The two of the three criteria, although under

The RMB has been under-valued and has been for the last few years. China’s government has been accused of manipulating the currency to keep it devalued due to export led growth. When U.S. president Donald Trump took office he argued that the Chinese currency manipulation resulted in U.S. goods and services being unattractive and this would be something he’d reform in office He
has vowed to
impose punitive tariffs
on its imports
into the US
in a move
economists fear
could set off
a trade war
between the world’s
two biggest economies. the RMB must therefore be revalued up.

Whether the RMB will emerge as the new global reserve currency depends upon several factors such as: economic growth, productivity, political stability and China’s trading partners.

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US Treasury on Friday said that by its reckoning China now met just one of the three criteria for inclusion on a currency watch list after its current account surplus fell below 3 per cent of gross domestic product in the year to June. Under Treasury’s current guidelines that means that, if nothing changes, Beijing could fall off the watch list as soon as next year.  For their twice yearly foreign exchange report to Congress Treasury officials also monitor a country’s trade balance with the US as well as any “persistent one-sided intervention” in currency markets.  The US goods trade deficit with China was $356bn in the year to June and remains the largest of any with US trading partners, though it was down from $363bn for the 12 months to June 2015. The US also had a $35bn surplus in services trade with China in the year to June 2016. 
But the trade deficit was the only criteria that qualified it for inclusion on the watch
list. To remain on the list countries, have to meet two of the three criteria, although under Treasury’s rules any country included must remain on the list for two consecutive six-monthly reports afterwards. 
China’s forays into currency markets had actually been to the benefit of other big economies over the past 18 months as they had taken place to stop a potentially disruptive devaluation of the renminbi, treasury economists reported. 

Altogether Beijing had sold more than $570bn in foreign exchange assets in the year to August 2015. to slow the depreciation of the RMB, the US Treasury calculated. The RMB had fallen by 6.9 per cent against the dollar since August 2015, when the People’s Bank of China announced it would allow the currency to trade more freely, the Treasury said, but was still up 21 per cent against the dollar since December 2005. 

The U.S Treasury said that its analysis had concluded that no major trading partner of the US was now manipulating its exchange rate with the dollar in order to prevent any balance of payments adjustments or gain an unfair competitive advantage in international trade. 

In 2016, the
total U.S. trade deficit was $502 billion. That’s because it imported $2.712 trillion of goods and services while exporting $2.209 trillion. The deficit is higher than
in 2013 when it was $478 billion. That’s because the dollar strengthened 25 percent in 2014 and 2015. (K. Amadeo, 2017)

But the deficit is less
than the record $762 billion in 2006. The
decrease since then means U.S. exports are growing faster than imports. (K. Amadeo, 2017)

 

CONCLUSION

Overall, economically if China continues to grow at the rate it is and increasing its trade partners

 

For a
country with a
budget deficit in
excess of $1 trillion
a year, the
consequences of losing standing
as the world’s reserve currency would be
dire. … “If the dollar loses status as the
world’s most
reliable currency the United
States will lose the
right to print
money to pay
its debt (J. Cox 2013).
In August 2015 — Beijing has spent billions of dollars in
recent years propping the renminbi up, not pushing it down The US could always
argue the Chinese currency should be allowed to float completely free of state
intervention. But it is obviously not in America’s interest to see a sharp
appreciation against its largest trading partner and risk a destabilisation in
the global financial system. In any case, naming China a manipulator, contrary
to the over-excited threats of some currency warriors, authorises the US to do
nothing except negotiate with Beijing over the renminbi, which it is already
doing.

 

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