São Paulo – The International Monetary Fund (IMF) forecasts that the Brazilian real is one of the five currencies that may become international in coming years and become prominent among the main currencies used in international trade and as a source of financial reserves. The Indian rupee, the Chinese renminbi, the Russian ruble and the South African rand also have the same potential as the real, according to study “Internationalization of Emerging Market Currencies: A Balance between Risks and Reward”, disclosed by the fund on Friday (19).
The IMF stated that, currently, four currencies are being recognized as “freely usable” in international trade: the U.S. dollar, euro, British pound and Japanese yen. These currencies are responsible for 95% of the international reserves of countries, according to IMF figures. The Canadian and Australian dollars and the Swiss franc, according to the study, are also occasionally used for international reserves and financial transactions. According to the study, 65.6% of reserves are in dollars, 24.9% in euros, 3.7% in pounds and 3.6% in yen. The others currencies total 2.2% of reserves.
This may change in the long-term. “Today, the international monetary system is characterized by a handful of currencies that have achieved varying degrees of internationalization, with the U.S. dollar and the euro as the main ―global‖ currencies, but there are signs that the system is evolving toward a greater role for emerging market (EM) currencies, reflecting both strong fundamentals in EMs and an appetite for diversification among investors.”, says the IMF document.
The report informs that internationalisation may bring benefits like lower costs in financial transactions and the ability to issue international debt at more competitive terms. This, however, reduces monetary authority control of currencies and increases volatility, which consequently makes the nations that use them “source(s) of systemic instability”. However, to the IMF, diversification of international currencies is positive. “The transition to a multipolar system may help diversify risks, facilitate gradual global adjustments, and provide incentives for sustainable policies conducive to systemic stability.”
According to the IMF, although there are few figures that confirm that the real and the other four currencies are becoming international, there “is evidence” of the rise in number of international transactions in these currencies in recent years. “For instance, use in foreign exchange derivatives increased by 50% for the real, doubled for the rupee and the ruble, and increased about twelve-fold for the renminbi [the Chinese currency, of which the yuan is part]”, says the IMF.
The report points out that China is at a different level than the other emerging nations as it has a much greater international trade flow. While China answered to 9% of global foreign trade in 2010, Japan answered to 4.5%. The report forecasts that in five years the Chinese international trade flows will be greater than those of the United States. Other countries have recorded growth in their presence on foreign trade or, at least, have maintained constant participation, as is the case with Brazil and South Africa. This tendency, according to the IMF, should not change over the next five years.
The IMF forecasts that the currencies of emerging nations may become protagonists in niches of international trade. The Chinese yuan may become a global economy due to the size of the Chinese economy and to the country’s importance in global trade. The Brazilian real and the Russian ruble, as they are the currencies of nations that are great exporters of commodities, could be used in regional trade and also as an alternative for financial reserves in currencies other than the Canadian and Australian dollars.
*Translated by Mark Ament
