In the past weeks I saw some headlines to the effect that the Chinese renminbi has become a world reserve currency. Then I started seeing yuan to become reserve currency headlines. The two words seem to be used interchangeably. What is the story there?
Also, I am not confident as a judge of reserve currencies. What are the implications? What do I need to understand to really get the whole Bretton Woods setup?.. and how that relates to China, the other SDR countries, the Democrats and the Republicans?
The Bretton Woods system has been obsolete since 1971.
A reserve currency in general is a currency that many countries and large financial institutions keep in reserve for use in settling international transactions. Any currency can be a reserve currency, but when people use the term they are frequently talking specifically about the reserve currencies held by the International Monetary Fund. The IMF currently holds the plurality of its funds in US dollars, then Euros, then pounds, then Yen. The Chinese Yuan will become the fifth IMF reserve currency sometime in 2016.
I don’t quite get what you’re driving at with the greenhouse gas stuff.
From what I’ve been able to divine, it’s pretty similar to the “Federal Reserve Notes” vs. “Dollar” difference, i.e. the currency as a whole is the Renminbi, which means 'People’s currency", and it’s denominated in Yuan.
Are these pretty much irreversible currency moves provoking push-back against other aspects of this Administration’s agenda? Or is push-back pretty much the back-ground noise any more?
The renminbi was added to the basket of currencies that make up the IMFs special drawing rights. These SDRs are basically used for nothing. They were originally created because of an expected shortage of US Dollars. That shortage didn’t materialize, so the SDRs never took any sort of significant role. There are about $300 billion worth of SDRs in existence. Compare that with $3300 billion that China holds in US dollars alone. So SDRs are a tiny fraction of reserves around the world.
Whats the Yuan being made a reserve currency got to do with the Administration. The IMF made the decision to add the Yuan to the SDR basket. The IMF is not under the control of the US government.
Incidentally the price for going through the Suez canal is set in SDR… learnt something from this thread at least!
The Obama administration did not make the yuan a reserve currency. There is nothing to push back on.
The Congress has many representatives from places that would either see higher power prices or lose coal industry jobs. Those representatives are upset at the latest power plant rules, nothing at all to do with the currency moves.
But we are in Bretton Woods II now? Involving a switch from a gold standard to a basket-of-currencies standard? I am not very confident about my knowledge here.
This is one of those threads where I will be able to start it properly by the time it is done and I have digested where this one went. I barely know what I am talking about when it comes to the implications of the yuan becoming a reserve currency, so in a way I don’t quite know what to ask to figure it out.
There seems to be a national prestige angle for China. Is that correct? Are they more respected now? Are they in any way more powerful now that their currency is ‘reserve’? They must want the yuan to be a reserve currency: what do they get?
The GOP was opposed to this move. Their motives are mysterious to begin with, more so if it is true the US doesn’t have a say in the matter. I wonder what political ramifications this move makes, both within the US and internationally.
I somehow got the impression that the GHG thing was a backlash to the currency thing, but lo, I cannot find anything to back that up. The GOP is certainly being contrary on that issue though.
Other countries’ %contribution to the currency basket shrank to accommodate the yuan. Britain’s shrank by ~3% IIRC, but the US’ shrank by about .07%. The result is that dollars are now a larger proportion of the basket relative to other countries compared to before. Does it mean anything that other countries gave up share to make room for China while the US basically did not?
If there is not to be a dollar shortage (and we printed trillions of 'em), is the reserve currency obsolete? Would people bother with all this if that were really true?