'US will try to set roadblocks on yuan’s path to get reserve currency status’
The IMF is debating whether to make China's yuan a new reserve currency, according to the Financial Times. If Beijing is included in the Special Drawing Rights (SDR) basket it will have better access to capital, it will be easier to take out loans, and China's political influence will be expended.
RT:The head of the IMF Christine Lagarde said recently that it's only a matter of time before the yuan becomes a reserve currency. Will this happen in the near future?
Robert Wenzel: It makes sense for China or the IMF to do that. China is growing up, it is becoming a major economic force, the currency is becoming more and more attractive for other counties to hold. The only stumbling block is the US. They are not going to be happy with somebody else challenging them again with regard to the reserve status of the dollar, and the yuan moving into their position with regard to SDR status that just shows more strength with regard to the yuan in China. The US will probably throw some roadblocks in the air, but it is a close call whether China will be able to get in this time or not.
RT:What kind of roadblocks can the US set up to prevent this from happening?
RW: What they can do is just read all the regulations with regard to what kind of currency can become a part of the SDR basket, interpret them very, very strictly, and say: “Well, China’s yuan does not fall under the guidelines because of this or that...” And of course it is just really silly- what they are trying to do is prevent the yuan from having any chance of getting into the SDR.
RT:What does Washington have to lose besides money?
RW: It’s a status thing - the US wants to be the big dog in the world, they want the US dollar to continue to be the reserve currency of the world. The yuan being part of the SDR basket is just another indication that the yuan is a very important currency that other countries should pay attention to. What you have is the situation where the US does not want that, does not want that challenge because China is creeping up very quickly.
RT:Are there enough objective reasons for the yuan to become a reserve currency? Washington’s and Beijing’s positions are clear, what about the rest of the world?
RW: ... The yuan is gaining status in markets - that’s the most important thing. That’s largely because China is a huge economy since the economy has been freed, they’ve growing, they’ve been increasing manufacturing, offering products throughout the world. They have little trouble with the business cycle, there might be some short-term problems here, but it’s a major, major economy that is just exploding at this time, and that is what the key to the yuan in the long-term. As far as it is becoming the part of the SDR basket, that is just a sort of the extra boost to the reputation of the yuan. Basically it is not as important from an economic perspective. What happens in the market economy is most important and that is where the yuan is strong. Getting SDR basket status will just mean that it’s another reference point where people can point to the Yuan and say: “Hey, look, it is even a part of the SDR now!”
RT:Will the IMF be able to go ahead with US or have some different sort of view about Beijing?
RW: It’s tough to see. The US is going to put tremendous pressure to stop it from occurring. But in the end if other major countries bring on board pressure to the US, the US may just demand certain things as far as in trade agreements and things like that before it allows the yuan to become a part of the SDR basket. It is a very, very close line whether the yuan will get in this time or not.
RT:The United States holds the biggest share in the IMF – 17 percent, looks like they have a lot of power here.
RW: Yes, they do, and they can pressure other countries. We see them do that with regard to economics and other foreign policy matters all the time. There will be pressure on other countries by the US not to let the yuan in. But again it’s a close call that the yuan should be in because it is a major currency now; it is traded strongly in markets around the world. That may force the US hence to sort of give up if the other countries won’t yield- at that point the US will step back and simply ask for trade advantages and things like that with regard to China before it agrees to vote for the yuan to come into the SDR basket.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.