The Renminbi’s Rise as a Reserve Currency
All the discussion about including the renminbi in the Special Drawings Rights (SDR) basket established by the International Monetary Fund (IMF) is a side-show or distraction with the real action being the conditional imminence of the renminbi’s rise. That is not a judgment, just a description of reality.
Last week, the renminbi was in the news again—not for the usual reasons of whether it was undervalued, but for its potential as a reserve currency. The Nigerian and Chilean central banks want to invest their foreign exchange reserves in the Chinese currency. And the visit of Wang Qishan, the Chinese vice-premier, to the United Kingdom is being used an occasion to promote London as a possible offshore trading center for the renminbi.
How soon can the renminbi become a global reserve currency even the premier reserve currency? In, my forthcoming book, Eclipse: Living in the Shadow of China’s Economic Dominance, I predict that the renminbi will become the world’s premier reserve currency, eclipsing the dollar, within the next decade or so. My op-ed in today’s Financial Times is an abbreviated explanation of my prediction, and a more elaborate exposition can be found in this working paper on the reserve currency issue.