China's yuan 'set to usurp US dollar' as world's reserve currency

[I AM NOT THAT GUY 5,715]

The Chinese yuan is preparing to overtake the US dollar as the world's reserve currency, economist Nouriel Roubini has warned.

Professor Roubini, of New York University's Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan's ascendance.

Known as "Dr Doom" for his negative stance, Prof Roubini argues that China is better placed than the US to provide a reserve currency for the 21st century because it has a large current account surplus, focused government and few of the economic worries the US faces.

In a column in the New York Times, Prof Roubini warns that with the proposal for a new international reserve currency via the International Monetary Fund, Beijing has already begun to take steps to usurp the greenback.

China will soon want to see the yuan included in the International Monetary Fund's special drawing rights "basket", he warns, as well as seeing it "used as a means of payment in bilateral trade."

Prof Roubini's warning followed the US government's latest economic data that showed producer prices in April experienced their biggest year-on-year drop since 1950, falling 3.7pc.

The number of Americans claiming unemployment benefit for the first time rose by 32,000 to 637,000 in the week to May 9. The increase meant the total number of people claiming benefits stood at to 6.56m, a record high for the 15th consecutive week in a row.

But neither the gloomy data, nor Prof Roubini's verdict on the greenback's future, held back the markets. The Dow Jones traded up 59.89 at 8344.78 in lunchtime trading (Friday).

http://www.telegraph.co.uk/finance/finance...e-currency.html

Edited May 17, 2009 by Mister_Bill

[w¡n9Nµ7 §£@¥€r 123]

As Dr. Roubini says, this is a ways off. Nothing is forever and America will adapt.

[scandal 951]

To paraphrase Twain, reports of the dollar's death have been greatly exaggerated.

Since the collapse of Bretton Woods in the 1970s there's been talk of the ascendancy of DM (back in the day), GBP, and more recently JPY and EUR as the global reserve currency. May happen. Hasn't happened yet.

[I AM NOT THAT GUY 5,715]

As Dr. Roubini says, this is a ways off. Nothing is forever and America will adapt.

Some ways off, or way off? How long is that? 10 years? 20 years? Chinese are famous for fifty year plans. If they tighten the purse strings, and quit buying US debt, then would that force the issue sooner? Suppose they request another currency instead of the dollar for trade deficit financing.

[w¡n9Nµ7 §£@¥€r 123]

As Dr. Roubini says, this is a ways off. Nothing is forever and America will adapt.

Some ways off, or way off? How long is that? 10 years? 20 years? Chinese are famous for fifty year plans. If they tighten the purse strings, and quit buying US debt, then would that force the issue sooner? Suppose they request another currency instead of the dollar for trade deficit financing.

As long as they put a substantial chunk of their dollars in US Treasury issued paper, I'm not worried. There's a reason they're doing it and it's not because they love America.

[I AM NOT THAT GUY 5,715]

To paraphrase Twain, reports of the dollar's death have been greatly exaggerated.

Since the collapse of Bretton Woods in the 1970s there's been talk of the ascendancy of DM (back in the day), GBP, and more recently JPY and EUR as the global reserve currency. May happen. Hasn't happened yet.

Europe and Japan have their own currency problems, but China seems to be holding a lot of good cards at the moment. Seems China is the only one talking about doing away with the dollar, but when we go to the PRC, hat in hand, things look good for China to make a serious move.

[w¡n9Nµ7 §£@¥€r 123]

... China seems to be holding a lot of good cards at the moment.

Like a peasantry vastly more impoverished and vastly less satisfied than our own?

[scandal 951]

As Dr. Roubini says, this is a ways off. Nothing is forever and America will adapt.

Some ways off, or way off? How long is that? 10 years? 20 years? Chinese are famous for fifty year plans. If they tighten the purse strings, and quit buying US debt, then would that force the issue sooner? Suppose they request another currency instead of the dollar for trade deficit financing.

The decision won't be made by the Chinese government. Or by the American government, for that matter.

It's a collective decision by the world's bond and currency traders in terms of which assets they will want to hold, where they will keep spreads tightest and yields lowest. For now, USD rules because of a rock solid track record of 200+ years of the good faith and credit of the US government in always honoring payment on Treasuries. Chinese government paper hasn't been traded long enough, and the government behind it is not seen as politically stable. For that reason Chinese bonds trade at a premium to US treasuries and it will stay that way until collective investor opinions in the bond markets change. May happen. Don't see it happening soon.

[w¡n9Nµ7 §£@¥€r 123]

As Dr. Roubini says, this is a ways off. Nothing is forever and America will adapt.

Some ways off, or way off? How long is that? 10 years? 20 years? Chinese are famous for fifty year plans. If they tighten the purse strings, and quit buying US debt, then would that force the issue sooner? Suppose they request another currency instead of the dollar for trade deficit financing.

The decision won't be made by the Chinese government. Or by the American government, for that matter.

It's a collective decision by the world's bond and currency traders in terms of which assets they will want to hold, where they will keep spreads tightest and yields lowest. For now, USD rules because of a rock solid track record of 200+ years of the good faith and credit of the US government in always honoring payment on Treasuries. Chinese government paper hasn't been traded long enough, and the government behind it is not seen as politically stable. For that reason Chinese bonds trade at a premium to US treasuries and it will stay that way until collective investor opinions in the bond markets change. May happen. Don't see it happening soon.

Heck, the Chinese would rather store their own money with us. What does that say?

[I AM NOT THAT GUY 5,715]

... China seems to be holding a lot of good cards at the moment.

Like a peasantry vastly more impoverished and vastly less satisfied than our own?

Good point. Maybe they still need some time to solve problems at home. China is historically inward looking, but so was Japan, before Dewey showed up, and destroyed their navy.

Edited May 17, 2009 by Mister_Bill

[RDDIXON 0]

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Edited May 18, 2009 by RDDIXON

[DEDixon 39]

China, because of communism, can ignore health care, pollution, poverty, social security, the list goes on and on and on. They export a lot, but everything is sacrificed for exports. Slowly over the next many many decades, they'll have to spend a lot of $$$ to fix a lot of internal problems.... things they are completely ignoring nowadays.

It is easy to appear like a heavy weight by exporting a mega amount of toys and plastic garbage cans while ignoring internal problems, but it is not so easy to expand while addressing internal problems. Plus, since they are exporting very basic things, as the years pass, they will get a lot of competition eventually from other emerging countries (what emerging country can't make plastic toys?).

China has a lot of growing up to do before the yuan becomes the world's reserve currency especially since, to a degree, they could be displaced by other emerging countries.

[justashooter 430]

... China seems to be holding a lot of good cards at the moment.

Like a peasantry vastly more impoverished and vastly less satisfied than our own?

the good doctor has never been outside of shanghai, i would suppose. perhaps i could take him for a ride on the motorbike one day, and he could see the real china. he and i would be on the only gas engine in sight from sun up to sun down, in the midst of tobacco and pepper fields cultivated and harvested by hand.

with 75% of the populace still under $250 a year family income and the cities overrun with migrant workers sleeping in the streets, china is barely able to keep control of it's own people, much less the world economy. the house of cards is rather shaky, and most of the cards are bad paper. china has non-performing loans exceeding the GDP X 4, at last count. these are the loans local gov't has arranged to modernise chinese manufacturing in mostly state owned enterprises, with no expectation of repayment.

Edited May 18, 2009 by justashooter