Today the International Monetary Fund or IMF will vote on whether to include the Chinese currency, known as the renminbi or yuan as the fifth member of its special drawing rights (SDR) currency basket.
It has always been expected with the economic rise of China that the currency would eventually be included, however, China has been more conscious in the last couple of years about speeding this process along by making deal after deal within Europe and Asia creating RMB clearing banks and signing off on MOUs with other countries regarding the currency. Moreover the Asian economic power as also liberalized its stock, futures and commodity exchanges while also further opening up its capital markets to foreign investments.
The basket currently consists of the Dollar, Euro, Yen and GBP.
Analysts at the Japanese bank Nomura, which is heavily involved within Asian FX markets predicted that the yuan will become one of the top three major international currencies – a peer to the US dollar and the euro – by 2030. They estimate the yuan will make up 10% of the IMF’s SDR basket.
Some quotes from the UK’s Gaurdian report from Asia take a deeper look at the situation:
“The direct impact won’t be felt in the near term, not least because implementation of the new basket won’t be until Q3 2016. However the symbolic importance cannot be overlooked,” said Andrew Malcolm, Asia head of capital markets at law firm Linklaters.“By effectively endorsing the renminbi as a freely useable currency, it sends a strong signal about China’s importance in the global financial markets.”
For forex trading the continued rise of RMB could have a huge impact as it can create another massively liquid instrument to trade which could rival volume of EUR/USD sometime in the future. We are likely a decade or more away from this occurring down to the retail trading level but the impact for business and finance could be felt globally far and wide across the investing landscape.
