JPMorgan Chase & Co. (NYSE:JPM) has just updated it’s FX indices giving a boost to the Chinese currency, a Bloomberg report showed that the index had not been updated for 15 years. As such, this reflects real changes on the ground in that amount of time as China passed Japan as the number two largest economy behind the mighty USA.
Among major economies according to the report, China’s weight increased, and the share for the U.S., euro members and Japan all fell. The changes in trade-weighting feed into the proportion that different currencies account for in JPMorgan’s effective exchange-rate indexes that cover regions and individual countries. The change was made to more accurately compare effective exchange rates and competitiveness in international trade.
Discussing the Chinese currency, U.S. Treasury Secretary Jacob “Jack” Lew stated last month the RMB is yet to deserve the reserve status the dollar enjoys. Stating China must implement “necessary reforms” before it will meet the IMF’s standards for inclusion in the basket of currencies.
The United States is in no rush to see the dollar challenged as de facto global reserve currency and the RMB still has a long way to go. Although, China has been steadily implementing these talked about reforms and liberalizations. We have witnessed over the last few years and continue to see other countries establish renminbi trading hubs within their borders, including the U.K., Canada, Singapore, and Germany which have allowed companies for the first time to settle accounts with Chinese clearing banks in RMB.
The move towards RMB internationalization has no reverse gear. It is important that financial institutions remain up to date with ongoing developments and seize opportunities as they arise and position themselves to provide a superior service to their customers. – Thomas DuCharme Chief Executive Officer, Treasury and Securities Services, Asia Pacific J.P. Morgan
To check out the Bloomberg article, click here.
To view J.P Morgan’s RMB handbook (PDF) click here.