Monday, July 06, 2009

Renminbi no competitor for US dollar any time soon - Arthur Kroeber

United States one-dollar billImage via Wikipedia
China's currency the Renminbi or Yuan has been popping up as a potential competitor for the US dollar as a reserve currency. But in a comment to Reuters; Alan Wheatley, Arthur Kroeber kills that story effectivelym together with many other economists.
"For it to replace the dollar as the main global reserve currency would require many decades and a combination of improbable events," wrote Arthur Kroeber in the China Economic Quarterly, a journal he edits.
Kroeber rightly draws a distinction between facilitating the use of the yuan as an international currency for current account purposes such as trade and tourism and enabling its use on the capital account for portfolio investment and reserve holdings.
For that, China would have to scrap capital controls: central banks and other foreigners would have to be able to invest freely in onshore yuan financial assets such as stocks, bonds and bank deposits and to freely repatriate their capital.
For foreigners to hold yuan on a large scale, Kroeber writes, they would also have to be convinced China's markets are trustworthy and fairly free of rigging by the government.
"Technical difficulties aside, this will require a significant retreat from the current state-dominated model of credit allocation. This cannot happen quickly," he concludes.

arthurkArthur Kroeber by Fantake via Flickr

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Arthur Kroeber is also a speaker at the China Speakers Bureau. When you need him at your conference, do let us know.

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