Insight: Reserve judgement on the dollar - The Diigo Meta page

• 24 Sep 08
  

  Wesley Shu

  us_dollar financial_crisis

  • For many countries security considerations are paramount. It seems inconceivable that Japan, Korea, Taiwan or Saudi Arabia would wish to junk the dollar given their current security relationships with the US.
  • It then loses up to 10 per cent on the exchange rate and suffers a Chinese inflation rate of 6 per cent for a total real return in renminbi of about minus 15 per cent. That is a loss of $270bn a year, or a stunning 7-8 per cent of gross domestic product.
  • Those who like to extrapolate China’s current growth rate could argue that the shift of power to Asia will ultimately turn the renminbi into a reserve currency. In the very long term there may be something in this, but I am suspicious of mechanistic extrapolations. And, would an undemocratic developing country command sufficient confidence for its currency to achieve such status?

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