Renminbi as global currency gains ground

China has been extremely successful in promoting its currency, renminbi or yuan. The Chinese currency, now being referred as a redback on the lines of US dollar greenback, is on its way to become a global currency.

Danish innovator and entrepreneur, Jesper Toft, who has established a new currency exchange rate mechanism through Global Currency Union, says: “China is succeeding in promoting the use of and implementing access to direct settlements in their currency, the yuan. The redback is now directly exchangeable for all major currencies, including the US dollar, British pound, Australian and New Zealand dollars, Japanese yen and now the Euro. Further currency-swap agreements have been entered between China and 26 countries, including South Korea, Brazil, Turkey, Thailand, Argentina, etc.

“With cities, capitals and even countries across the world scrambling to become their region’s first hub for clearing the redback, this raises the question: Which feature does this newcomer on the international scene have that is not already offered by other currencies? The answer: basically none… besides one small feature, namely that it offers currency stability towards what is soon to be the biggest economy in the world,” he says.

“If the world is taken by surprise when the use of the redback skyrockets, it is because it has failed to take proper note of the simple misalignment between the sheer size of the Chinese economy and the proportional use of their currency.

“As the world’s largest exporter since 2010, boasting an average growth rate in GDP of 17.6 per cent between 2001-2013, China is en route to becoming the world’s largest economy, and as a result its currency will likely become the most influential.

“Obviously, increased stability is a strong parameter in a marketplace – with the USD currently as the de facto standard – where inefficiency, volatility and inherent risk are a daily reality when pricing and settling international business transactions.”

The USD is part of 87 per cent all FX-trades, but the US economy represents only 19 per cent of global GDP, leaving 68 per cent of this volume to be settled as trade currency between partners where neither have the USD as their own domestic currency. This exchange-rate inefficiency is a key factor motivating and laying the groundwork for the astonishing changes that are emerging, concludes Toft.