Could the Renminbi Challenge the Dollar?
China’s rapid economic growth, coupled with savvy monetary management by its leaders, has internationalized the renminbi to a degree that scarcely could have been imagined just a few decades ago. But if China’s leaders ever want to challenge the US for global currency dominance, they will need to think and act more radically.
- Barry Eichengreen, Arnaud Mehl, and Livia Chiţu, How Global Currencies Work: Past, Present and Future, Princeton University Press, 2017
- Eswar S. Prasad, Gaining Currency: The Rise of the Renminbi, Oxford University Press, 2016
- Cynthia Roberts, Leslie Elliott Armijo, and Saori N. Katada, The BRICS and Collective Financial Statecraft, Oxford University Press, 2017
WASHINGTON, DC – “Follow the money,” goes the saying. And, in fact, the money – that is, the changing roles of the renminbi and the US dollar – is perhaps the best way to understand the rise of China in a world dominated by the United States. Over the last ten years, the dominant economic story was about Chinese exports reshaping global trade. But the story of the next ten years could be about China’s emerging role at the heart of global finance.
Renminbi usage has clearly been growing in recent years, owing to the impressive growth of the Chinese economy and efforts by Chinese financial officials to expand the currency’s global footprint. China already settles a quarter of its own exports in renminbi, and has designated renminbi clearing banks and swap lines abroad, including in New York. South Korea, Poland, and Hungary have begun to issue renminbi-denominated sovereign debt. And even the tradition-bound Bundesbank has announced plans to include renminbi in its currency reserves.
To be sure, drug dealers in movies still seem to prefer suitcases full of dollars, not yuan; and global investors still pour into US Treasuries whenever they get the jitters. If you had to pick one bank in which to stow your life’s savings for the next 25 years, it wouldn’t be in China. Yet in the long run, political dysfunction and unpredictability in the US could start to undercut the dollar as the world’s currency of last resort. “America First” may win votes, but it’s not a particularly good slogan for selling bonds to foreign investors.