China's Challenge to the U.S.
The financial crisis has accelerated China's challenge to the U.S. There is Beijing's more assertive acquisition of oil and metals properties around the world, particularly in Russia, Brazil and Kazakhstan. But it's also been making noise about bringing down the dollar as the premier global currency held by central banks.
When the Chinese first raised the idea loudly in March, they were almost unanimously derided -- the dollar was king, and despite the financial crisis abetted by loose U.S. regulation, it would remain king. Two months later, few are still laughing.
As I write in today's Business Week on-line, China has taken numerous steps making it clear that it is deadly serious. "You are witnessing the Chinese starting to make the renminbi an international currency," Dennis Wilder, a China expert at the Brookings Institution, told me.
Some remain unconvinced. Steven Schrage, who runs the international business program at the Center for Security and International Studies in Washington, called China's moves "a lot of saber-rattling."
At Forex News, Andrei Moraru notes that the Chinese continue to tightly control their currency.
There may be some factor of saber-rattling. And Beijing does keep a tight rein on the renminbi. But over a longer time frame, meaning 10 or 15 years, the broad consensus seems to be that it makes sense for the renminbi to take its place among international, fully convertible currencies. As that happens, and China's economy continues to grow, its currency will also be held by more and more central banks (it is already held by a handful because of so-called currency swaps by Beijing). Bonds will be issued in the Chinese currency.
At Shadow Warrior, San says that China is simply "moving to protect their own future in bypassing the US currency." San argues that India needs to think about doing the same. Now, that looks a bit unlikely even in China's time frame.
When the Chinese first raised the idea loudly in March, they were almost unanimously derided -- the dollar was king, and despite the financial crisis abetted by loose U.S. regulation, it would remain king. Two months later, few are still laughing.
As I write in today's Business Week on-line, China has taken numerous steps making it clear that it is deadly serious. "You are witnessing the Chinese starting to make the renminbi an international currency," Dennis Wilder, a China expert at the Brookings Institution, told me.
Some remain unconvinced. Steven Schrage, who runs the international business program at the Center for Security and International Studies in Washington, called China's moves "a lot of saber-rattling."
At Forex News, Andrei Moraru notes that the Chinese continue to tightly control their currency.
There may be some factor of saber-rattling. And Beijing does keep a tight rein on the renminbi. But over a longer time frame, meaning 10 or 15 years, the broad consensus seems to be that it makes sense for the renminbi to take its place among international, fully convertible currencies. As that happens, and China's economy continues to grow, its currency will also be held by more and more central banks (it is already held by a handful because of so-called currency swaps by Beijing). Bonds will be issued in the Chinese currency.
At Shadow Warrior, San says that China is simply "moving to protect their own future in bypassing the US currency." San argues that India needs to think about doing the same. Now, that looks a bit unlikely even in China's time frame.
3 Comments:
This rise of the Renminbi does not have to be a zero-sum game with the US Dollar.
The Chinese, as well as the Russians, have sensibly proposed that a new monetary regime be developed with input from all the leading nations.
The idea of using the IMF's SDRs is a excellent start and the ball is now in the US government's court to take the Chinese, and Russians, ideas at face value and organize a summit to discuss the topic.
Should politicians in the US feel that there is no need, or if they simply ignore the overtures from the Chinese, then they have nobody to blame for the demise of the US Dollar as the dominant reserve currency at some point in the future.
It is no longer a question of "if" but rather, just one of "when" the US Dollar will lose its standing internationally. Let's hope that the process of replacing the USD is done with an orderly restructuring of the international monetary system and not a free-for-all where the system itself stops working.
There is no more important issue facing the international community. Thanks for highlighting it for folks back "home."
FYI..... lots of good comments over at Steve's Business Week article.
Here's my comment I left over there. Look forward to reading your thoughts.
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Steve: Can you comment more on the Chinese proposal (and Russian) to use IMF's SDRs as an alternative reserve currency? It's my interpretation that the Chinese have not specifically called for the Yuan, itself, to replace the US Dollar but rather, for a newly reconfigured SDR unit to be included as a new "supernational" reserve currency to take some of the pressure off the US Dollar.
Even John Maynard Keynes proposed such a international global reserve currency many many years ago called the Bancor. See link for more info:
http://en.wikipedia.org/wiki/Bancor
What is interesting here is that Chinese concern about the US swindling them by the USGs unlimited exercise of their exorbitant privelege is interpreted as a "challenge".
Just as with US relations with Russia, the US requires China submit to periodic swindles as a requirement for good relations with the US.
Unfortunately for the US, the days when Russia or China would accept US terms are drawing rapidly to a close.
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