The New York Times has two op-ed pieces today looking at the power of the renminbi versus the U.S. dollar. From Nouriel Roubini (professor of economics at the New York University Stern School of Business and the chairman of an economic consulting firm):
THE 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. Sooner than we think, the dollar may be challenged by other currencies, most likely the Chinese renminbi. This would have serious costs for America, as our ability to finance our budget and trade deficits cheaply would disappear.
And from Victor Zhikai Gao (an executive director of the Beijing Private Equity Association and a director of the China National Association of International Studies):
China’s foreign reserves are now close to $2 trillion, and around $1.5 trillion of it is invested in dollar assets. With the global financial crisis, the attention of the world often focuses on this huge pile of American dollars in Chinese hands.
What many don’t remember is that for years, there was either a shortage or a feared shortage of American dollars. In the 1980s, for example, the government required everyone to convert dollars into the Chinese currency, the renminbi, which literally means “people’s money.” As a result, American gold became a status symbol. Despite the mandatory conversion into renminbi, many people held onto their dollars, or bought them at inflated exchange rates, if they could find a seller at all.
No one knows for sure when the tide started to turn, or the exact moment when American gold started its slow but seemingly irreversible loss of luster. But now, many shops in China no longer accept dollar-based credit cards issued by foreign banks (the customer pays in dollars, but the shopkeeper is paid in renminbi) and foreigners cannot convert American dollars into renminbi beyond a given quota.