Former SAFE Chief Economist and current CICC Chief Strategist unpacks myths and realities of the U.S. dollar’s reserve currency status and the rise of alternative systems.
This is an outstanding identification of the issues - eg. why is the U.S. real economy’s global share declining while the dollar’s financial dominance is rising? But the author underestimates the dominance of the dollar in global capital markets which is multiple times the size and depth relative to global trade. The author also identifies correctly the financialization of the U.S. economy but does not understand that ALL economies eventually financialize - including China’s and soon China will be begging for foreign investors to buy its debt. The part about the potential decline of the dollar being an opportunity for the renminbi to internationalise begs the question - for what purpose? But I must say that while the writer gives the best context I have seen so far for discussing the future of the U.S. economy, it does make me wonder why the subject of his analysis and his conclusions are tangential to each other. What is the purpose, for example, of asking if a country with a current account surplus can also be a reserve currency? Unless that question was meant for China, because the U.S. suffers a chronic current account deficit, and the answer really is that China can have its cake and eat it. Here is where the authors line of thought unravels, but still, the core analysis on the U.S. was pretty good and accurate.
Thanks for busting those myths!
This is an outstanding identification of the issues - eg. why is the U.S. real economy’s global share declining while the dollar’s financial dominance is rising? But the author underestimates the dominance of the dollar in global capital markets which is multiple times the size and depth relative to global trade. The author also identifies correctly the financialization of the U.S. economy but does not understand that ALL economies eventually financialize - including China’s and soon China will be begging for foreign investors to buy its debt. The part about the potential decline of the dollar being an opportunity for the renminbi to internationalise begs the question - for what purpose? But I must say that while the writer gives the best context I have seen so far for discussing the future of the U.S. economy, it does make me wonder why the subject of his analysis and his conclusions are tangential to each other. What is the purpose, for example, of asking if a country with a current account surplus can also be a reserve currency? Unless that question was meant for China, because the U.S. suffers a chronic current account deficit, and the answer really is that China can have its cake and eat it. Here is where the authors line of thought unravels, but still, the core analysis on the U.S. was pretty good and accurate.