Renminbi May Supplant Dollar as Reserve Currency, Subramanian Writes in FT

China’s renminbi may displace the dollar as the world’s main reserve currency within a decade, according to Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics, based in Washington D.C.

Writing in the Financial Times, Subramanian said China has almost caught up with the U.S. as an economic power, with an economy about as large in terms of purchasing power and much greater exports and overseas assets.

While that doesn’t make the rise of China’s currency inevitable, it creates the conditions for it, he said.

China still has to carry wide-ranging policy reforms, but the internationalization of the renminbi is being pursued in a characteristically Chinese way -- micromanaged, interventionist and enclave-based, Subramanian said.

The granting of greater but selective access to the renminbi to some foreign entity or country, such as last week’s initiative to promote London as an offshore trading center for the currency, has become a frequent occurrence, he said.

China has a reason for turning the renminbi into a reserve currency, namely that it offers a way out of the decades-old and controversial growth strategy of keeping the currency undervalued and the economy closed to foreign capital, Subramanian said.

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