RMB's SDR inclusion revs up globalization
- By He Yafei
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E-mail China Today, March 18, 2016
Third, a developed substantial economy must be matched with a financial system in order to realize sustainable development. The financial system in a power – often embodied in large-scale commercial banks, investment banks and insurance companies that are internationally competitive and have influential status – must be sound, effective, flexible and competent.
China's financial system, however, still cannot meet those criteria. Among the world's top 10 banks ranked according to their tier 1 capital in 2015, only four were from China. Besides, China's commercial banks own fewer overseas assets than their counterparts in developed countries. Although the Industrial and Commercial Bank of China is at the fore, its overseas assets take up just 10 percent of its total assets. In addition, China's commercial banks failed to be ranked among the top 10 global systemically important banks listed by the Financial Stability Board in 2014. In 2015, banks from the U.S. and Europe had equal shares in the list of the 10 largest investment banks worldwide, but there was no room for their Chinese counterparts.
Having entered its "new normal" period, China is undergoing transformation of its growth mode and upgrade of its economic structure. Its role as a recipient is consequently changing to that of exporter of capital and technologies. This symbolizes a turning point on the way to becoming a financial heavyweight. To this end, China needs to improve its financial system to make it more efficient, stable and open. Only then, with the support of its economic, military and diplomatic strengths, can China compete for pricing power in the international financial market and hold allocation rights over world economic resources. It may thus enjoy the right to issue international currency as well as gains from seigniorage at the international level.
Worldwide Influence
It was not easy for the RMB to make current achievements during its globalization process. We must continue working hard to build the country into a financial power. How should we evaluate RMB's SDR inclusion?
First of all, by virtue of inclusion in the SDR basket and of becoming an international reserve currency, the RMB is expected to contribute to perfecting the international monetary system. The People's Bank of China, the nation's central bank, has pointed out that the RMB's SDR inclusion is a win-win result for China and the world. This is because it plays an active role in enhancing the SDR's representativeness and appeal as well as perfecting the current international monetary system. Generally speaking, the world displays a positive attitude towards RMB's SDR inclusion.
Since the financial crisis of 2008, the international financial system ruled for decades by the U.S. dollar has been placed in greater risk. The world calls for a more balanced and equitable monetary system, and places hopes in this regard in the RMB. On the other hand, although developing countries take up 40 percent of the world's GDP, they have not gained due rights of representation and, taking into consideration their contributions, of speaking in the international monetary system. Developing countries demand reforms to the international monetary system, but face serious obstacles. Reform to the International Monetary Fund (IMF) and the World Bank, as decided by the leaders of the G20 countries in 2009, has been avoided until today. Clearly, action must be taken to change the predicament wherein the international monetary system is under criticism yet unable to change the status quo.
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