Monday, June 22, 2009

Are the Dollar's Days as the Main Reserve Currency Numbered?

Helmut Reisen says maybe:
If history of the last switch in reserve currency (from pound sterling to the US dollar) is any guide, the Chinese renminbi can be expected to replace the US dollar as a reserve currency around 2050.
Reisen notes there are a number of problems in making the transition to the Renminbi as a reserve currency. Therefore, he suggests a modified version of the IMF's Special Drawing Rights could serve as the reserve currency. As I discussed here before, it is not clear to me how this move would eliminate the problems creating the global economic imbalances in the first place. Yes, the SDRs would make it easier for countries holding too many dollars to get out of them, but it would not address the structural and policy reasons why some countries run persistent current account surpluses.

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