China and the Reserve Currency Question

John Ryan

MPRA Paper from University Library of Munich, Germany

Abstract: China’s concern about its U.S. Dollar reserves is being amplified by the low returns of some of China’ investments in the U.S. which leads to a broader concern about how the current reserve system basically entails China lending to the U.S. at very low interest rates. A two-currency reserve system would potentially be even more unstable than the existing one, because of speculation moves in and out of the U.S. Dollar and the Euro depending on their return, increasing volatility. U.S. Policymakers have started to realize that large external deficits, the dominance of the dollar, and the large capital inflows that necessarily accompany deficits and currency dominance are no longer in the U.S. national interest. The U.S. has to consider initiatives put forward over the past year by China and others to begin a serious discussion of reforming the international monetary system. This chapter will examine four scenarios regarding the global currency regime of the future and the Chinese influence in this most important policy arena. It will focus on the U.S. Dollar decline as the Reserve Currency, on the Euro gaining strength slowly in a turbulent world, on the potential of the Renminbi to become a Reserve Currency, and on the future of the Super-Sovereign Reserve Currency, the IMF’s Special Drawing Rights (SDRs). Before that it will examine the role of the Renminbi in the Asian Financial Crisis in 1997 and its role in the global financial markets at that time and lessons learnt from the crisis. The crisis had significant macro-level effects, including sharp reductions in values of currencies, stock markets, and other asset prices of several Asian countries.

Keywords: CHINA; U.S.; EUROZONE; DOLLAR; EURO; SPECIAL DRAWING RIGHTS; RENMINBI (search for similar items in EconPapers)
JEL-codes: A10 E40 E41 E42 E44 E58 F02 F31 (search for similar items in EconPapers)
Date: 2009-10-26
New Economics Papers: this item is included in nep-mac, nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/18218/1/MPRA_paper_18218.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:18218

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().