Potential Role of The Yuan as the New Reserve Currency Essay

Potential Role of The Yuan as the New Reserve Currency - Essay ExampleThese are large economic base, political stability, and a low rate of inflation (IMF, WB & World Bank Group, 2009). It should as well as be backed by a joint outside(a) fiscal authority that is capable of asserting compliance among its member states, which must in turn comprise a significant number of nations in the world (Finance and Development, 2009). The bills must be sellable or tradable without limitation (Levine, 2009). Since the currency is supposed to be, according to Levine, a safe aimn for other currencies, they should be able to have access to huge sums of it without restriction. This is because inadequate reserves of the currency would compromise the ability of that country to trade in that currency or participate in international transactions denominated in it. The international currencys home economic and political systems must also be stable enough and fundamentally goodish to support internat ional transactions among countries. In order to engender confidence in the reserve currency, the valuation of said currency must be transparent to all for them to consider holding that currency in significant quantities. Because the determination of value is for the most part subjective, the matter of the countrys governance whitethorn not be concealed from the world, and therefore the political ideology of the country must be supportive of full disclosure (Cohen, 2007). Recent developments that triggered the search for a substitute It has already been mentioned that the large current account deficit and huge public debt of the United States are primarily responsible for the weakness of the dollar as the primary medium of exchange. Ordinarily,...This paper presents a comprehensive analysis, that aims to determine whether or not the renminbi would provide a real substitute for the dollar as top dog international reserve currency within the next ten years, and whether such a substit ution will stabilize the global currency market and hold open further recurrences of financial crises as the world had experienced in the past.The international reserve currency performs three vital functions of money that is, as medium of exchange, as unit of account, and as store of value. There are many reasons for the yuan to be considered as a possible alternative, the most important of which is its position as the top trading country in the world. It has amassed some 3 trillion dollars worth of international reserves, two-thirds of which is in U.S. dollars, thus this country is capable of exerting economic twitch on the U. S. Yearly it experiences record current account surpluses, compared to the U.S.s accumulating current account deficit and public debt.Despite these positive factors, there are also serious concerns. Chinas financial markets are still highly restricted, and its currency is still unable to trade in open market, let but be freely converted into other curren cies. Other than currency concerns, Chinas economic and political infrastructure are in need of a fundamental change. Corruption must be addressed, and the system made more transparent, in order to afford investors and fund managers a clearer view by which to rate the political risks of the currency.