The internationalisation of China’s renminbi faces its stiffest test yet as the International Monetary Fund debates whether to endorse the “redback” as a reserve currency alongside the dollar, euro, yen and sterling.
Becoming a constituent in the IMF’s Special Drawing Rights basket would be a big step forward for the currency, which remains tightly controlled by Beijing. Economist Louis Gave of GaveKal Dragonomics likens the move to Japan’s currency liberalisation in the 1980s and the subsequent run-up in yen assets.
“Very quickly, global equity and bond investors were chasing their own tails, pushing up the value of the yen together with Japanese equity and bond valuations to regular new highs.” (From which, of course, they subsequently retreated as the bubble imploded.)