entered the system. This will be beneficial for international banks in order to more efficiently
access to the RNB market, which earlier has been very costly and slow.
There are two criteria for determining whether a currency can be a part of the SRD, firstly
the issuer country must be a
, and secondly the currency must be freely
tradable. During the past five years, the Chinese export has accounted for about 11% of the
global total, which place them the third biggest in the world. The second criteria has been
the biggest issue for the renminbi and its internationalization. Currently the renminbi does
not meet the requirements of being
, which challenge the global financial
system. This is due to China's economy being ruled by a Communist party that previously
has restricted the convertibility of its currency in addition to protect its domestic capital
from foreign influences.
Moreover, it is the first Eastern democracy to become an elite
global reserve currency. In light of this, economists are questioning the basis of the
decision, if it has been thoroughly considered. It has been suggested
several years of
from Beijing to gain this prestige to its currency.
In conclusion in our opinion with
an emerging economy, corporates and investors have to be
careful with managing their exposures and moderate diversification. Meaning China is not
considered a fully stable economy just yet. Moreover, the day after the announcement,
offshore trading weakened regarding speculations on intervention by China's Central bank.
There is a fear that the Chinese economy will go into recession and after becoming more
internationalized a recession will affect the global financial market. However the
implementation of RNB provides opportunities for businesses and investors off-shore.
Implementing the RNB as an elite global reserve currency adds its value to the global
financial system in the long term as China is
currently a leading exporter and trading
. Because, for RNB to even be considered the Chinese financial system and
management had to become more flexible which is an advantage for international banks
settled in China or trading offshore.