Malaysia Hotline: +603- 2141 8908
With
China’s yuan taking the biggest step yet toward joining the US dollar and euro
as a top-rank reserve currency, the global economy may be approaching an era of
greater stability.
So
say economists who highlight the dollar’s role in the biggest financial crises
in recent decades. Drawn to the liquidity and security of the unit of the
world’s biggest economy, investors and governments relied on the dollar and
produced dislocations including historically low borrowing costs in the 2000’s
even as the Federal Reserve raised interest rates.
Rushes
toward the safety of the dollar challenged global policy makers in 2008 as
money markets seized up, prompting the Fed to open swap lines with counterparts
that remain in place today. China responded in 2009 with a call for reducing
reliance on the dollar, with central bank governor Zhou Xiaochuan floating the
idea of a “super-sovereign” reserve currency.
While
the proposal fell flat, Zhou and his allies began a campaign to win inclusion
for the yuan in the International Monetary Fund’s (IMF) special drawing rights
unit. The SDR, as it’s called, is a kind of overdraft account for members of
the IMF, convertible into dollars, euros, pounds and yen. The Washington-based
fund’s staff said Friday that the yuan has now met the qualification terms for
inclusion in the SDR.
“The
current configuration of the global monetary-financial system that is centered
and increasingly dominated by the dollar is not a stable or a sustainable one,”
Stephen Jen, co-founder of SLJ Macro Partners LLP in London and a former IMF
economist, wrote with colleague Joana Freire last week.
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