China ends 2015 with an economic win: The U.S. Congress approved a reform package to boost China’s voting rights at the International Monetary Fund (IMF) from 3.8 percent to 6 percent.
This win, however, is largely symbolic, similar to the inclusion of the Chinese renminbi in the IMF’s reserve currency basket (SDR), which happened in November this year.
In 2015, China gained prestige on the international stage while the economy at home had its worst year since reforms started in earnest in 1992.
International Prestige
In spite of being symbolic and far removed from the day-to-day action of global finance, the IMF’s endorsement of China as a whole is a big win Beijing pursued for years. The inclusion of the yuan into the Special Drawing Rights Basket (SDR) means the IMF thinks the currency, and by extension the whole Chinese political economy, is on par with the dollar, euro, yen, and pound sterling.
Why symbolic? Until China’s plan to replace the dollar with the SDR as the global reserve currency becomes reality, there are too few of the SDRs in circulation ($285 billion) to change the demand for the yuan as a reserve asset. Its use is also limited to member countries, who use it mostly for transactions with the IMF.
Also, the increase in voting rights doesn’t change the power structure at the IMF, since the United States retains veto power with 16.5 percent of total votes. However, it recognizes China’s efforts to build up an alternative power structure to the Bretton Woods financial system set up after World War II. China successfully launched its Asian Infrastructure and Investment Bank this year, convincing even staunch U.S. allies like Australia and the U.K. to participate.
