China’s Renminbi Is Approved as a Main World Currency

[GURPS]

China’s Renminbi Is Approved as a Main World Currency


HONG KONG — The International Monetary Fund on Monday approved the Chinese renminbi as one of the world’s main central bank reserve currencies, a major acknowledgment of the country’s rising financial and economic heft.

The I.M.F. decision will help pave the way for broader use of the renminbi in trade and finance, securing China’s standing as a global economic power. But it also introduces new uncertainty into China’s economy and financial system, as the country was forced to relax many currency controls to meet the I.M.F. requirements.

The changes could inject volatility into the Chinese economy, since large flows of money surge into the country and recede based on its prospects. This could make it difficult for China to maintain its record of strong, steady growth, especially at a time when its economy is already slowing.

so what is behind this move ?

 

[Hodr]

I'm not sure how the IMF approving their use of renminbi equates to the currency being "approved as a main world currency". It just means that this "world bank" will be able to lend directly in that currency. This might lead to a somewhat greater demand as I assume people who use that currency and are in a position to draw funding from the IMF would prefer to do so over the USD/EUR/UKP.

I also don't believe this will loosen China's strict fixing of the currency's value, despite "relaxing controls". They need to keep the renminbi depressed in order to make their manufacturing attractive to the west.

 

[GURPS]

a couple of things .... from the OP

To meet the I.M.F. requirements, China was forced to give up some of its tight control over the currency, culminating in the abrupt devaluation of the renminbi that shook global markets in August. The changes could inject fresh volatility into the country, at a time when its economy is already slowing.
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As the renminbi becomes more deeply woven into the global economy, it undermines the ability of the West to impose financial sanctions on countries accused of human rights abuses and other violations, like Sudan and North Korea. Such countries can increasingly carry out transactions in renminbi.​

chinese money ... more attractive to despots

 

[LibertyBeacon]

And then there's this:

http://blogs.barrons.com/asiastocks/2015/11/20/china-to-devalue-yuan-soon-after-imfs-sdr-inclusion/

Bank of America Merrill Lynch thinks so. The bank thinks China will devalue the yuan by 3-4% in the second week of December after the IMF decides on the SDR matter on November 30.

“The RMB could be deceptively stable over the next couple of weeks but reduced intervention and a more flexible fixing would inevitably be associated with a weaker currency – we would potentially look to add to CNH shorts soon after the SDR decision on Nov 30,” wrote Merrill’s currency analysts. The bank sees the yuan to fall to 6.90 by the end of 2016.

This month, the People’s Bank of China allowed its onshore yuan fix rate to weaken for 10 consecutive days (November 3 – November 16), before the bank intervened in the offshore market on Monday to make its yuan look better before the SDR decision. The PBoC may be feeling the pressure from financial media, including this blog: “UPDATE Yuan’s Losing Streak Longest Since 2008 Ahead of IMF’s SDR Inclusion.”