Chapter 77 22. Renminbi: the future international currency

From the perspective of the currency war, the renminbi will become the headlines of the major financial newspapers every day. Because the renminbi is undervalued, it is now the object of all the attention and conflict.In the face of China's long-term rise, the RMB will continue to appreciate in the next few years. Likewise, the currencies of emerging countries will also appreciate.Investors are interested in buying these currencies and storing them for long term.Currency war has quietly kicked off. The RMB will become one of the international benchmark currencies, and even the reference of the global currency system.The stability of the RMB exchange rate has promoted the recovery of the world economy.The People's Bank of China (the central bank) may continue to implement a relatively loose monetary policy, or even a more flexible policy.

Over the past few years, the stability of the RMB exchange rate has contributed to the recovery of the world economy.The reform of the RMB exchange rate mechanism began in 2005.So far, the renminbi has appreciated 21 percent against the U.S. dollar, or 16 percent in real terms.Although the appreciation of the renminbi has become a bone of contention in the international currency arena, China still wants to maintain a currency with a lower exchange rate to stimulate economic growth. The United States and European countries continue to demand that the Chinese government appreciate the yuan, accusing China of being responsible for its trade deficit.Given that the yuan has risen 3.5 percent in the past few months, Beijing has countered that the yuan's rise is foreseeable in the long run, while questioning the dollar's primacy and calling for accelerated changes to a corrupted international financial system.

The Chinese leader said that the financial crisis in the euro zone will not change the strategic position of the European unified currency in the world monetary system in the long run. On the other hand, China proposes to create a new international reserve currency that can replace the US dollar, a unified world currency that is conducive to the creation of a new type of economy, which will be the last option to get rid of the US government's interference in monetary policy.And should people expect a currency war to come? China is poised to make the extrapolation of the renminbi a long-term strategy.A sharp drop in the value of one currency can lead to a rapid upheaval in world trade and an appreciation in other currencies.

China's next reform plan will increase the adaptability of the yuan so that the Chinese economy is less dependent on exports and more centered on domestic consumption, while the yuan is planned to become an international benchmark reserve currency. Responding to criticism of the yuan, China called for stronger financial regulation, while stressing that other countries should first ensure the stability of their currencies.Although the U.S. dollar has always been regarded as the world’s dominant currency, in the medium term, we should be able to foresee the loss of the special status of the U.S. dollar as an international reserve currency. This role (international reserve currency) will be played by several dominant currencies: USD, EUR, CNY and JPY.

Other experts point to the possibility of the renminbi and yen serving as a single Asian currency.But the underlying tensions between China and Japan, and the respective prides they have in their currencies, make the idea unfeasible. The "currency game" is still going on, and a future international benchmark currency is being produced.But it takes time!What are its constituent currencies?The only certainty is that the renminbi will definitely have a place, and its international status will be further consolidated.By 2020, it will become one of the international benchmark currencies.