Arvind Subramanian’s piece in the FT arguing that the renminbi could become the world’s reserve currency within a decade strikes a chord since I spent the past couple of weeks in Hong Kong and China.
Rather like Mandarin is already rivalling Cantonese as a language in Guangdong province, Hong Kong residents are increasingly keen to hold savings in renminbi over Hong Kong dollars, given the latter’s peg to the US dollar. Read more
Demanding the US administration label China a currency manipulator is an old chestnut, and not one that improves with age.
One, the label is self-evident: by definition any non free-floating currency is “manipulated”. The more pertinent issue is whether the currency is under-valued; the answer to that – calculations of multilateral institutions and certain US think-tanks notwithstanding – is less clear-cut.
Two, Washington does not set Chinese monetary policy. If it did, it might pause to consider the wisdom of compelling its biggest creditor to inflate its currency. Since a 5 per cent appreciation would lop, say, $70bn off the value of its largely US dollar-denominated $2,400bn foreign exchange reserves, that might temper Beijing’s appetite for US Treasuries. And three, renminbi appreciation would make barely a whit of difference to US jobs or business. Read more