In a historic decision, the International Monetary Fund officially gave the Chinese Renminbi the status of a “Main World Currency”. With this promotion, the renminbi joins the dollar, pound, euro, and yen as a currency recognized for its economic security and reliability in international trade.
The promotion has long been sought by Beijing as one of its top economic goals, and was endorsed by Pres. Xi Jinping who stated that the renminbi’s new status “will improve the international monetary system and safeguard global financial stability,”. A few of the benefits that will come because of this new status are that China will have increased influence in international bailouts of other nations (such as the Greek debt crisis) as well as having the renminbi become a more common form of currency in international trade and finance.
In order to receive this coveted status, however, China had to relax the grip it has over the renminbi. Considering that the Communist Party has for decades maintained a tight leash on the economy, Beijing will have to prove to foreign investors and businesses that its currency can be trusted and that the government will not implement radical economic reforms that could threaten the renminbi’s credibility abroad.
Now, Americans shouldn’t fear that the renminbi will come to overtake and surpass the dollar in terms of importance on the world stage. Eswar Prasad, a former head of the I.M.F.’s China division (and who is now the Tolani Senior Professor of Trade Policy at Cornell University) stated “the most likely scenario is that the renminbi will erode but not seriously rival the dollar’s status as the dominant global reserve currency.” On the contrary, Christine Lagarde, the managing director of the I.M.F., stated upon announcing the renminbi’s promotion that “the continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”