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Will the new respect for China's currency change the balance of trade?
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The Chinese yuan was granted reserve currency status by the IMF last week, which will give greater trade advantages to the communist nation. - photo by Daniel Bendtsen
Little more than a week after the International Monetary Fund named the Chinese yuan to its list of reserve currencies, there is skepticism on whether the communist nation's money will receive the same respect in the IMF's lending practices as it's getting on paper.

A survey released Thursday by The Wall Street Journal indicated that few economists believe that new reserve status for the yuan will have an impact on the dollar's power within the next 10 years.

Those same economists also were doubtful that the IMF's action would lead to economic reforms in China. The West has criticized China in recent years for keeping the value of the yuan "artificially" low, giving the communist nation a trade advantage.

Validating the skepticism, the yuan fell this week to its weakest point in more than five years as China is testing the waters toward making its currency more market-driven. As the U.S.'s trade imbalance has become a domestic concern, the increasing devaluation of the yuan could exacerbate this, as China will export more and will become less likely to import American goods.

The yuan will join the dollar, yen, pound and euro as a currency with which the IMF will distribute funds to member nations. IMF managing director Christine Lagarde called the move an important milestone in the integration of the Chinese economy into the global financial system.

The change wont go into effect until October 2016, and China will still need to enact financial reforms between now and then.

Deutsche Welle columnist Frank Sieren wrote that the criticism of the IMFs decision is understandable considering the yuan is not freely traded on the world markets.

Sieren said the decision signals of the end of U.S. "exclusivity," noting that the IMF is likely to disseminate $160 billion of bonds all denominated in yuan to countries when the new status goes live next year.

Chinas currency agreements over the past six years are also increasing its prominence. "There are currently 40 such deals allowing countries to conduct their business in yuan rather than dollars," Sieren said.

Reserve currencies are those that governments and other businesses hold in bulk. People with an unstable native currency prefer to hold their cash assets in one of these "safe haven" currencies. A reserve currency also facilitates transactions by acting as a common medium similar to the way English facilitates international communication by acting as the "language of global business."

Countries that issue reserve currencies have an advantage for importing and borrowing because they dont need to exchange to a foreign currency.

An analysis in the The Wall Street Journal questioned whether the IMFs decision cuts corners for China, as many onlookers believe the needed reforms are incomplete. "Instead of encouraging economic liberalization, the fund may be accommodating the worlds second-largest economy as China gains new global clout," the Journal said, while noting that the decision may be a political one, incentivizing China to speed up changes.

A report in The Economist expressed skepticism whether such a political push could be effective. "It would be foolhardy to predict that China will suddenly give the market free rein. That would go against its deep-seated preference for gradual reform. But while basking in the glow of its (special drawings rights) status, China must also be aware of the responsibility to minimise intervention that comes with it," the newsmagazine said.

As Chinas economic slowdown continues, some were concerned that the new status would lead China to deflate the yuans value further to spur growth. The head of its central bank, however, said this wont happen, according the WSJ.

Instead, the new status likely means there will be less risk-taking in the Chinese economy, according to Reuters.