Michael Pettis

Talk of New Reserve Currency Will Probably Lead Nowhere

HaavBline, while everyone rails about the weakness of the dollar it has actually strengthened over the past six months. In fact we have seen the weird spectacle of Chinese worrying about future weakness in the dollar (which hurts their reserves) while complaining about current strength (which hurts exports). I don’t know what the dollar will do in the next ten years, but it isn’t obvious to me that it will decline against any other major currency.

TERN, a more important question is whether other countries would want to hold a significant portion of their reserves in RMB. Twenty years ago anyone with “brains” knew that Japan would be the world’s largest economy, and the yen the dominant reserve currency, by the end of the century. As a famous wag once said, predictions are difficult, especially about the future.