22 Mar 2010, Nick Carver, Risk magazine
The renminbi will over the long term become a reserve currency, according to a survey of central bank reserve managers carried out by Incisive Media's Central Banking Publications in autumn 2009.
Thirty-five per cent of respondents think the renminbi will account for at least 5% of global foreign-exchange reserves by 2025 or before. Over half of respondents to the survey said it would take more than 16 years.
A reserve manager from an industrial country summed up the situation: "There is a good chance [that the renminbi will become a reserve currency.] The pre-requisites for a currency to become internationalised are said to be free movement of capital, stability, and predictability of economic policies and a large financial market. The Chinese economy is big, but the Chinese need to allow free capital movement, prove their economic policies are stable and predictable, and their financial market needs to develop before the renminbi becomes internationalised."
The euro is seen as a winner from the financial crisis. Almost all respondents say the euro's status as a leading reserve currency has been enhanced or reinforced by the experiences of 2007-09. Sixty-five per cent said the dollar's status has been weakened.
Eighty per cent of respondents said the International Monetary Fund has a role to play as an international lender of last resort. Such a role would not, in the opinion of most respondents, reduce demand for reserves.
Reserve managers see little prospect of an increased role for the IMF's Special Drawing Right (SDR) in reserve management, however.
Almost 60% of respondents report that the rise in the gold price and the return of central banks as active purchasers are changing the way central bankers think about gold.
Reserve managers from 43 central banks (who control reserve assets worth $2.4 trillion) responded to the survey, carried out between September and December 2009. The central banks account for 30% of global reserves.
This survey is the first chapter in the book RBS Reserve Management Trends 2010, published on Monday 22 March by Central Banking Publications. This is the sixth in a series of annual reviews of central bank reserve management trends.
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