The Seismic Foreshock No-One is Talking About
I’m not going to any of them - kids and an early start you know - but I am willing to bet that none of London’s pubs and clubs will throb this evening with discussion of the Chinese yuan’s inclusion in the International Monetary Fund’s Special Drawing Rights basket.
Why would they? It’s esoteric, it’s ‘financial’ and it’s just not something good little developed-market consumers spend time thinking about.
But be under no illusions. This is a seismic foreshock, a precursor of tremors which could one day shake what complacency remains in the old, capitalist world perhaps to its foundations.
In the old days the argument for free markets and democracy made itself. The countries which had them prospered beyond the hopes of the countries which didn’t. Eventually the countries which didn’t ran out of lies to tell their people, the Berlin Wall fell and history ended.
SUCH IS CHINA’S ECONOMIC HEFT AND DIPLOMATIC REACH THAT ITS CURRENCY HAS MADE IT TO THE TOP
Except as we learn once more today it really didn’t end. Now a one-party totalitarian state, where dissenters are regularly imprisoned and where democracy is a dream, has had its currency admitted to a global top table which until now was the exclusive preserve of the West, and Japan.
Now the yuan stands with the dollar, the euro, sterling, the yen and the Swiss franc in the exclusive pantheon of ‘reserve currencies’. The SDR basket is used in the heady atmosphere of the highest of high finance - transactions between central banks and the IMF - and is used to decide the currency mix that countries receive when the IMF provides financial aid.
It was admitted on its own terms too. The yuan is not even freely convertible which the rules, such as they are, suggest it really ought to be. It got in by virtue of being ‘freely used’ in international transactions. Cute that, IMF, very cute.
Such is China’s economic heft and diplomatic reach that its currency has made it to the top when it’s still pretty tightly controlled by the State. Big win for Beijing.
Of course the yuan might technically leave the IMF’s big boys’ club if progress towards reform and perhaps that free float is not forthcoming, but let’s not kid ourselves. It’s staying. Its weighting in the basket will grow.
In a few years' time this will be euro, dollar, yuan with the franc, pound and yen just hanging on 'cos they used to be contenders.
For all that today’s news is in some respects simply the formalisation of a process in place, China’s march to global dominance just took a measurable step closer. A communist state was plugged into yet another of global capitalism’s mainframes, its money standing toe to toe with the currencies of the most successful democracies on Earth. That this went largely unnoticed on the street in the old West will probably suit Beijing just fine.
About the author
Born and raised in Swansea West, one of the safest Labour seats in the country, David is perhaps unsurprisingly a High-Tory, Euroskeptic Royalist Libertarian with an unhealthy adoration for Ronald Reagan and Margaret Thatcher. As a result he is seldom pleased by anything that ever happens, and always on the verge of quitting the whole jamboree. A former Special Writer at the Wall Street Journal, he knew the crash was coming when he saw a piece about Louis XVI reproduction furniture "for your Winnebago."
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