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China Yuan Becoming Reserve Currency

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China Yuan Becoming Reserve Currency
Market Liberalization… with Chinese Characteristics:
Can the Chinese Yuan become a Global Reserve Currency?

Jessica Davis

Fort Hays State University

ECFI 644 International Economics

April 30, 2012

Dr. Dosse Toulaboe

Abstract

China’s economy is growing ever larger, but is that enough to get the Chinese Renminbi (more commonly known as Yuan) to be accepted as a global market currency? This paper will look into the liberalization, but with Chinese characteristics, of five determining factors in becoming a country whose currency is a global reserve currency. These factors are as follows: economic size, macroeconomic policies, flexible exchange rates, financial market development, and finally having an open capital account, and will ultimately prove the China is not quite the rising economic power some believe it to be (Prasad, 2012).
Market Liberalization… with Chinese Characteristics
In China, it is currently the year of the dragon, a symbol of good fortune and sign of intense power. With this symbol of fortune and power many Chinese are hoping for a year of economic prosperity, especially for the growth of the Yuan. In recent years, China has maintained that it’s “special” economy is pursuing a “market economy, but with Chinese characteristics”. Some of these characteristics include encouraging more of an international use of the currency, while being famous for their inflexibility with exchange rates, and not fully opening up the economy to the free flow of capital. However, the Yuan’s acceptance as a reserve currency will be based on China’s economic size, macroeconomic policies, flexible exchange rates, financial market development, and finally having an open capital account. It seems that with time, it is inevitable that China’s Yuan will one day become a global reserve currency. Depending on the development of these five criteria, China’s currency may become a global reserve currency sooner than predicted.


References: Briscoe, H. (n.d.). The chinese currency’s great leap forward. Alliance bernstein blog . Retrieved April 30, 2012, from http://blog.alliancebernstein.com/index.php/2012/03/29/the-chinese-currencys-great-leap-forward/ Carbaugh, R China to further reform RMB exchange rate. (2010, June 19). China Daily. Retrieved April 30, 2012, from http://www.chinadaily.com.cn/china/2010-06/19/content_9993010.htm Crooks, J Lee, J. (n.d.). Will the renminbi emerge as an international reserve currency. Asia reginal integration center. Retrieved April 10, 2012, from aric.adb.org/grs/papers/Lee.pdf Prasad, E., & Ye, L Schuman, M. (2012, March 12). Why china faces a catch-22 on financial reform. Time Business, 1. Retrieved March 15, 2012, from http://business.time.com/2012/03/12/why-china-faces-a-catch-22-on-financial-reform/ -----------------------
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