New Development Bank to lend its first loan in Chinese currency

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In what could be a big boost to the use of Renminbi (RMB) internationally, China’s currency is all set to become the first currency that the New Development Bank (NDB) would start lending its loans in. “The NDB will “get our first loan approved in April of 2016”, and the first loan will be issued in the Chinese Renminbi,”  said NDB’s president K.V Kamath.

During the BRICS summit held recently in Ufa, it was decided that the lending for member countries would start in local currencies by April 2016. Mr Kamath had spoken about how local currency credit would protect the member countries from currency fluctuations and volatility. Many see lending in local currency as a way to undermine the US dollar, but NDB has ruled out any competitive agenda.  

The lending of the first loan in RMB shouldn’t come as a surprise considering that apart from the bank being headquartered in Shanghai, China has the largest foreign exchange reserves. In an increasingly complex global financial system, the rise of China-backed financial institutions also helps it assert itself globally through its currency. The RMB was recently proposed to be added to the basket of currencies in the International Monetary Fund (IMF), which shows the currency gaining recognition globally. This would make it the first emerging country whose currency would be pegged along with the other major basket of currencies in the world.

With RMB set to be a key currency in the evolving global financial system, it’s not unrealistic to expect that it could be the alternate dominant currency to the dollar over the next few years.

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