The renminbi (ren-nin-bee) is translated as ‘the People’s money’, the colloquial term of usage is yuan (pronounced like ‘yawn’), it was gratuitously designated reserve currency status by sympathetic Keynesian authorities throughout the IMF who thought that bestowing favorable status to China’s currency could persuade Beijing’s Communist authorities to abandon their authoritarian mien and move their institution toward market reforms.
As it stands, Beijing pocketed this advance and did nothing to assuage the IMF that it intended to institutionalize reforms that would link the renminbi to market values.
What’s wrong with this picture?
To begin with, China has NOT permitted the convertibility of the yuan for financial or capital transactions. As of today and for the future, the renminbi is only convertible for trade. This means Chinese authorities don’t have to deal with the messy concept of rule of law, adjudication or domestic bond markets. It means the Communists in Beijing brook no challenge to their authority.
Secondly, the Chinese central bank has yet to pledge affirmation to defined targets for its reserves or its exchange rate, meaning Beijing has no intention of being kept honest in its relation to any pronounced concept of ‘stability’ relative to interventions.
Beijing want’s it both ways. So do teenagers.
Let’s crunch a few numbers. . .
According to market based exchange rates, the Chinese economy is quite large, its GDP is $11.3 trillion, its annual trade registers at $2.2 trillion, BUT its cross-border financial transactions (distinct from trade) are very small, accounting for only $600 billion.
A brief study of its relative global metrics reveals that China is merely 16% of global GDP, 9% of global trade and barely 2% of international financial transactions.
Relative to the U.S., China GDP is almost 60%, it possesses parity on market exchange rates with the U.S., China’s trade volume is a bit more than 40% of U.S. BUT CHINA’S YUAN FINANCIAL TRANSACTIONS ARE NOT EVEN 5% COMPARED TO THE U.S.
The yuan’s extremely small scale of presence in international finance doesn’t reflect well on the confidence of Beijing; its best translated as a vote of no confidence regarding the stability of its leadership to properly steward any crisis.
If the Chinese want more respect, they’ll need to deal with transparency. Something Communists and authoritarians the world over hate to do.