The International Monetary Fund (IMF) has decided to include the Chinese currency (known as the Yuan) as the world's newest reserve currency. In the short run, this should have a mild bullish effect on their currency and mild bearish effect on the euro. In the long run, it has little economic significance. However, it does have considerable political significance, especially inside China. The Chinese people feel justifiably proud of their nation's arrival on the world's stage.
So, who cares? Or, who cares if the Yuan is a reserve currency or not? I don't! I'm yawning.
Elevating the Chinese currency is more a reflection of change than a real change. I'm far more concerned about their financial power and, increasingly, their military power.
It is far more significant that the amount of Chinese reserves of currencies of other nations -- foreign reserves -- is incredibly high. China holds 31.25% of all foreign reserves held by ALL nations. China's foreign reserves exceed those of the next five highest countries - combined. For example, Japan is second at 10.53%. Saudi Arabia is third at 5.8%. The Eurozone is fourth at 2.15%, followed by England at 0.9%. The United States of America, the world's most powerful nation, holds a mere 0.34% - one third of one percent - of the world's total foreign reserves. The Eurozone, England, Japan, and the U.S. long enjoyed reserve currencies and were simply overwhelmed by the financial liquidity of China.
Another perspective is that, while no nation spends as much money on national defense as the U.S., our spending has increased a mere 0.4% over the last ten years. China has increased their military spending a whopping 167% over that same time frame. And, they are still sitting on 31.25% of the world's financial reserves!
It is far more important that China is still ramping up their military spending and have the financial muscle to ramp up their military spending even more . . . much more. That doesn't change whether the Yuan is a reserve currency or not.
So, who cares? Or, who cares if the Yuan is a reserve currency or not? I don't! I'm yawning.
Elevating the Chinese currency is more a reflection of change than a real change. I'm far more concerned about their financial power and, increasingly, their military power.
It is far more significant that the amount of Chinese reserves of currencies of other nations -- foreign reserves -- is incredibly high. China holds 31.25% of all foreign reserves held by ALL nations. China's foreign reserves exceed those of the next five highest countries - combined. For example, Japan is second at 10.53%. Saudi Arabia is third at 5.8%. The Eurozone is fourth at 2.15%, followed by England at 0.9%. The United States of America, the world's most powerful nation, holds a mere 0.34% - one third of one percent - of the world's total foreign reserves. The Eurozone, England, Japan, and the U.S. long enjoyed reserve currencies and were simply overwhelmed by the financial liquidity of China.
Another perspective is that, while no nation spends as much money on national defense as the U.S., our spending has increased a mere 0.4% over the last ten years. China has increased their military spending a whopping 167% over that same time frame. And, they are still sitting on 31.25% of the world's financial reserves!
It is far more important that China is still ramping up their military spending and have the financial muscle to ramp up their military spending even more . . . much more. That doesn't change whether the Yuan is a reserve currency or not.
