A Middle Ground
Article

A Middle Ground

The Renminbi Is Rising, but Will Not Rule

Eswar Prasad
Finance & Development Magazine, 2017
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Editorial Rating

8

Qualities

  • Analytical
  • Overview

Recommendation

In October 2016, the International Monetary Fund formally designated China’s renminbi as one of the world’s reserve currencies, reflecting China’s standing in the global economy. But Professor Eswar Prasad argues in this well-reasoned analysis that, while the renminbi is gaining significant clout, it is far from becoming a preferred currency in global foreign reserves. Prasad examines a range of issues, including Chinese governance, to explain this dichotomy between economic power and currency status. getAbstract recommends this authoritative report to executives and policy officials interested in the future of the renminbi.

Summary

China contributed 15% – roughly $11 trillion – to global gross domestic product in 2016, making its economy the second biggest in the world next to that of the United States. In 2016, China’s renminbi joined the US dollar, yen, euro and pound sterling as an “elite global reserve currency” of the International Monetary Fund. The IMF’s 2015 announcement of this status change should have propelled the Chinese currency toward global acceptance. Yet confidence in China’s economy has since eroded, dragging down the renminbi.

International monetary experts are skeptical of a widespread inclusion...

About the Author

Eswar Prasad is a professor at Cornell University and senior fellow at the Brookings Institution.

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