Edited by Carla P. Freeman
Chapter 10: Expanded privilege, adjusted risks: developing countries and renminbi internationalization
The immediate impacts and lingering effects of the 2008 global financial crisis have highlighted the risks of a unilateral international monetary system (IMS). An IMS dominated by a single currency, the US dollar (USD), contrasts with an increasingly multilateral global economy, a ‘multilateralization’ that has been driven by the growth of the Chinese economy, which is set to become larger than the US economy within the next decade. While the US share of global Gross Domestic Product (GDP) fell from 31 percent in 2000 to 22 percent in 2012, the USD remains the world’s dominant currency, used in 87 percent of foreign exchange transactions. China’s currency, the renminbi (RMB), has not risen internationally along with the Chinese economy, but the discomfort of China’s economic policy-makers with a USD-dominated IMS has become increasingly apparent since 2008 as the global financial crisis and its aftermath highlighted the systemic weaknesses of such a system. Since then, Chinese authorities have promoted the internationalization of the RMB through a multi-pronged initiative that first seeks to see the RMB used as a major currency for bilateral trade settlement and subsequently seeks to achieve reserve currency status for the RMB. The RMB will not replace the USD in the short term, but increased international use of the RMB has already exceeded most initial estimates and continued rapid growth can be expected, leading to a more multilateral IMS.
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