More Influential
The Chinese renminbi is to be included in the basket of currencies making up the IMF's Special Drawing Right (SDR) next month. This is expected to accelerate the internationalization of the yuan. The Chinese currency is scheduled to take up 10.9 percent of the SDR basket, following the U.S. dollar and the euro.
According to the Hyundai Research Institute, the ratio of China’s GDP to the total global GDP rose from 8.6 percent to 15 percent between 2009 and last year. The latter percentage is comparable to the EU’s. During the same period, the ratio of exports by China increased from 9.6 percent to 13.8 percent and the country became the largest exporter in the world.
In the meantime, the Chinese government, which adopted a managed flexible exchange rate in 2005, has expanded the range of fluctuations of the renminbi with respect to the U.S. dollar since 2012. In addition, it has been working on a market exchange rate system since last year in order to reflect market conditions such as foreign currency supply and demand and major exchange rates. This has resulted in reduced gaps between basic and market exchange rates.
Still, the size of yuan-based trade settlement is currently on the decline after it soared from 3.6 billion yuan to 2.089 trillion yuan between the fourth quarter of 2009 and the third quarter of 2015. Likewise, the ratio of the use of the yuan to China’s total exports and imports fell from 32.2 percent to 21.8 percent between the third quarter of last year and the second quarter of this year after it had begun to rise from 0.08 percent in the last quarter of 2009.
Opening of the capital market of China still has a long way to go, too. Although the respective values of stocks and bonds owned by foreigners in mainland China increased from 345 billion yuan and 399 billion yuan to 599 billion yuan and 852 billion yuan between the end of 2013 and the end of 2015, China’s degree of capital market opening is currently at 68 percent, much lower than those markets of the United States (294.0 percent), Japan (282.0 percent) and South Korea (123.9 percent). The degree mentioned here is a value that is obtained by adding external liabilities to external assets with foreign exchange reserves excluded and then dividing the result by GDP.
These days, though, yuan trading is increasing its portion in the global foreign currency trading market. Specifically, its ratio increased from 2.2 percent to 4.0 percent between 2013 and this year on a daily average basis. “For the South Korean economy, inclusion of the renminbi in the SDR basket can result in a higher level of dependence on the Chinese economy that is attributable to an increase in the use of the yuan in trade and finance,” the research institute explained, adding, “The South Korean government needs to work on a better cooperation system with China so it can be prevented, and positive effects to be derived from the inclusion can be maximized.”