IMF's
Acceptance Of The Chinese Renminbi (Yuan): Implications
The following
material was derived from an article which appeared in The
New York Times, today, November 30, 2015, and
which was subsequently posted in Yahoo News.
The implications, both short-term and in the longer-term are
far-reaching and may produce increased pressure against the U.S.
Dollar in the global Marketplace. It stands to benefit China in terms
of international trade and capital markets, while having a
potentially negative effect on the U.S. Currency's valuation and the
U.S.' ability to compete in the global marketplace. Links to each of
the two articles follow below:
In its simplest
form, the renminbi, will now be join the USD and other long-standing
preferred reserve currencies as a new preferred reserve currency and
as a member of the market basket of currencies that comprise SDRs
(Special Drawing Rights), which are the surrogate currency which the
central banks of the world use to settle interbank debts through the
IMF (International Monetary Fund). Possible implications are listed
below for your review and evaluation:
=+ A percentage
of the world's banks will now hold renminbi instead of dollars in
their reserve portfolio. This will place a downward pressure on the
USD just based upon the law of supply and demand;
=+ An
increasing number of international transactions will now be
denominated in renminbi in lieu of USD;
=+ There will
be a strengthening of the renminbi and a weakening of the USD;
=+ China's
position as an exporter (driven largely by its pricing advantages)
will be somewhat more challenged, while the U.S.' potential as an
exporter will be strengthened due to a “cheaper” currency;
=+ There may be
an influx of USD back into the U.S. Which may be perceived by the Fed
as being inflationary, which will put pressure on the Fed to increase
domestic interest rates;
=+ The U.S
securities markets will be adversely affected;
=+ The Chinese
securities markets will be favorably impacted;
=+ U.S. Banks
may risk slight credit downgrades;
=+ Chinese
banks will experience increased credit stability.
In sum, the
longer-term effect of this move by the IMF will cause some additional
economic hardship for the U.S.
Thank you for
reading the The
Internationalist Page Blog
and The
Global Edge International Consulting Associates Blog
Douglas Castle
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