Yuan’s popularity continues to grow steadily, with reason
Marking the first time a new currency has been added since the inauguration of the euro in 1999, the International Monetary Fund’s inclusion of the yuan into its special drawing rights basket two years ago was hailed by China as a “milestone” and “affirmation” of the country’s financial reform and opening-up.
It also caused quite a stir, with some voicing misgivings that the country’s incomplete capital account convertibility process would mean the yuan would fail to become a true international reserve currency, while others fearing that China’s commitment to financial liberalization might falter after its currency was included into the SDR basket.
The increasing confidence of other countries in the use of yuan, the fast and steady rise in the yuan’s share in global foreign exchange reserves and China’s unswerving financial opening-up over the past two years, have proved such worries to be unfounded.
In the second quarter of this year, the yuan’s share in global currency reserves reported to the IMF jumped to 1.84 percent, up from 1.4 percent in the first quarter of this year and 1.08 percent in the second quarter of last year, according to IMF data.
Although the yuan’s share is small compared to that of the US dollar and the euro, which account for more than 62 percent and 20 percent respectively, considering that it has only been included in the IMF currency basket for two years, the rise in its share is remarkable. And the growing preference for the yuan is not without reason. Although in the short term, the yuan does face heavy pressure given the strength of the US dollar and the trade dispute with the United States, China’s stable economic fundamentals and financial opening-up policies, will ensure that the yuan’s popularity will continue to grow and its share in global reserves continue to rise in the coming years.
China has vowed to further open up its economy. In terms of financial opening-up, it has stepped up efforts to liberalize its capital account; it has also announced this year it will further open up its banking, securities, insurance and futures sectors, making them more accommodative to international investors.
The opportunities offered foreign investors and China’s increasingly more dynamic financial market and resilient economy will only increase external confidence in the world’s second-largest economy, which will serve as a solid foundation for the growing demand for the yuan.