The words ‘natural’ and ‘inevitable’ get used liberally and by the time this goes to print the answer or rather date may well have come and gone. But like any good Chinese restaurant gaining its first Michelin star it is indeed inevitable that this will be the first of many more to come.
From a purely economic point of view however – entry into the SDR has very little real direct economic value – other than to continue to establish China on its path of economic powerhouse. Yes – it will help concentrate western confidence and yes it will put further pressure on the USD. Room will need to be made for China in the SDR and that means others need to make space – especially the US who accounts for 60% of it. But one can’t help think that this is on Beijing’s big ‘to do‘ list for 2015 given the amount of attention it receives.
From our discussion on the conference panel there was the suggestion that the next real series of change would need to be political ones in conjunction with economic reforms. We live in a US centric global financial system. The general assumption to date is that China will join that system and take the necessary steps to do so. But why should they?
Perhaps bold of me to suggest that if I put myself into Chinese shoes – it is only now that the rest of the world has begun to realise that the Middle Kingdom is indeed the center of the world and that China will not become more Western – but the World will become more Chinese.
China has had the largest economy for 18 of the last 20 centuries, and now back to work after a short ‘staycation’ will set about evolving the dynamics of the International Monetary system to be based in the East not the West. CNY joining ISDA, CLS, SWIFT may not be fully on the cards. But the world joining CFETS, CIPS and IXIM might just be. Such is the fun of panel discussions….
It’s the other way to become a reserve currency. Do you need to run a deficit to do that? Why join your opponent in the game when you can change the game. The previous week I had suggested that CNH = Change Now Here Bernard from Global Marco Concepts beautifully kicked that forward with the quip that this also means the CNY = Change Not Yet.