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.
via RGE
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