China must implement reforms if Yuan becomes global currency, advises

Washington: If the Chinese government intends to make its currency Yuan the global reserves currency, they have to implement more reforms. The International Monetary Fund (IMF) advised that China will have to lift restrictions on the capital marketplace and decide to make the currency fully convertible. Gita Gopinath, the Chief Economist at the IMF, gave this advice. She pointed out that there were no controls over the USD and GBP when they attained the status as global currencies.

Two months ago, the international system SWIFT noted that the use of the Chinese Yuan has increased on the international level. As per SWIFT, the share of the Chinese Yuan has reached 3.2% in the global marketplace. At the same time, the share of USD and GBP has slid to 40% each. It is being revealed that the use of the Yuan has increased following the sanctions imposed by westerners on Russia, given the Ukraine war that started at the end of February.

Analysts claim that China will expedite the Yuan’s internationalisation by taking advantage of the Russia-Ukraine war. Against this background, the advice given by the Chief Economist at the IMF becomes significant. Gopinath advised these reforms to the Chinese government during a function held by the Peterson Institute for International Economics.

Gopinath retorted that if a country intends to make its currency the global reserves currency, capital transactions in its economy have to be free. The country’s capital account should be free from restrictions and the currency has to be fully convertible to the exchange rate levels. This is not currently followed in China. The IMF economist also advised that decisions to stop capital inflow going against the long-term credit policy should not be taken and should not be used to affect the currency’s exchange rate.

It has been repeatedly observed that there is an interference of the Chinese government in the capital transaction to prevent an effect on the economic growth rate. Against this background, the warning issued by the IMF becomes significant. Meanwhile, indications are that the Coronavirus outbreak and the subsequent lockdowns will intensify the jolts received by the Chinese economy. Leading international financial institutions have predicted that the Chinese economic growth rate will barely be 4.5%. These include institutions like JP Morgan, Goldman Sachs, Morgan Stanley, Allianz Trends and Barclays.