Will the Chinese renminbi replace the US dollar?

This article makes three related points. First, for China to upend the dominance of the US dollar and replace it, even partially, with the renminbi would require major – and probably disruptive – changes in China’s financial markets and monetary policies. Second, the end of US-dollar dominance would probably come about only after specific actions were taken by US policymakers to limit the ability of foreigners to use US financial markets as the absorber of last resort of global savings imbalances. And third, the US economy and financial system absorbs nearly half of the world’s savings imbalances (with much of the rest absorbed by the other major Anglophone economies, for many of the same reasons). A global economy without the US dollar as the dominant currency would also likely be one without large, persistent trade and savings imbalances. This would force substantial and potentially disruptive structural changes on economies whose growth depends partly on their ability to externalize the costs associated with their international ‘competitiveness,’ which in turn depends on distortions in the distribution of income between households and businesses.