Is the renminbi the next global reserve currency?
If history of the last switch in reserve currency (from pound sterling to the US dollar) is any guide, the Chinese renminbi can be expected to replace the US dollar as a reserve currency around 2050. The UK lost its position to the US as the world’s largest economy in 1872 and the largest exporter in 1915. The switch in net debtor/creditor positions started 1914, and as the US dollar emerged as a convertible net creditor currency, its use in finance and trade widened. By 1945, the pound was dethroned (Chinnand Frankel, 2008). Today, the US is in a net debtor position similar to Britain after the WWI, with China being the world’s largest creditor. In PPP terms at least, Angus Maddison predicts that China will surpass the US by 2015; China is on its way to becoming the world largest exporter. So these historic parallels might imply a switch in the reserve currency by the mid-21st century. Nowadays, the renminbi is far from ready to achieve reserve currency status. China would first have
