breakingviews
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Perchance this is another case of statistical lying. Firstly, the Chinese yuan is not a convertible currency. It is not openly traded on its own as a currency. China itself restricts the amount of yuan leaving the country. It is like you can have it on a needs basis for trade and transactions rather than as a true reserve openly convertible currency. China controls its value within a band or margin so that it does not go up and down on its own steam. In other words unless you are using it in China trade, the only way you as a foreigner can get it is first accepting it as payment for the Chinese to buy something they want from you as in shares or property so that you can then in return use it to buy Chinese goods. Put it in perspective. The Chinese do not want it to be a fiat currency like the U.S.$ for that makes it volatile, and then you have to like the Americans start petroleum dollar wars and selling arms nad weaponsto ensure that there is demand for U.S.$.
I love the way you try to spin a weak Chinese currency. Nice complete subversion of the facts.
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Wondering what was the message of this article? Who wanted the yaun to be the major currency? Only those media hacks. The article hoists a hypotical petard and proceeds to demolish it. China still wants tough control over its currency and hence convertibility is not a priority. You can sneer at the lack of confidence but thats a fact that the Chinese financial system is still weak and requires considerable reform without introducing instability.