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Role of rmb final

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ALI GHAZANFAR 菏泽
ALI GHAZANFAR 菏泽

The document discusses the increasing role and importance of the Chinese yuan (renminbi) in the global monetary system. It outlines the history and development of the yuan currency in China. It then analyzes the yuan's growing status as an international currency, comparing it to the role currently played by the US dollar and euro. The document predicts that the yuan will likely become one of the world's major currencies within the next decade as China's economy continues to grow in size and influence. Chinese authorities are taking steps to increase the yuan's use in international trade and as a reserve currency held by other nations and institutions.

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The Renminbi’s Role in the Global Monetary System INTERNATIONAL FINANCE SCHOOL OF ECONOMICS AND MANAGEMENT
GROUP-5 THE RENMINBI’S ROLE IN THE GLOBAL MONETARY SYSTEM  ALI,GHAZANFAR 223145534  FAROOQUE, ASAD 223145532  ARAIN, KAMRAN 223145528  ZHASSULAN 223145537
INTRODUCTION  The Yuan is the base unit of a number of former and present-day Chinese currencies, and usually refers to the primary unit of account of the renminbi, the currency of the People’s Republic of China.  The ISO 4217 is the standard code for renminbi. CNY, an abbreviation of “Chinese Yuan”.  Chinese Yuan (CNY) refers to the renminbi (RMB) which is the official currency used in mainland China.
Role of rmb final
THE MODERN YUAN CURRENCY  Modern Yuan is issued by the People’s Bank of China to stabilize the economic crisis after World War II.  Yuan was issued in 1, 2, and 5 Jiao, as well as 10, 20, 50, and 100 Yuan notes.  In 1962, the third issue of Yuan notes was released to include security features and display the culture of China.  The fourth series of Yuan banknotes was released in 1987 with a watermark and magnetic and fluorescent ink for additional security against counterfeit notes.
WHAT IS INTERNATIONAL CURRENCY  A currency such as the US dollar, the ​pound or the Euro that is commonly used in trade between different countries  The Dollar is an International Unit of Account  In the foreign exchange market and international finance , world currency, or global currency refers to a currency that is transacted internationally, with no set borders.
Role of rmb final
UN WANTS NEW GLOBAL CURRENCY TO REPLACE DOLLAR o The dollar should be replaced with a new global currency, the United Nations has said. o In a radical report, the UN Conference on Trade and Development (UNCTAD) has said the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises. .
CONT… oAlthough a number of countries, including China and Russia, have suggested replacing the dollar as the world's reserve currency, the UNCTAD report is the first time a major multinational institution has posited such a suggestion.
THE DOLLAR AS A RESERVE CURRENCY o By the end of the 20th century, dollar was considered the worlds most dominant reserve o Throughout the last decade, an average of two thirds of the allocated foreign exchange reserves were in US dollars. For this reason, the US dollar is said to have “reserve currency status”, making it somewhat easier for the United Status to run higher trade deficits with greatly postponed currency crisis o Why is the dollar an international reserve currency?
ASSUMING THE DOLLAR FALLS o What would happen if the dollar’s role were to decline sharply? o There are really two questions here. The first is one of the transition; would a decline in the dollar’s role as a store of value, in particular, amount to a devastating run on the bank? o Second, once the transition is accomplished, how much harm would the dethroning of the dollar do the world economy? o The important point to notice in discussing the transition is that the problem is not one of the United States having given the world paper in exchange for real goods and services. Very little of the “dollar” holding of the world is backed up by high- powered money; essentially it consists of short-term securities and bank deposits, many of the latter outside the United States.
CONT… o In principle, then, a change in the desired currency composition of liquid assets could be accommodated without any redistribution of wealth. o Banks could convert their depositors’ Eurodollar deposits into Euro mark or European deposits at the current exchange rate; the Federal Reserve could buy up Treasury bills while selling mark- denominated securities. The currency transformation need not involve capital gains and losses to anyone.
INTERNATIONAL MONETARY SYSTEMS o Sets of internationally agreed rules, conventions and supporting institutions, that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. o They provide means of payment acceptable between buyers and sellers of different nationality, including deferred payment. o To operate successfully, they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be corrected.
THE INCREASINGLY IMPORTANT STATUS OF THE RENMINBI  Although the euro lost (and the dollar gained) some ground during the six years between 2007 and 2013, the USD and the euro maintained their first and second ranks, respectively.  However, the RMB climbed from the 20th to the 9th slot.  Economists believe that RMB will certainly achieve the status of a key currency within the next decade.
CONT… o It is supported mainly by a record of fast rates of growth of the Chinese economy, by the growth of China’s share in international trade during the last 30 years. In this respect, the RMB is obviously far behind major key currencies like the USD and the euro. In terms of both turnover on forex markets and use as a reserve currency, Yuan is still dominant on many currencies.
THE FUTURE OF THE USD, THE EURO, AND THE RMB AS KEY CURRENCIES  It was clear even prior to the Global Financial Crisis that, in terms of GDP, China will eventually be the largest economy in the world. China is currently second only to the US.  Chinese policymakers are more anxious to attain key currency status soon.  They are taking steps for increasing the role of the RMB in the settlement of trade transactions.
CONT…  Since 2006, the Chinese government has allowed controlled appreciation of the RMB – from over 8 RMBs to one USD in 2005, to the current (November 2014) rate of 6.13. o By1914 US trade had surpassed that of the UK, the leading key currency of the time was the sterling pound.
CONT…  The USD surpassed the sterling as a leading international and reserve currency within a span of just ten years.  Chinese authorities seriously undertake the international promotion of their currency, the RMB is likely to become a key currency relatively quickly.
THE RENMINBI AS AN INTERNATIONAL CURRENCY  The internationalization of a currency depends on a host of factors— the size of the country’s economy and its relative share in the world.  China’s GDP had reached $2.7 trillion in 2006, compared to $13.2 trillion in the United States, $10.5 trillion
CONT…  Convertibility under the capital account. 224 Cato Journal Based on our simulation model, the convertible RMB will likely account for 15–20 percent of international reserves by 2020.
WHAT CAN OTHER COUNTRIES AND INTERNATIONAL ORGANIZATIONS DO?  The extent measures have been deployed to promote renminbi internationalization, they are largely actions by the Chinese authorities in the areas of trade invoicing, swap agreements with selected central banks.
THE FUTURE OF THE RENMINBI AND CHINESE CAPITAL IN THE WORLD ECONOMY  Fundamentally the renminbi will continue to grow in its international profile, and whether capital coming out of China will attract increasing attention are first and foremost determined by two key questions.  China will overtake the United States in terms of the absolute size of its economy before the end of this decade, while the pessimists think that the Chinese economy is on the verge of a collapse.
CONCLUDING REMARKS  In conclusion, although the USD/sterling historical precedent supports the view that Chinese authorities have the ability to quickly elevate the RMB to major currency status.  On the other hand, recent experience shows that a financial crisis, such as the Global Crisis in the countries issuing major key currencies, encourages Chinese authorities to speed up the process of liberalization in order to achieve key currency status sooner.
Role of rmb final

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Role of rmb final

  • 1. The Renminbi’s Role in the Global Monetary System INTERNATIONAL FINANCE SCHOOL OF ECONOMICS AND MANAGEMENT
  • 2. GROUP-5 THE RENMINBI’S ROLE IN THE GLOBAL MONETARY SYSTEM  ALI,GHAZANFAR 223145534  FAROOQUE, ASAD 223145532  ARAIN, KAMRAN 223145528  ZHASSULAN 223145537
  • 3. INTRODUCTION  The Yuan is the base unit of a number of former and present-day Chinese currencies, and usually refers to the primary unit of account of the renminbi, the currency of the People’s Republic of China.  The ISO 4217 is the standard code for renminbi. CNY, an abbreviation of “Chinese Yuan”.  Chinese Yuan (CNY) refers to the renminbi (RMB) which is the official currency used in mainland China.
  • 5. THE MODERN YUAN CURRENCY  Modern Yuan is issued by the People’s Bank of China to stabilize the economic crisis after World War II.  Yuan was issued in 1, 2, and 5 Jiao, as well as 10, 20, 50, and 100 Yuan notes.  In 1962, the third issue of Yuan notes was released to include security features and display the culture of China.  The fourth series of Yuan banknotes was released in 1987 with a watermark and magnetic and fluorescent ink for additional security against counterfeit notes.
  • 6. WHAT IS INTERNATIONAL CURRENCY  A currency such as the US dollar, the ​pound or the Euro that is commonly used in trade between different countries  The Dollar is an International Unit of Account  In the foreign exchange market and international finance , world currency, or global currency refers to a currency that is transacted internationally, with no set borders.
  • 8. UN WANTS NEW GLOBAL CURRENCY TO REPLACE DOLLAR o The dollar should be replaced with a new global currency, the United Nations has said. o In a radical report, the UN Conference on Trade and Development (UNCTAD) has said the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises. .
  • 9. CONT… oAlthough a number of countries, including China and Russia, have suggested replacing the dollar as the world's reserve currency, the UNCTAD report is the first time a major multinational institution has posited such a suggestion.
  • 10. THE DOLLAR AS A RESERVE CURRENCY o By the end of the 20th century, dollar was considered the worlds most dominant reserve o Throughout the last decade, an average of two thirds of the allocated foreign exchange reserves were in US dollars. For this reason, the US dollar is said to have “reserve currency status”, making it somewhat easier for the United Status to run higher trade deficits with greatly postponed currency crisis o Why is the dollar an international reserve currency?
  • 11. ASSUMING THE DOLLAR FALLS o What would happen if the dollar’s role were to decline sharply? o There are really two questions here. The first is one of the transition; would a decline in the dollar’s role as a store of value, in particular, amount to a devastating run on the bank? o Second, once the transition is accomplished, how much harm would the dethroning of the dollar do the world economy? o The important point to notice in discussing the transition is that the problem is not one of the United States having given the world paper in exchange for real goods and services. Very little of the “dollar” holding of the world is backed up by high- powered money; essentially it consists of short-term securities and bank deposits, many of the latter outside the United States.
  • 12. CONT… o In principle, then, a change in the desired currency composition of liquid assets could be accommodated without any redistribution of wealth. o Banks could convert their depositors’ Eurodollar deposits into Euro mark or European deposits at the current exchange rate; the Federal Reserve could buy up Treasury bills while selling mark- denominated securities. The currency transformation need not involve capital gains and losses to anyone.
  • 13. INTERNATIONAL MONETARY SYSTEMS o Sets of internationally agreed rules, conventions and supporting institutions, that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. o They provide means of payment acceptable between buyers and sellers of different nationality, including deferred payment. o To operate successfully, they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be corrected.
  • 14. THE INCREASINGLY IMPORTANT STATUS OF THE RENMINBI  Although the euro lost (and the dollar gained) some ground during the six years between 2007 and 2013, the USD and the euro maintained their first and second ranks, respectively.  However, the RMB climbed from the 20th to the 9th slot.  Economists believe that RMB will certainly achieve the status of a key currency within the next decade.
  • 15. CONT… o It is supported mainly by a record of fast rates of growth of the Chinese economy, by the growth of China’s share in international trade during the last 30 years. In this respect, the RMB is obviously far behind major key currencies like the USD and the euro. In terms of both turnover on forex markets and use as a reserve currency, Yuan is still dominant on many currencies.
  • 16. THE FUTURE OF THE USD, THE EURO, AND THE RMB AS KEY CURRENCIES  It was clear even prior to the Global Financial Crisis that, in terms of GDP, China will eventually be the largest economy in the world. China is currently second only to the US.  Chinese policymakers are more anxious to attain key currency status soon.  They are taking steps for increasing the role of the RMB in the settlement of trade transactions.
  • 17. CONT…  Since 2006, the Chinese government has allowed controlled appreciation of the RMB – from over 8 RMBs to one USD in 2005, to the current (November 2014) rate of 6.13. o By1914 US trade had surpassed that of the UK, the leading key currency of the time was the sterling pound.
  • 18. CONT…  The USD surpassed the sterling as a leading international and reserve currency within a span of just ten years.  Chinese authorities seriously undertake the international promotion of their currency, the RMB is likely to become a key currency relatively quickly.
  • 19. THE RENMINBI AS AN INTERNATIONAL CURRENCY  The internationalization of a currency depends on a host of factors— the size of the country’s economy and its relative share in the world.  China’s GDP had reached $2.7 trillion in 2006, compared to $13.2 trillion in the United States, $10.5 trillion
  • 20. CONT…  Convertibility under the capital account. 224 Cato Journal Based on our simulation model, the convertible RMB will likely account for 15–20 percent of international reserves by 2020.
  • 21. WHAT CAN OTHER COUNTRIES AND INTERNATIONAL ORGANIZATIONS DO?  The extent measures have been deployed to promote renminbi internationalization, they are largely actions by the Chinese authorities in the areas of trade invoicing, swap agreements with selected central banks.
  • 22. THE FUTURE OF THE RENMINBI AND CHINESE CAPITAL IN THE WORLD ECONOMY  Fundamentally the renminbi will continue to grow in its international profile, and whether capital coming out of China will attract increasing attention are first and foremost determined by two key questions.  China will overtake the United States in terms of the absolute size of its economy before the end of this decade, while the pessimists think that the Chinese economy is on the verge of a collapse.
  • 23. CONCLUDING REMARKS  In conclusion, although the USD/sterling historical precedent supports the view that Chinese authorities have the ability to quickly elevate the RMB to major currency status.  On the other hand, recent experience shows that a financial crisis, such as the Global Crisis in the countries issuing major key currencies, encourages Chinese authorities to speed up the process of liberalization in order to achieve key currency status sooner.