Approved New Exclusive World Currency Chinese Yuan
The approval of the Chinese Yuan as an exclusive currency was a hallmark decision for the International Monetary Fund in more ways than one. This milestone decision; other than changing the list of currencies in the Special Drawing Right book.
The decision was arrived at after the Yuan met all the necessary criteria for am SDR currency. The currency now joins the list as the fifth currency alongside the British pound, the Euro, the U.S dollar and Japanese Yen.
It goes without saying that this addition to the global financial markets affects many other currencies both big and small. This effect is much seen in the Chinese and Japanese currency relationship. The Japanese Yen is always a risk sentiment not only for the eastern market but also on a global front. The Yen is always a safe-haven for investors when things are unstable. The Chinese and Japanese currencies have not recovered from the volatility that was sparked in the equity markets in China; with the Yen still hitting fresh highs and enjoying a boost in strength to the U.S dollar. The Yen will is set to do even better, the broader uncertainty in the financial markets notwithstanding.
Other than the interesting relationship between the Chinese and Japanese currencies, the Australian dollar is susceptible to the volatilities in the Chinese financial markets. This is due to the strong ties that the Australian and Chinese economies have. Any pressures on the Australian trading partner may force monetary policy reviews and a sharp cut will impact on the interest rates by Australia to foster domestic growth. Compared to New Zealand which is in the same geographical locality, there is less impact. New Zealand’s dependence on China’s economy is relatively less. But the buck will definitely, however, stop with the chain effect that may come down from the pressure on Australia, which is New Zealand’s largest trade partner.
The Yuan, a pegged currency.
Chinese exports have become relatively expensive since it is a pegged currency to the United States dollar. This means that a rise in the dollar would automatically cause a rise in the Yuan as is the case with pegged currencies. In such a scenario, the last news that Chinese authorities want to hear is that of a wimpy and faltering export sector. Goes without saying that the rise in the dollar mounted pressure to devalue the Yuan. The best thing for an investor to do to protect his wealth is to cash out from the currency that is being devalued to one that is becoming stronger. This would mean that the Japanese Yen would be the best bail out. An attractive Yen would push down the dollar thus stabilizing the Yuan which threatens to destabilize the world economy if it remains weak.
The relationship between the Chinese and Japanese currencies is very significant in the financial markets. They are something to be grasped by all and sundry investors. The best thing is to always keep tabs on both in lieu of all the other major currencies and the currencies of other major partners in the financial markets arena.