THE 19th century was dominated by the British Empire, the 20th century
by the United States. We may now be entering the Asian century,
dominated by a rising China and its currency. While the dollar’s status
as the major reserve currency will not vanish overnight, we can no
longer take it for granted. Sooner than we think, the dollar may be
challenged by other currencies, most likely the Chinese renminbi. This
would have serious costs for America, as our ability to finance our
budget and trade deficits cheaply would disappear.
...
This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles. For the last two decades America has been spending more than its income, increasing its foreign liabilities and amassing debts that have become unsustainable. A system where the dollar was the major global currency allowed us to prolong reckless borrowing.
Now that the dollar’s position is no longer so secure, we need to shift our priorities. This will entail investing in our crumbling infrastructure, alternative and renewable resources and productive human capital — rather than in unnecessary housing and toxic financial innovation. This will be the only way to slow down the decline of the dollar, and sustain our influence in global affairs.
The possibility of the scenario is low for RMB to become a major curreny in the next decade. The reason is that it tooks two wars in the last century to establish US dollars. Without US military backing, the economic reasons alone would not determine the de facto reserved currency. Japanese Yan and Euro has much higher chance to be come the new reserve currency. IFM's basket is also a virtual currency that could manage some large transactions in the capital market. However, the US dollars is widely used in the Americans which include -- Canada, Mexico and Brazil .. These counties combined has a larger economy than China today and in the for seeable future.
Professor's job is to alert pepole for the possibility. Just like astrophysicist like to scare people of meteor collison of the earth and the geologist like to forcast deadly Earthquake in California would redraw the coastline. Health official like to scare people with HxNx virus. Yes the danger is there, but put things in perspective.. It is just poeple like to enlarge their circle of influence and have tendency to exagerate ;)
Posted by: Fred | May 16, 2009 at 07:21 AM
Yes, in 1980 Japan YEN also has this kind of saying. Before 1980 , American use Car to drive the world, and latter they use Silicon and Software and Internet. Now ? As the the world is more open by Internet just like the Road that build by Roma. It also reduce the influence of the US. But it is not a bad thing. Because US is the most flexible country ever just like Apple ,IBM and 3M ,They will transform as the time go.
Japan has her change but she does not take it. Now it is China's chance, but I don't think she has the capability to leverage the world. It need not just money. It is the problem of mind not money.
Posted by: Tze-Chien Chu | May 16, 2009 at 07:44 AM