The current international monetary order is failing to provide the necessary tools to cope with episodes of capital flow volatility. In the short term, the BRICS countries should step in and take steps to address this issue. In the long run, they should seek to reform the monetary system and promote international financial stability.

China needs to continue improving the RMB’s attraction as a financial transaction currency by marketizing the exchange rate and opening up the capital market. In the long-term, it means that the RMB internationalization will be more driven by being used in pricing and as reserve currency rather than by cross-border trade settlement.

On October 1, the Chinese renminbi officially becomes the fifth international reserve currency. Until recently, Washington played geopolitics to defer the renminbi’s internationalization. But what about Wall Street?

If China’s economic growth is still under a big downward pressure and China’s central bank further imposes an easy monetary policy, the RMB will go through an increasing pressure of depreciation. Therefore, the inclusion of China’s currency in the SDR basket would be a double-edge sword.

The IMF’s decision to formally include the renminbi as one of five hard currencies in its SDR basket, and the half-decade or so of liberalizing reforms leading into it, is likely to be recorded by economic historians with the corresponding level of attention that is devoted to the establishment of the Federal Reserve System almost-exactly a century ago.

SDR status is only a fresh starting point for transforming China from a big financial entity into a strong financial powerhouse. By adding a currency from the developing world, the SDR much better reflects the functions of emerging economies in global economic and financial affairs.

As China’s renminbi has been included in the IMF elite currencies and the Fed has started its rate hikes, conventional wisdom sees the RMB weakening and U.S. dollar strengthening as simple long-term trends. The realities are far more complex, however.

The International Monetary Fund’s recent decision to add the Chinese renminbi to the basket of currencies that determine the value of its reserve asset, the Special Drawing Right, has captured headlines around the world. But the SDR itself has not exactly dominated discussions – much less transactions – since its creation in 1969. So does the decision really matter?

Now that the IMF has made the RMB its fifth reserve currency, new attention is being paid to the risks associated with cross-border capital flow. Managing these risks requires active participation in global governance and rules making, in particular global exchange rate reform, balance of payment adjustment regime, capital flow management and the reform and coordination of monetary and financial policies on a global scale.

Shrill forebodings of a return to ‘currency wars’ and irremediable U.S.-China trade quarrels are overblown – although the prognosis on this front is somewhat mixed. A small step backwards (the yuan devaluation on August 11th) might yet come to reflect the biggest leap forward in Asian economic, trade and financial regionalism in the years and decade ahead.