The challenges posed to the global financial order by the rise of China could hardly be more fundamental. For several decades, the arbiters of the world’s monetary system have been developed, western democracies with fully convertible currencies and open capital markets that are governed by the rule of law.
But China is different in every aspect; a developing nation ruled by a Communist party that has striven to limit the convertibility of its currency and shelter its domestic capital markets from foreign capital and influence.
Thus, the International Monetary Fund’s intent to induct the renminbi, the Chinese currency, into its elite basket of reserve currencies represents a potentially pivotal moment. Eswar Prasad, a former IMF economist and China mission head, calls it a “momentous event in the annals of international finance”, adding: “It represents an important step in the renminbi’s ascendancies to the status of a global reserve currency, and will have gradual but significant repercussions in global currency markets and on international capital flows.”