On November 13 Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF) issued a statement that the Chinese renminbi (RMB) meets the requirements to be added to the SDR basket of currencies (http://www.imf.org/external/np/sec/pr/2015/pr15513.htm) used in international trade and forex. A presentation will be made to the executive board on November 30. The final decision will be theirs. Undoubtedly there will be impacts on global markets and economies, but I'll leave it to the pundits to comment on what may happen. I know China has been long campaigning to join the four existing currencies. From my perspective (not into forex) I just wonder what impacts there may be on US companies that manufacture products in China (think $AAPL) and those that sell products in China (think $F and $GM). From a political perspective, I'll be interested to see what candidate Trump has to say about this IMF action given his tough stance on dealing with China.
http://www.imf.org/external/np/sec/pr/2015/pr15540.htm No surprise, really, the IMF Executive Board agreed that the RMB will be included in the basket of currencies, effective October 1, 2016. The press release has details.
http://english.caixin.com/2015-12-01/100880468.html The IMF's decision on the yuan means more reforms for China. Opinions vary on what precisely will happen, but undoubtedly yuan holdings around the globe will increase.
As they say, the more, the merrier. China is a huge market in itself so it's only fitting for the RMB to be recognized. I cannot say what specific effect it will have on the global market particularly in the US and Europe but I guess it will be positive because the RMB will invigorate the global economy. We were in China this January of 2015 and I had seen their development. The Chinese people are so persevering and very industrious. With their cheap labor, it is a given that their economy will be at par with the best in the world.
A story that isn't getting that much play is the record capital outflows China saw in November. A slowing economy leads to a weakening currency, and China is obviously doing everything they can to stem the decline of the RMB. If China decides to stop supporting the currency, and allows it to weaken, it would have a catastrophic impact on the global economy. Suddenly everything would be more expensive to the Chinese, meaning even further downward pressure on demand for the energy and commodities that emerging markets supply. Emerging markets everywhere would find it difficult to repay their Dollar denominated debt and bankruptcies would start the next leg of the global recession. The Fed's decision to increase rates this month could be the match that starts the fire.
It's been said by more than one smart person that if the US economy is so weak that we cannot withstand a quarter point rate hike after over 7 years of zero interest, then we've got bigger problems than whatever having rates at zero or .25% can or cannot do for us. I think a similar analogy applies to China and elsewhere. If they cannot tolerate us finally getting off the zero percent tit after 7+ years, they've got some serious problems of their own that they must largely work through on their own. When artificial bubbles are created by excessive government interference, dishonest business practices, etc - there are eventual consequences. While I do not wish ill on China or any other region or country, they have been doing everything in their power to deliberately debase their own currency, and play real hardball in every other way... if you want to sell your products or services there, you have to put up factories there, pay high tariffs, etc. And they are very bad about cooking their books and otherwise deliberately engaging in very shoddy business and manufacturing practices - I've gotten away from investing in Chinese companies lately, and I would never knowingly buy any consumables produced there... I'm sure we've all heard about the poisoned dog food and baby foods made there, for instance.
