China Yuan Becoming Reserve Currency Essay

In recent years, China has maintained that its special economy is pursue a market economy, but with Chinese characteristics. Some of these characteristics include encouraging more of an international use of the currency, while being famous for their inflexibility with transposition rates, and not fully opening up the economy to the free flow of capital. However, the Yuans acceptance as a reserve currency depart be based on Chinas economic size, macroeconomic policies, flexible exchange rates, financial market development, and finally having an open capital account.It seems that with time, it is infallible that Chinas Yuan will one day become a global reserve currency. Depending on the development of these five criteria, Chinas currency may become a global reserve currency sooner than predicted. Chinas Economic Size The Chinese economy is straight the second largest economy in the world, and estimated to have 10 15 percent of the world GDP. Further, in 2011 China accounted for a lmost 25 percent of the worlds GDP growth (Briscoe, 2012). Despite this, GDP and economic size are not the main determinants of a countrys reserve currency status.If we believe 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 regime in the banking system is a limiting factor when trying to encourage a more open capital account. However, the government maintains that keeping a tight control over their currency prevents economic crisis.