Reference News reported on January 22 that the website of the world newspaper syndicate published the article “the year of RMB? 》The author is Alvin de Subramanian, former chief economic adviser of the Indian government and professor of economics at Asoka University, and Josh Felman, head of Jill Hutchinson consulting company in the United States. Excerpt: when ray Dalio, a billionaire investor, recently predicted that RMB would become a global reserve currency, the whole world paid attention to it. The question now is whether the coming year of the ox will bring about the decisive changes necessary to enable the RMB to achieve the grand goals set by policy makers. Just like a beauty contest, in the contest for reserve currency status, it is relative attraction. International traders and investors must decide which of the currencies available to them is the most convenient to use, which is supported by the most powerful financial system, and – perhaps most importantly – which is supported by a trustworthy sovereign state. Relative attractiveness is difficult to quantify. But the concept is based on a factor that can be measured precisely: the size of the economy of the currency issuing country. The dominant economy in the world is the “hardware” of the international reserve currency. China clearly has the necessary hardware. Since 2013, China has been the world’s largest trading country in goods. At present, China’s economy has surpassed that of the United States in terms of purchasing power parity. One of us (Subramanian) pointed out ten years ago that the RMB will gradually become a competitor to the US dollar, and eventually overshadow the US dollar. Since then, China has made significant progress in improving the relative attractiveness of the renminbi. Novel coronavirus pneumonia is China’s economy. Its economy continues to grow and increase faster than the US, and it is more resilience in the new crown pneumonia crisis. China’s central bank has started testing digital money. China’s participation in one belt, one road initiative and customers in the developing world is starting to use Renminbi in their growing trade and financial transactions with China. But the dollar resisted. As Gita gopinat, chief economist of the International Monetary Fund, and his colleagues have shown, most trade is still denominated in dollars, and the dollar still plays an important role in cross-border financing. A key reason for the resilience of the US dollar relative to the RMB is that the US economic hardware is supplemented by powerful software, which refers to all intangible qualities that support investor confidence – especially a strong banking system supported by a reliable sovereign state. China has a long way to go in these areas. People should not be confident that the dominance of the dollar is unshakable. China is still likely to win the reserve currency race, either because the renminbi has become more attractive or just because the dollar has become less attractive. It is worth remembering that history is not on the side of the dollar. It’s not clear whether a clear transition from the dollar to the yuan will start this year. But in the long run, China is confident in the future of the yuan.
(editor in charge: He Xin)