International Economy"yuan as the reserve currency"
1.
2. What is Reserve Currency?
• A reserve currency is held by central bank and other
major financial institutions in large quantities for
major investments, transactions and international debt
obligations, or to influence their domestic exchange
rate.
• A reserve currency is a currency that is held in
significant quantities by governments and institutions
as part of their foreign exchange rate.
• The reserve currency is commonly used in
international transactions, international investments
and all aspects of the global economy.
3. Why Reserve Currency?
• Reserve currency are made for making international
trade easier.
• Countries use their reserve currency to regulate the
domestic exchange rate.
• Major investments, international debt obligation &
transition are done through reserve currency.
4. Why Dollar As The Reserve
Currency?
• Before Dollars, gold use as the reserve capital.
• Mid 1860s large number of transition done in the
pounds and Britain banks expands overseas due to
which gold are kept by the many industrial countries.
• But due to deflation, gold standards fells and need
some powerful currency to be the reserve currency.
• After the world war-II America becoming the super
power which led them to make their currency as the
reserve currency and allow the industrial countries to
use their gold reserve to buy the dollar.
10. Impact of Devaluing the Yuan
• Effect On the IMF
China's determination to be included in the International
Money Fund (IMF)’s special drawing rights (SDR) basket
of reserve currencies. The SDR is an international reserve
assets that IMF members can use to purchase domestic
currency in foreign exchange markets in order to
maintain exchange rates. The IMF re-evaluates the currency
composition of its SDR basket every five years, the last
time being in 2010. At that time the Yuan was rejected on
the basis that it was not "freely usable.” But the devaluation,
supported by the claim that it was done in the name of
market-oriented reforms, was welcomed by the IMF, and
the Yuan did become part of the SDR at the end of the year.
11. • Impact on Global Trade
With Chinese goods becoming cheaper, many small- to
medium-sized export-driven economies may see their
trade revenues reduced. And if these nations are debt-ridden
and have a heavy dependence on exports, their economies
could take a beating. For instance, Vietnam, Bangladesh and
Indonesia greatly rely on their exports of footwear and
textiles. They could be in serious trouble should China's
devaluations make its goods cheaper in the global
marketplace. Decline in Yuan can weaken economic growth
outside China as Chinese goods will become cheaper. Many
countries are still recovering from the 2007 Recession.
13. • Impact on India
1) Rupee depreciated with respect to the US Dollar. There is a
need of more forex to stabilize the rupee or stop its slide if
need arises.
2) Chinese exports would become cheaper and would give a
tough competition to Indian exports.
3) China is a huge consumer. With slowed economy, demand
is decreasing and that led to dropping of oil prices. This is
beneficial to India as we import oil.
4) The cheaper imports will help to improve current account
deficit of India.
5) Many currencies have depreciated. There are chances of a
currency war if this trend of Yuan depreciation continues.
Each country will try to make their exports cheaper by
depreciating their exchange rates