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The Dollar is Still King

Scarcely a week passes without news about the ascendance of China’s currency, the renminbi. But China has a long way to go before its currency can rival – let alone displace – the US dollar as the dominant global reserve currency.

ITHACA – Scarcely a week passes without news about the ascendance of China’s currency, the renminbi. But China has a long way to go before its currency can rival – let alone displace – the US dollar as the dominant global reserve currency.

To be sure, China already plays a significant role in international trade and finance, with major financial centers like London and Frankfurt eagerly lining up for renminbi business. Recent speculation that China’s economy may soon be as large as America’s has boosted this interest further, causing many to believe – whether ruefully or gleefully – that the renminbi will soon dominate.

Moreover, the Chinese authorities have launched a raft of reforms aimed at opening the economy and making it more market-oriented, and have announced plans to liberalize interest and exchange rates and continue to ease restrictions on cross-border capital flows. All of this will strengthen the renminbi’s claim to reserve-currency status.

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