International Finance
The future role of the Renminbi

Project Syndicate: Could the Renminbi Challenge the Dollar?

Burgess COMMENTARY

Peter Burgess

Chinese Yuan Renminbi and Dollar banknotes Wodicka/ullstein bild via Getty Images

Could the Renminbi Challenge the Dollar?

China’s rapid economic growth, coupled with savvy monetary management by its leaders, has internationalized the renminbi to a degree that scarcely could have been imagined just a few decades ago. But if China’s leaders ever want to challenge the US for global currency dominance, they will need to think and act more radically.

WASHINGTON, DC – “Follow the money,” goes the saying. And, in fact, the money – that is, the changing roles of the renminbi and the US dollar – is perhaps the best way to understand the rise of China in a world dominated by the United States. Over the last ten years, the dominant economic story was about Chinese exports reshaping global trade. But the story of the next ten years could be about China’s emerging role at the heart of global finance. Renminbi usage has clearly been growing in recent years, owing to the impressive growth of the Chinese economy and efforts by Chinese financial officials to expand the currency’s global footprint. China already settles a quarter of its own exports in renminbi, and has designated renminbi clearing banks and swap lines abroad, including in New York. South Korea, Poland, and Hungary have begun to issue renminbi-denominated sovereign debt. And even the tradition-bound Bundesbank has announced plans to include renminbi in its currency reserves. To be sure, drug dealers in movies still seem to prefer suitcases full of dollars, not yuan; and global investors still pour into US Treasuries whenever they get the jitters. If you had to pick one bank in which to stow your life’s savings for the next 25 years, it wouldn’t be in China. Yet in the long run, political dysfunction and unpredictability in the US could start to undercut the dollar as the world’s currency of last resort. “America First” may win votes, but it’s not a particularly good slogan for selling bonds to foreign investors. TO CONTINUE READING, PLEASE SUBSCRIBE TO ON POINT. You’ve reached your article limit for free On Point access. For unlimited access to On Point and the unrivaled analysis within, subscribe now.

Barry Eichengreen, Arnaud Mehl, and Livia Chiţu, How Global Currencies Work: Past, Present and Future, Princeton University Press, 2017 Eswar S. Prasad, Gaining Currency: The Rise of the Renminbi, Oxford University Press, 2016 Cynthia Roberts, Leslie Elliott Armijo, and Saori N. Katada, The BRICS and Collective Financial Statecraft, Oxford University Press, 2017 SUBSCRIBE FEATURED How to Lose a Trade War Jan 26, 2018 STEPHEN S. ROACH Iran, the Hollow Hegemon Jan 24, 2018 SHLOMO BEN-AMI Why Is Japan Populist-Free? Jan 10, 2018 IAN BURUMA It’s Time to Let Women Thrive Jan 24, 2018 ERNA SOLBERG & CHRISTINE LAGARDE The World’s Priciest Stock Market Jan 23, 2018 ROBERT J. SHILLER Christopher Smart CHRISTOPHER SMART Writing for PS since 2016 11 Commentaries Christopher Smart is a senior fellow at the Carnegie Endowment for International Peace and the Mossavar-Rahmani Center for Business at Harvard University’s Kennedy School of Government. He was a special assistant to the US president for International Economics, Trade, and Investment (2013-2015) and Deputy Assistant Secretary of the Treasury for Europe and Eurasia (2009-13). 0 Comments on this paragraph, 2 in all 2 Comments on this article BEN PIPER Feb 2, 2018 ...’.not if-when’.....if business continues to care more about the bottom line than human rights Reply DOUGLAS LEYENDECKER Feb 2, 2018 One would think one of the most important factors towards creating a globally accepted currency is trust in the sovereign behind it. China has a ways to go in the trust factor... https://www.transparency.org/news/feature/corruption_perceptions_index_2016 Read More Reply Close NEW COMMENT 2 Facebook Twitter Whatsapp Show More Contact Us New Comment Type comment here Cancel POST COMMENT Email this piece to a friend Your name Chinese Yuan Renminbi and Dollar banknotes Could the Renminbi Challenge the Dollar? CHRISTOPHER SMART China’s rapid economic growth, coupled with savvy monetary management by its leaders, has internationalized the renminbi to a degree that scarcely could have been imagined just a few decades ago. But if China’s leaders ever want to challenge the US for global currency dominance, they will need to think and act more radically. 3 Add to Bookmarks US President Donald Trump speaks about the passage of tax reform legislation Economic Policymaking in the Age of Trump EDMUND S. PHELPS For decades, America has suffered from a long-run productivity slowdown that has sapped the economy of its former dynamism, and left median wages stagnant. Will the tax legislation recently enacted by congressional Republicans and the Trump administration finally reverse this trend, or will it make a bad situation worse? 10 Add to Bookmarks Donald Trump signs the Tax Cut and Reform Bill What Trump’s Tax Cut Really Means for the US Economy JAMES K. GALBRAITH Republicans and the Trump administration have promised that the tax legislation enacted in December will boost investment and long-term GDP growth. But the new law is likely to do neither, because it is based on flawed assumptions and contains a raft of self-defeating provisions. 13 Add to Bookmarks Donald Trump delivers his address to a joint session of Congress Trump’s Abominable Snow Job PS EDITORS In the 2016 US presidential election, Donald Trump presented himself as a populist who would protect America’s “forgotten” workers from the disruptions of trade and immigration and the nefarious designs of unnamed elites. But, a year after assuming office, it has become abundantly clear that “America first” means workers come last. © Project Syndicate - 2018 | Terms & Privacy Inequality and the Coming Storm Dec 8, 2017 EDOARDO CAMPANELLA RECENTLY PUBLISHED BY AUTHORS I FOLLOW Jarosław Kaczyński’s Jewish Question Feb 3, 2018 SŁAWOMIR SIERAKOWSKI Medical students give a check-up to a Jamaican migrant worker The Health Costs of Tax Reform Feb 2, 2018 DAVID BLUMENTHAL A visual representation of digital cryptocurrencies Should You Buy Bitcoin? Feb 2, 2018 ADAIR TURNER Students attend a lecture Universities in the Age of AI Feb 2, 2018 ANDREW WACHTEL Chinese Yuan Renminbi and Dollar banknotes Could the Renminbi Challenge the Dollar? Feb 2, 2018 CHRISTOPHER SMART