China and the Changing Global Economic Order

IT may not be the top subject of discussion around the average family dinner table, but China’s Nov. 30 entry into the International Monetary Fund’s Special Drawing Rights (SDR) currency basket marks the start of a new era in the global economic structure. The accession will not immediately bring about seismic changes in the yuan’s usage, rocketing it up to international reserve currency status in one glorious surge. That kind of usage growth, if indeed it ever does happen, will take years to come about. The more immediate change is actually subtler and has more to do with what China is — or more specifically, what it is not.

The yuan has become the first SDR basket currency to belong to a country that is not a clear US ally — the other slots are filled by Japan, the United Kingdom and the eurozone. This is important because it is part of a wider trend, reflecting increased economic power in new parts of the world. The IMF (along with the World Bank) is the key institution of the world order that was designed by the United States and its allies at Bretton Woods in 1944. The IMF’s including the yuan in the SDR coincides with an attempt to reform this system in favor of these new powers — an attempt that the United States has stalled with a veto for five years.