In 2012 the renminbi failed to win formal recognition as a reserve currency from the International Monetary Fund (IMF), with the global lender leaving the yuan out of its Currency Composition of Official Foreign- Exchange Reserves (COFER) database. April 2013 has brought the agreement to start direct trading between the Australian dollar and the Chinese renminbi. A major development in relations between China and Australia which according to both officials and economists is set to benefit both countries in the long term and is a boon for Australia’s commodity focused exporters. However, of even more significance, viewed in the wider context it is another landmark in China’s inexorable path towards matching its economic might in the global money markets where it still exerts little influence.
Renminbi or Yuan?
China’s currency, referred to as both renminbi and yuan, is the legal tender in mainland China. Throughout most of China’s modern history, the renminbi’s value has been pegged to the US dollar. Since 2005, the exchange rate has been allowed to float in a narrow margin, whereas in 2009 Beijing launched a programme allowing companies from mainland China to use the currency in international trade.
While the renminbi (or yuan) may not have yet gained the international status Beijing seems to be targeting, China’s currency already has a popular nickname – the redback – suggesting potential competition for dominance with the US dollar - the currency of the world’s biggest economy popularly known as the greenback.