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2010-03-01

Implications of different roles of international currencies

Comments on Yiping Huang “The future of the international currency system and China’s RMB”, 28/02/2010, http://www.eastasiaforum.org/2010/02/28/the-future-of-the-international-currency-system-and-chinas-rmb/

While I am not in any position to speculate on international currencies and potential roles of the RMB in it in the future, I was wondering if there is a case to have a distinction between international currencies and international reserves.

It seems so far most discussions do not make a distinction of the two roles and assume they will always be played by the same currencies.

I think there is a clear case for a separation of currencies versus reserves.

The role of international currencies should play is transactions. In this regard, it will be difficult to make a currency which is not widely used in the real world, such special drawing rights, to be used as an international currency.

The role of international reserves is wealth/reserve parking. In this regard, perhaps the IMF special drawing rights, or something similar, could be used much more widely as an international reserve. I guess that is the underlying message of the Mr Zhou Xiaochuan, the governor of the People’ Bank of China.

So in my view, it would be better to define and distinguish the different roles of "currency".

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