Jason Lee / Reuters 100-yuan banknotes are seen in Beijing, July 2013.

The Renminbi Goes Global

The Meaning of China's Money

In This Review

Gaining Currency: The Rise of the Renminbi
by Eswar Prasad
Oxford University Press, 2016
344 pp.
Purchase
The People’s Money: How China Is Building a Global Currency
by Paola Subacchi
Columbia University Press, 2016
256 pp.
Purchase

Last October, the International Monetary Fund officially added China’s currency, the renminbi, to the basket that makes up its Special Drawing Rights, the reserve asset in which the IMF denominates its loans to governments. Until then, only the U.S. dollar, the euro, the British pound, and the Japanese yen had enjoyed this exalted status. The addition of the renminbi to the SDR basket occasioned much celebration in China. Lu Jian, vice president of the Guangdong Guangken Rubber Group, hailed the event as a “historic moment.” The People’s Bank of China (PBOC), the country’s central bank, announced that the move was “an affirmation of the success of China’s economic development and results of the reform and opening up of the financial sector.” As far as many Chinese were concerned, the IMF’s move signaled that the renminbi had become a leading global currency, befitting one of the world’s leading economies.

But some independent observers suggested that China’s official reception greatly exaggerated the significance of the event. After all, SDRs are little more than the accounting units in which the IMF conducts its transactions. There is no private market in SDRs. They are not used by importers and exporters to invoice and settle trade deals. Nor are they used in private financial transactions. The importance of adding the renminbi to the SDR basket, in this view, was more symbolic than real.

Still, symbols matter. In this case, they matter to Chinese policymakers, who in recent years have been making a concerted push to “internationalize” the renminbi by promoting its use as a unit of account, means of payment, and store of value for banks, firms, and governments undertaking international transactions. Since 2009, internationalizing the renminbi has been an explicit goal of Chinese policy. Beijing therefore celebrated the renminbi’s addition to the SDR basket as evidence that it was making real progress in this direction. 

China’s ambitions notwithstanding, the U.S. dollar remains unchallenged the dominant international currency. The dollar accounts for more than 60 percent of the foreign exchange reserves held by central banks worldwide. Nearly 45 percent of all foreign exchange market transactions involve dollars. Virtually every transaction in the global oil market is denominated in dollars. Put simply, the dollar reigns supreme. So why would China attempt to challenge the dollar’s dominance, or even try to establish the renminbi as an alternative global currency? 

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