Nouriel Roubini: The Renminbi Could Be the Global Reserve Currency
The downfall of the dollar will only be a matter of time, says the economist. That means America may soon be stuck paying more for its imports and more for its debt.
"The downfall of the dollar may be only a matter of time," wrote NYU economist Nouriel Roubini in a 2009 New York Times Op-Ed article. Though it won't happen over night, he explained, "the Almighty Remnimbi" may soon replace the dollar as the next global reserve currency.
And in his Big Think interview, Roubini lays out the four things that will need to happen for the Renminbi to supplant the dollar:
Roubini, who famously forecast the Great Recession, believes this is not a matter of if but when. "Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders," he wrote in The Times. "The British Empire declined—and the pound lost its status as the main global reserve currency—when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets."
And what will this mean for the United States? If countries around the world were to diversify their reserve holdings to include more yuan (the individual unit of the currency Renminbi) and fewer dollars, America would no longer enjoy the rates at which it borrows from other countries, and which have allowed the U.S. to finance massive deficits for lengthy periods of time at low interest rates. If China borrowed and lent internationally in Renminbi, rather than in dollars, the Renminbi could eventually become a means of payment in trade and a unit of account in pricing imports and exports, as well as a store of value for wealth by international investors. America, in turn, would be stuck paying more for imports and the price of both our public and private debt would rise. On the plus side, this might be the only thing that disabuses America of its spendthrift ways.