A Long Road Ahead for RMB Internationalization.docVIP

A Long Road Ahead for RMB Internationalization 　　As of October 1， the yuan―China’s currency―has been officially included into the International Monetary Fund’s （IMF） Special Drawing Rights （SDR） basket of currencies. This signifies an important milestone in the yuan’s goal of internationalization. 　　The SDR is a synthetic reserve currency created by the IMF in 1969 to supplement its member countries’ official reserves. The value of the SDR is based on a basket of major global currencies. SDRs are allocated to IMF members from time to time， based on each country’s quota in the IMF. The basket’s composition is reviewed every five years. 　　Ordinarily， most people probably wouldn’t pay much attention to the specifics of the SDR， but now， some are concerned about the possibility of exchange rate fluctuations following the yuan’s inclusion in the SDR basket. From my point of view， there won’t be any sharp fluctuations in the yuan’s value， at least not before the currency is fully convertible under the capital account. 　　Several factors help underpin the yuan’s stability， such as China’s adoption of a managed floating exchange rate regime which adjusts itself against a basket of currencies. China also has a large commodities trade surplus， and foreign direct investment in China is increasing continuously. Furthermore， the country has a hefty amount of foreign exchange reserves， and its capital flows are becoming more balanced. 　　As a matter of fact， the exchange rate of the yuan has on the whole been stable after the IMF announced its decision to include the currency into its SDR basket on December 1， 2015. 　　From an economic point of view， a country is unlikely to have both a strong currency and high housing prices in the long term. Otherwise， it would be able to vastly increase its purchasing power simply by issuing its currency incessantly. 　　Due to an overheated housing market， mortgages have accounted for more than 60 percent of the total loans taken this