Wary eye on anointed yuan
China is on the path to globalizing its currency on par with the U.S. dollar after shareholders of the International Monetary Fund (IMF) voted to include the yuan, or renminbi, in its basket of special drawing rights (SDR) currency.
The yuan joined the select list of currencies alongside the U.S. dollar, the Japanese yen, British pound sterling and the euro, which the IMF set as the official reserve asset to supplement member countries during a liquidity crisis.
The IMF created the reserve asset to support the Bretton Woods financial system in 1969. The Chinese yuan’s entry to the international reserve set underscores the ascension of the Chinese economy and international recognition of its growing power by anointing the yuan - the first from the developing category - as a major reserve currency.
Under the new composition, China’s renminbi will have a weighting of 10.92 percent in the benchmark SDR basket, the third largest after the U.S. dollar and the euro and ahead of the British pound and the Japanese yen. It poses a challenge to the hegemony of the dollar.
The inclusion will be official in October next year, and China’s weighting was less than expected, suggesting the influence of the United States behind the Washington-based IMF decision.
But to officially join the basket, the currency must be deemed by the IMF to be “a freely usable currency” and meet criteria in transparency and market availability. Beijing authorities will have to relax its control and interference in currency policy and accelerate liberalization and the opening of its capital market.
Korea must brace for the changes in the international finance order. The greater availability of the Chinese yuan could be a boon for Korea following the ratification of a bilateral free trade agreement and create a surge in Chinese tourists.
Increased transactions and demand for the yuan could help ease Korea’s reliance on the greenback and ensure greater stability of the domestic market and economy.
But any currency manipulation to sustain the Chinese economy could deal a heavy blow to the Korean economy. The ascension of the yuan could be a double-edged sword for Korea. We must thoroughly study the benefits and risks to turn the momentum in our favor.
JoongAng Ilbo, Dec. 2, Page 34