China's renminbi (RMB), also known as the yuan, may join the top 3 global currencies club in 5-10 years, suggests Tom McGregor, a Beijing-based political analyst and senior editor for China's national TV broadcaster CCTV.
On November 6, South China Morning Post presumed that the yuan could replace the yen and the pound sterling to become one of the three most used currencies in the world just in five years.
Commenting on the assumption, the Beijing-based political analyst opined that "it could happen considering the circumstances."
"China's economy is much larger than Japan or the United Kingdom, so by default the renminbi can be expected to have much wider use in international exchanges," McGregor said.
According to McGregor, "it's a huge headache and the Chinese government wants to keep it that way, fearing that if many Chinese might weaken the currency by pouring out the currency outside the borders, which would have a devastating impact on the Chinese economy."
The government of Chinese President Xi Jinping is pushing ahead with the internationalisation of the yuan. On September 30, 2016, the renminbi joined the US dollar, euro, yen, and British pound in the Special Drawing Right (SDR) basket.
"The RMB's inclusion is an important milestone in the integration of the Chinese economy into the global financial system. The IMF's determination that the RMB is freely usable reflects China's expanding role in global trade and the substantial increase in the international use and trading of the renminbi," Siddharth Tiwari, director of the IMF's Strategy, Policy, and Review Department, said, commenting on the issue.
Rapid Internationalisation of Yuan Fraught With Risks
Still, according to McGregor, a rapid internationalisation of the yuan is fraught with risks.
"It's a tricky business here," he presumed. "If China rushes too quickly with the internationalisation of the RMB, they will witness a shocking rise of its currency flooding out of the country."
"So you will witness Beijing make slow but steady progress on this matter," McGregor said. "I expect these procedures to continue on for the next 5-10 years before the RMB joins the top 3 rankings as a global currency."
Donald Trump's assertive trade policies and tariff wars have partly added to the weakening of the renminbi, prompting further criticism from the Trump administration. The question then arises whether Beijing will be able to proceed with its bold plan amid pressure from Washington.
"Beijing would love to strengthen its currency to boost imports," McGregor explained. "They need to persuade many nations to sign trade deals with them. By increasing imports, China can establish deeper trust with other trading partners."
However, given "the complexities of China's capital controls, the world will have to wait a few more years to see a stronger and more widely used renminbi in the international markets," he presumed.
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