PIMCO: China and the New Global Monetary Order

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To this end, China’s role as a major liquidity provider could well increase in the new order if the yuan becomes more widely used as a form of payment and becomes a bigger share of the foreign currency reserves held by the world’s central banks. Today, however, very few reserve managers hold reserves in the yuan; most are held in U.S. dollars, as has been the case for decades.
China now tops the world in international reserve assets, with holdings of $3.2 trillion (out of $11 trillion held globally) built from the world gobbling up goods “Made in China”......

.....What’s so different about the new global monetary order? China’s integration into the global financial system, and in particular its inclusion into the IMF’s SDR, has reintroduced an element of state control into the world’s foreign exchange system, something that has been missing since the Bretton Woods system ended in the early 1970s, which itself was a managed system lasting about 25 years. The post-Bretton Woods regime has been far different: a free-floating free-for-all that some believe is at the root of a very volatile era in exchange rates.
What, then, is so bad about having an element of state control returned to global foreign exchange? Again, we return to uncertainty. Unlike the Bretton Woods era, when markets operated with an understanding of what the governing states intended with respect to exchange rate movements, investors today are unsure because China only recently began its communications effort.


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