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Kenneth Rogoff: The dollar's fragile hegemony
By Kenneth Rogoff
Project Syndicate, New York
Tuesday, March 30, 2021
The mighty U.S. dollar continues to reign supreme in global markets. But the greenback's dominance may well be more fragile than it appears, because expected future changes in China's exchange-rate regime are likely to trigger a significant shift in the international monetary order.
For many reasons, the Chinese authorities will probably someday stop pegging the renminbi to a basket of currencies, and shift to a modern inflation-targeting regime under which they allow the exchange rate to fluctuate much more freely, especially against the dollar. When that happens, expect most of Asia to follow China. In due time, the dollar, currently the anchor currency for roughly two-thirds of world GDP, could lose nearly half its weight.
... Dispatch continues below ...
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Considering how much the United States relies on the dollar's special status -- or what then-French Finance Minister Valéry Giscard d'Estaing famously called America's "exorbitant privilege" -- to fund massive public and private borrowing, the impact of such a shift could be significant. Given that the U.S. has been aggressively using deficit financing to combat the economic ravages of COVID-19, the sustainability of its debt might be called into question. ...
... For the remainder of the analysis:
https://www.project-syndicate.org/commentary/flexible-renminbi-could-thr...
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