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The Yuan as an International Currency

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Friday, 11 February 2011 06:01

The NYT discussed the prospect of the Chinese yuan becoming an international currency. At several points the article implied that this would mean displacing the dollar. This is not true.

There are several international currencies, the euro, the British pound, the Japanese yuan, and even the Swiss franc, in the sense that they are held as reserves and sometimes used as the means of exchange in trade. The dollar is by far the dominant currency, but it is certainly not the only one.

While the yuan may at some point displace the dollar as the leading international currency, if it becomes an international currency, it will initially join this longer list of currencies. Assuming China's economy continues to outpace the growth of the U.S. economy, its currency will eventually displace the dollar as the leading international currency.

Comments (5)Add Comment
China economic pace
written by Stav, February 11, 2011 7:40
Dean do you give any credence to china's stated economic output? I see their published numbers and compare to what is actually produced; to the millions of produced homes, buildings and cars that remain unused and unoccupied and think boy the "Chinese juggernaut" is the biggest scam in history.
And then...
written by Mateo, February 11, 2011 9:37
What would happen if the dollar looses its place as the leading trading and reserve currency? Would that lead to devaluation of the dollar and higher yield for dollar denominated debt?
Unlikely
written by Lord, February 11, 2011 12:27
Unless China decides it is safe to borrow in a large way. Currency is comparatively small compared to debt.
...
written by purple, February 12, 2011 10:24
re: a comment above.

Looking at car sales, one can make a case that China's economy is already bigger than the U.S.

Given current trends, the displacement will happen a lot sooner than people think.
Mr.
written by chris shelton, February 14, 2011 11:31
Given that the US$ is the currency of exchange of the OPEC Agreement it will be a while before it is surpassed.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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