European political leaders who are calling for the removal of the currency peg the country imposed at the height of the 2008 financial crisis, and in so doing allowing the currency to appreciate to its normal level. There is no question that while the country has adopted economic reforms and no longer abides by a centrally planned economy, China’s currency remains tightly controlled and its financial markets stringently regulated.The elevation of the renminbi to international currency status is seen to be advantageous to Chinese exporters and importers in so far as it eliminates currency risk, but it entails exposure of the tightly controlled Chinese economy to external shocks and market fluctuations. This essay shall consider the proposition of whether the Chinese renminbi may conceivably attain the status of an international currency, let alone replace the American dollar as the international currency of choice, within a period of ten years. To do so, it will delve into the nature and function of currency, the implications of currency becoming an accepted medium of exchange for international trade, and whether or not China’s situation shall allow those conditions necessary for the renminbi to become an international currency. If the answer is plausible, then the study shall determine whether or not the adoption of the renminbi in place of the dollar is capable of stabilising the global currency markets and preventing the crises of recent years.The history of money may arguably be traced to the ancient times when commodity money with intrinsic value was used as mediums of exchange. For the purpose of this study, however, the function of money shall be the focus, beginning with the use of gold coinages in Europe.
The Yuan as International Currency