from a debate on the Economist: Will the yuan will be the world's main reserve currency within ten years?
74% disagreed with this statement via their online poll.
Monkeys, what do you think?
Personally again I think the China factor is overrated and a tactic for blog/book/media-attention. The dollar will remain the De facto currency for 10-20 years at least. It's easy to dismiss the dollar, but living overseas I realize how much we take for granted the power that the dollar still carries. More than the Euro, more than the Yuan, more than anything else, the dollar is and will continue to be the most powerful currency in the world. Did this same subject not come up during Japan's heyday with the Yen? How quickly we are to forget..
Subd, I'll update with my thoughts when I have some more time.
Update: There are a bunch of reasons why the yuan becoming the world's reserve currency in 10 years is unlikely, the biggest one being that China currently has way too many exchange controls in place and is taking its time as far as relaxing them. That being said, they've come a long way in the last 10 years, and China certainly has the ability to surprise, which is a problem in of itself. Unless China becomes a great deal more transparent (dare I say democratic), the trust required for the renmibi to become the world's reserve currency just won't be there. Furthermore, while the US and Eurozone are going though a rough spell, it isn't likely they'll just wither away and die in the next ten years. A monetary system built on three trade currencies (Dollar, Euro, Yuan) is probably the likeliest thing we are going to see.
The DM will never be the world's reserve currency for the simple reason that Germany will never be the world's largest economy. If the DM were to replace the dollar, demand for DMs would be huge and Germany's economy would effectively be crushed, unless the Bundesbank resorted to printing the press, thereby taking away what would make the DM attractive in the first place.
In any case, rumors of the demise of the Euro are greatly exaggerated and beyond a country or two leaving, it is unbelievably unlikely that the currency union will break up completely. Those suggesting so severely underestimate the will of European technocrats to hold the Euro together. Furthermore, Germany and France are the countries with the most at stake in keeping the Euro together.
The fact of the matter is China isn't taking over, nor are the US/Europe losing their edge. Simply put, China is catching up and the US/Europe are meeting them halfway as is supposed to happen in a truly free international trade system. Problem is, all parties have taken a very pro-cyclical approach to this, particularly the US who let it's currency strengthen vis-a-vis China for the sake of cheaper imports, thereby sacrificing it's export industries which probably had a few more years/decades in them. The expansion and collapse of credit we've seen over the last three decades has only served to make things more painful.
So yeah, China really is catching up. For demographic reasons, they could very well end up being the world's biggest economy someday (only to be passed up by India perhaps?). But the US is the biggest player in the world today, and they'll probably be running with the big boys for decades if not centuries to come.
I believe the dollar will remain the main currency for a while, having said that the dominance of the dollar will decline. For anyone interested in the topic, I would recommend Exorbitant Privilege by Barry Eichengreen.
26% of poll respondents agreed to stare down contest with one-eyed trouser snake.
The world's reserve currency has always been that of the nation with the largest and strongest military force. It was once Rome, and Spain, and England, and since we kicked ass in WWII, the USA. We have 11 aircraft carriers, we have troops stationed all over the world, we have a large nuclear arsenal. We have a technical military which operates state-of-the-art submarines and aircraft. We have an ample food supply to feed these soldiers, and a strict code of ethics which keeps military men strong, smart, and civilized.
Of course, even if you don't accpet the unwavering fact that the world's reserve currency has always belonged to the country with the strongest military, the US is still the world's strongest and most dynamic economy. Again, we have an ample food supply, a low population density, the worlds largest GDP, a productive and intelligent workforce. We are number one in manufacturing, number three in oil product, number one in agriculture, etc et al.
Finally, the Chinese are overrated. The Chinese use the same amount of energy has the Americans annually, yet produce 1/3 the GDP. They are extremely inefficient, and can only compete because they subsidize their manufacturing interests with domestic coal. If the Chinese, the world's largest producer and consumer of coal, were to sell their coal on the open market, they would actually have a larger GDP annually than they do now. Instead, the subsidize the price of it for manufacturers, thus weakening their own currency in the process. American firms could produce 3 times the GDP of China with one unit of coal; we could increase economic growth for both countries with a fair market.
Yet the market is not fair. The Chinese cannot survive without these subsidies. If they cannot compete with a fair currency, how on earth could they possibly become the world's reserve currency? The China story is far from the pretty picture painted in the newspapers (all the negatives focus on Chinese real estate prices; look at energy for a better picture).
hmmmmm, you guys look so sensitive, are you scared by this merely possible topic?
well.. I think this is a signal, isn't it
Since when is being right being "sensitive" or "scared".
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