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Yuan: Towards an International Reserve Currency

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  • T.P. Bhat

    (T.P. Bhat is Professor at the Institute of Studies in Industrial Development, 4, Institutional Area, P.B. No. 7513, Vasant Kunj, near The Grand Hotel, New Delhi 110070, India. tpbhat05@gmail.com)

Abstract

The emergence of China as a powerhouse of the world economy has added a new dimension to the global currency market. China’s impressive economic growth and phenomenal rise in exports have given considerable strength to its currency yuan in recent years. To what extent will China push to make the yuan the world’s reserve currency has become a burning issue. Currently, the share of yuan in total world reserves is hardly 1 per cent. The reasons are obvious. The yuan is not fully convertible, the capital market is shallow, the exchange rate is not flexible and international acceptance of yuan as a store of value is non-existent. In the face of these constraints, China is showing an inclination to make the yuan an international currency and to rival the US dollar and euro. Increase in the inflow of foreign direct investment as well as outflow of investment abroad is enabling China to move towards internationalisation of yuan in the near future. Regionalisation of the yuan is gaining importance with rise in its international trade in Asia. China has now allowed the commercial banks in Hong Kong to accept the yuan-denominated deposits. It is further extending loans in yuan to developing countries. Many steps are being taken towards making the yuan an international reserve currency. At the outset, it appears that the yuan would become an international currency in the foreseeable future.

Suggested Citation

  • T.P. Bhat, 2013. "Yuan: Towards an International Reserve Currency," India Quarterly: A Journal of International Affairs, , vol. 69(3), pages 249-263, September.
    • Handle: RePEc:sae:indqtr:v:69:y:2013:i:3:p:249-263
    DOI: 10.1177/0974928413489467
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    References listed on IDEAS

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