China Yuan Becoming Reserve Currency Essay

In recent years, China has maintained that its special rescue is move a market economy, but with Chinese characteristics. Some of these characteristics include further more of an international use of the currency, while being famous for their inflexibleness with exchange rates, and non fully opening up the economy to the desolate flow of capital. However, the Yuans acceptance as a unobtrusiveness currency forget be based on Chinas economic size, macroeconomic policies, flexible exchange rates, financial market development, and lastly having an open capital account.It seems that with time, it is inevitable that Chinas Yuan will one day make up a global reserve currency. Depending on the development of these five criteria, Chinas currency may sire a global reserve currency sooner than predicted. Chinas Economic Size The Chinese economy is now the second largest economy in the conception, and estimated to have 10 15 percent of the world gross domestic product. Further, in 20 11 China accounted for almost 25 percent of the worlds GDP growth (Briscoe, 2012). Despite this, GDP and economic size are non the main determinants of a countrys reserve currency status.If we cerebrate US history, we will note that the United States surpassed the United Kingdom in terms of GDP in 1870, but still did not become a reserve currency until 1944 (Prasad, 2012). Thus, economic size in not the most important factor in becoming eligible for world currency status. Macroeconomic Policies The continued role of the government in the banking placement is a limiting factor when trying to encourage a more open capital account. However, the government maintains that keeping a tight crack over their currency prevents economic crisis.