China's Currency Ambitions

Beijing's Push for a Global Yuan

Late Chinese leader Mao Zedong is seen on a 100 yuan ($15) banknote, December 9, 2010. Petar Kujundzic / Reuters

In 1962, Robert Roosa, a U.S. Treasury undersecretary at the time, reaffirmed the centrality of the dollar as an international currency by remarking, “It is a role which naturally accompanies our leading economic and political position.” One could be forgiven for misattributing those words to Zhou Xiaochuan, the governor of the People’s Bank of China, who in 2012 attributed the increasing internationalization of China’s currency, the yuan, to “the growing power of the nation and its financial market boom.” Of course, China’s push to expand the yuan’s global role may be hampered by its current market troubles. Although China recently announced that it would liberalize its exchange rate, that reform must be balanced against heavy-handed interventions to freeze its stock market and manage broader turbulence. Both sets of policy moves will ultimately factor into the official and market assessments of whether the yuan is ready for the global stage.

Since the global financial crisis began in 2008, China has made the internationalization of the yuan a priority. It has had no qualms about challenging today’s dollar-based international financial system and demanding a role for the yuan commensurate with China’s economic clout. The cornerstone of this effort has been its push for the International Monetary Fund (IMF) to include the yuan in the valuation basket for Special Drawing Rights (SDRs), a synthetic reserve asset created in 1969 to augment the international liquidity provided by gold and U.S. dollars under Bretton Woods, a system adopted in 1944 that sought to reconstruct the postwar economic order. The SDR is valued through a basket that includes the world’s major reserve currencies—the U.S. dollar, the euro, the British pound, and the Japanese yen. Although the IMF has sent mixed messages over the past few months, it dealt a blow to China’s ambitions when it recently announced that the yuan’s inclusion will come in late 2016 at the earliest. The announcement appears motivated by the desire to give China time

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