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Chinese growing currency power in the global currency exchange arena
The open door policy of china has led to rising chinese trade in the global areana. This has created the prospects for the RMB to challenge the dollar and the Euro as an international currency within the next decade. The factors in support and against will be evaluated. Therefore the prospects of the Chinese currency RMB to challenge the dollar and the Euro as an international currency within the next decade can be evaluated as follows.
- The growing chinese economy and global trade clearly states that in coming years the currency is inevitable to become a reserve currency. This is so because the chinese spread of business in the global arena has created high demand for its currency. Therefore to meet the payment of the global chinese suppliers, the reserve of the chinese currency will be kept as an option for payment.
- The macroeconomic policies of the chinese government keeping low inflation and sustainable growth prospects has protected the currency from erosions from past decades. This has resulted in creating a sense of trust among the international trading economies to consider Chinese currency as important as Euro and
- The past records of the Chinese economy stating it to be accounting for 10 percent of the global trade presently as against just 4% clearly depicts that the country’s trade volume are rising. Also the company opening up its capital account and stable inflation rate has resulted in giving a support to the idea that the currency is gaining the position of becoming a global respectable currency.
- The US and European economies have lost their shine due to the past decade occurrence of scams and scandals. Therefore the international community has lost their faith in these currencies as they consider them to be vulnerable now. Hence the other option left with them is the Chinese currency which has been consistently showing great rise and returns to its investors. Thus the change in trend has observed the rise in the power of Chinese currency in the global arena, bringing estimates that the currency will soon take over US dollars and European Euro and become an important international currency.
- Although the chinese trade has developed worldwide in the past decade by huge volumes the currency is still not considered as a reserve currency. This is because of the fact that the foreign central banks does not keep it as a protection against the balance of payment crisis. That is the currency is not considered dependable in the long run for dealing with the payment of the international trade that may arise. Hence the currency is not considered as of now to be a reserve currency that would be globally accepted by the suppliers of international trade.
- The erosion of the chinese currency recently has affected the trust of the global buyers who were getting supplies from china. This has resulted in affecting the factors that were earlier supporting the fact that the chinese currency should be considered important as global currencies.
- The rise in foreign trade, control over monetary policy causing controlled inflation and opening up capital account are just part of the decision made to counter deal with the global recession affecting various economies. Hence once these recession factors are over , the rise in competition may threat the earlier established huge trade volumes and growth prospects of the country in the global arena.
- The US Economy and European Economies are quickly improving and working hard on the recession that has infected it from last several years. The result is that their respective currencies are gaining hold in the international trades thereby competiting the rising power of the chinese currency.
In the end, the Chinese currency has been able to apply its control in the international markets creating an inevitable chance of becoming a global currency and take over US dollars and European Euro. However the recent fall in the Chinese currency followed by its devaluation and lowering international trade volumes has affected the prospects of the currency becoming globally acceptable.