Money Makes the World Go Round

Money Makes the World Go Round

                Money make the world go round, this is a phase most people have heard at some point or another in their life time and it is one that is generally accepted like death and taxes.  Money however is a vague term and over the years it has taken on many different reincarnations, but what hasn’t changed is its importance in an ever more globalized world.  To date there are four primary currencies of the world the Yen, Euro, Pound and of course the US dollar all of whom are called properly reserve currencies.  However with ever increasing influence of China the IMF has been looking to add a fifth currency, the Chinese Renminbi (RMB), to the exclusive currency club.  It is a move that the IMF is considering very carefully, but I see it as an inevitably because it is a necessity for stabilization for the global market. 

                Such a move by the IMF to make the RMB a reserve currency would be a welcoming sight for U.S. foreign policies in dealing with China’s growing economic influence.  Currently according to SWIFT’s RMB tracker in 2015 the RMB ranked as the forth most traded currency at 2.79% of world currency value, lagging behind three of the big four with the US dollar leading at 44.46%.  However even at 2.79% the RMBs influence has been growing modestly over the years, however this is not without cost to China’s Central Bank.  In trying to become a reserve currency China is being faced by leading members of the IMF such a Germany, France, United Kingdoms, and the United States to further deregulate their currency from the central bank grasp.  Such deregulation as removing the RMB from a managed float to allow market corrections to determine its true value.  Unfortunately the Chinese Central Bank has yet to accept such reform, and in fact over this summer it would appear that they have been moving in reverse.

                If by chance you lived under a rock this summer China suffered harsh losses in manufacturing, business, and its financial sector.  And, in reaction to this financial devastation the bank of China made one mistake that stood out among the rest, they chose to devalue the RMB.  Although it was only a modest decrease, it could appear that China themselves are not quite ready for the responsibility of being a global currency.  As we have talked in class with economics as with power whether or not the nation accepts it they hold a global responsibility.  A responsibility for which I think is needed by China not solely for the sake of the US, but for the development of China themselves.  For what good are the words of a leader if they are not backed by the reliability his character.  And, although it will inevitably make China less competitive in the global market by allowing their currency to freely float it is a strong sign to international financial markets that China will accept part of the responsibility for its actions in a global market.  With that said depending on the actions by the Chinese Central Bank near the end of this year or the next it is with high expectations that the Chinese Renminbi will be accepted by the IMF as the Fifth global reserve currency.

---Nathaniel Dust---