It doesn’t appear to have been Einstein who first said that the sign of insanity is doing the same thing over and over again and expecting different results. If this Wall Street Journal editorial is to be believed, the IMF is embarking down a path that hasn’t lived up to expectations in the past, hoping that this time it will be different:
The International Monetary Fund is expected this month to include the Chinese yuan in the basket of currencies that make up its notional reserve asset, known as special drawing rights (SDRs). That move won’t immediately affect global holdings of the yuan. But by certifying that the currency meets its standards, including being “freely usable,†the IMF will give the yuan an important imprimatur. The quest for this gong is one part of Beijing’s effort since 2009 to make the yuan an international reserve currency.
Some will hype wider acceptance of the yuan as a challenge to the U.S. dollar. That may be, but a bid for greater prestige is also a renewed Chinese commitment to reform and opening. Americans should welcome it.
The key is making the yuan convertible. Much of the economic friction between China and the West is due to controls on the movement of capital in and out of the country. This made it easier for Beijing to keep the value of its currency stable, which fostered growth. But the accumulation of foreign-exchange reserves led to accusations by Western protectionists that currency manipulation underpinned the country’s trade surplus.
I’m in favor of a fully convertible yuan. But I’m also in favor of a less mercantilist and predatory China, one that lives up to the commitments it made when it was admitted to the WTO and still hasn’t lived up to, in some cases a decade after the scheduled implementation date.
A better course of action for the IMF would be to include the yuan in their “basket of currencies” when and not until the yuan is fully convertible. To do otherwise removes an incentive for the Chinese authorities to change and places the IMF at the mercy of an oligarchy that first and foremost looks out for their individual personal interests.
Is it possible that the oligarchs in the West are happy with the yuan NOT being fully convertible? It doesn’t seem to be hurting our billionaires and financiers any, and perhaps just like the importation of Third World labor to crush wages domestically this benefits them. And does anyone doubt that the IMF, just like the FED and all the other central bankers, serve the interests of the rich exclusively?