...Characteristics: Can the Chinese Yuan become a Global Reserve Currency? Abstract China’s economy is growing ever larger, but is that enough to get the Chinese Renminbi (more commonly known as Yuan) to be accepted as a global market currency? This paper will look into the liberalization, but with Chinese characteristics, of five determining factors in becoming a country who’s currency is a global reserve currency. These factors are as follows: economic size, macroeconomic policies, flexible exchange rates, financial market development, and finally having an open capital account, and will ultimately prove the China is not quite the rising economic power some believe it to be (citation, 2012). Market Liberalization… with Chinese Characteristics In China, it is currently the year of the dragon, a symbol of good fortune and sign of intense power. With this symbol of fortune and power many Chinese are hoping for a year of economic prosperity, especially for the growth of the Renminbi, or more commonly known as the Yuan. In recent years, China has maintained that it’s “special” economy is pursuing a “market economy, but with Chinese characteristics”. Some of these characteristics include encouraging more of an international use of the currency, while being famous for their inflexibility with exchange rates, and not fully opening up the economy to the free flow of capital. However, the Yuan’s acceptance as a reserve currency will be based on China’s economic size, macroeconomic...
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...United States dollar began to fall in world currency markets in 2006. Many economists predict that the United States dollar will decline at an even greater rate in 2007. Economists believe that the United States dollar could lose as much as 30% of its value. The debate that a recession may be around the corner is backed by international trade and Federal budget deficits that are anything but under control (Dissidentnews/Worldpress, 2007). The United States dollar began at 88.86 on the FOREX international currency index in January of 2006. 83.67 is where the United States dollar ended at the end of 2006, a drop of about 6%. In 2006, the United States dollar fell 11.5% versus the euro, 13.6% compared to the British pound, and by 7.3% versus the Swiss franc. Central bankers are expected to move away form the United States dollar with regards to their foreign reserve holdings (Dissidentnews/Worldpress, 2007). China the second largest holder of United States debt reduced its purchases of United States bonds by 1.7% in the first 10 months of 2006. Venezuelan, Indonesian, and the UAE said they will invest lees of their reserves in dollar assets. Iran’s switch to Euros may be the greatest threat to the United States dollar. The use of the euro will surely spread to other oil producing companies as well, further damaging the United States dollar’s supremacy. As far as OPEC foreign reserves go, the share of dollars as a percentage of these reserves has fallen from 67% to 65% in the first...
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...INTRODUCTION The history has seen changes, rises and falls of an international reserve currency, emerging with an increased role of sterling in the 19th century and replaced by U.S. dollar in the 20th century (Eichengreen, 2006; Flandreau and Jobst, 2006). The emergence of euro has influenced a lot the whole world in many aspects and it is not a doubt that its introduction improved the functioning of euro financial markets, especially if we look from the perspective of transaction costs and country specific economic risks (Freix, 2004). It is the fact that euro is rapidly approaching U.S. dollar in terms of liquidity and breadth of euro financial markets. But at this level U.S. dollar is still maintaining its leading role on the international financial markets, maybe because of its greater financial market size or the inertia in the use of financial resources. The objective of this paper is to analyze different aspects of challenges U.S. dollar faces today. What are the chances for euro to surpass U.S. dollar and to become the leading currency. The first section of the paper gives a brief history about an international currency development, the second and the basic part gives some theoretical aspects and reviews the ideas of different economists about the challenges dollar face. All these discussion leads to the final part - conclusion. HISTORY Before the few decades of World War I, international gold standard emerged. It was gold bullion and not a gold coin standard, which...
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...“Euro: A common currency used by many European countries. The euro was established in 1999 when 11 European countries adopted a common currency in order to facilitate global trade and encourage the integration of markets across national borders. Euro banknotes and coins began circulating in January 2002.” (The Financial Dictionary) “The euro was introduced in 1999 and became the official currency of participating nations in 2002. It was intended to remove the exchange rate risk of businesses participating in the EU's common market and free trade association. It has become one of the world's most important currencies. Proponents of the euro state that it is more valuable than the former currencies, while opponents say that it has made goods and services in their home countries more expensive. The euro's ISO 4217 code is EUR.” (The Financial Dictionary) According to the European Commission Euro currency, the euro is currently the single form of money shared by 17 of the European Union’s Member States, this makes up the euro area. The euro was introduced in 1999 and was a major leading step in European integration. The euro has many major benefits; some of these are the sharing of a common euro currency which is enabling the less expensive and simpler inter-nation trading. This common currency also allows less fluctuations and a lesser risk. In Global terms the U.S. dollar is the leading currency and now the euro is the second most important with the Sterling British...
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...dollar has been the central reserve currency for the world. A reserve currency, also referred to as an anchor currency, is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves (Carbaugh, 2011). As the world’s reserve currency, the U.S. dollar is used throughout the world as a medium of exchange and is used as the global currency for products traded within the global market. In recent years the status of the U.S. dollar has been contested by a select few around the world. Leaders are unconvinced about the future of the United States economy as their deficits are exceeding record highs. The following analysis will discuss the history of the world reserve currency, how the U.S. dollar became the controlling currency and the benefits the U.S. has experienced as a result of having the controlling currency. Presenting analysis will also discuss the cause of mounting concerns over the future of the United States as well as the effects if the dollar was to lose its status as the world’s reserve currency. Finally, alternatives for the dollar will be evaluated as well as what the United States can do to maintain the standing of the dollar. History of World Reserve Currency During the 1800’s and the first half of the 1900’s the British Pound served as the foremost world reserve currency. Due to WWII Great Britain accrued a high amount of debt and lost its status as the world reserve currency. As the British Pound was decreasing...
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...Let us consider about US dollars, it is the currency of the world’s strongest country,United States of America . It is the one of the country who uses the human resources very well. It has the biggest economy in the world. It is the world leader in technology( at the moment). It has a lot of influence in the United Nations. U.S is the country that pays more money to IMF.US dollars is internationally accepted currency for trade and exchamges. Besides being the main currency of the United States, the American dollar is used as the standard unit of currency in international markets for commodities such as gold and petroleum. most of the country prefer to do trade and exchange in US dollars,it is because US dollars shows steady growth irrespective of international situations with very meager exceptions. For example, petronas likes get paid in US dollars, they asked japan to pay them in US dollarsfor something related to petroleum. Like ways, most countries would like to get paid in US dollars. Now, US dollars becoming as an world currency for international exchange and trade. US dollars is one of the mostly use reserve currency in the world. The United States dollar is the most widely held currency in the Allocated Reserves today. Throughout the last decade, an average of two thirds of the total Allocated foreign exchange reserves of countries have been in US dollarss. For this reason, the US dollars is said to have "reserve-currency status", making it somewhat easier for the United...
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...1 1) Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was a) b) c) d) US$ 1 = £4.8665 US$1 = £0.2055 £1 = US$ 0.2055 none of the above 2) According to the concept of "Impossible Trinity", if a country chooses to have a pure floating exchange rate regime, which two of the three goals is a country most able to achieve? a) Monetary independence and exchange rate stability b) Exchange rate stability and full financial integration c) Full financial integration and monetary independence d) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime. 3) A small economy country whose GDP is heavily dependent on trade with Spain could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate. a) b) c) d) pegged exchange rate with the United States pegged exchange rate with the Euro independent floating managed float 4) The ________ includes all international economic transactions with income or payment flows occurring within the year. a) Capital account b) Financial account c) Current account d) IMF account 5) Which of the following groups of countries have replaced their individual currencies with the Euro? a) b) c) d) ...
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...by Oxford University Press, Inc. 198 Madison Avenue, New York, NY 10016 www.oup.com Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Eichengreen, Barry J. Exorbitant privilege : The Rise and Fall of the Dollar and the Future of the International Monetary System / Barry Eichengreen. p. cm. Includes bibliographical references and index. ISBN 978-0-19-975378-9 1. Money—United States—History—20th century. 2. Devaluation of currency—United States—History—21st century. 3. United States—Economic policy—2009– 4. Financial crises—United States—21st century. I. Title. HG540.E33 2010 332.4′973—dc22 2010018239 135798642 Printed in the United States of America on acid-free paper CONTENTS 1 2 3 4 5 6 7 Introduction Debut Dominance Rivalry Crisis Monopoly No More Dollar Crash Notes References Acknowledgments Index EXORBITANT PRIVILEGE CHAPTER 1 INTRODUCTION The...
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...is the biggest, but because of the exceptional role the US plays in the global economy. US debt runs the risk of crashing the entire operating systems of the global economy. Not only is the US the world’s largest economy but it also dominates the global monetary system. In many respects, the entire architecture of global finance is built upon the US economy. The US dollar is very dominant in global financial affairs, more than 61% of financial reserves are held in dollars, 85% of foreign exchange transactions are conducted in dollars and 45% of all debt securities are dollar denominated. To reduce the dollars use in international trade and business, something else would have to take the dollars place. But what? The Euro may eventually be a rival but it cannot be taken too seriously as long as the European debt crisis is still active. Also the USA’s capital markets are the most liquid, the dollar is seen as a safe haven, countries are not afraid they will lose their money. The dollar is the world’s no.1 reserve currency, this status has become a facet of US...
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...Essay Assignment Cover Sheet Assignment Topic: Pegging HKD to USD vs. pegging HKD to CNY Course: Course Code: Instructor: International Financial Management EF 5143 Dr. Du Du Student Name and SID: Li Xing, 53680125 Lin Lin, 53834131 Chen Shu, 53684900 Zhang Rui, 95651546 Abstract The dollar- linked exchange rate system in HK was put into operation in 1983 and was always regarded as the footstone of stabilizing HK economy since then. However, 30 years later, great changes both inside and outside have taken place in Hong Kong. Now, a series of economic and social problems associated emerge with the Hong Kong's present exchange rate arrangement- linking HKD to USD. Is the dollar-linked exchange rate system still suitable for HK? Will the Hong Kong monetary authority have other better choices? In order to resolve the above questions, our report was divided into four main parts to analyze and discuss this issue. First, we discussed the reasons for choosing dollar- linked and also the disadvantages of linking HKD to USD that we assessed both in theory and fact. Then, we focused on the potential benefits of HKD linked with CNY before we analyzed the disadvantages. Later, we talked about a larger issue – dollarization and compared HK with Switzerland and Singapore before we came to our conclusions that HK should give up existed linking exchange rate system and adopt managed floating arrangement. Keywords: Linked exchange rate system, Hong Kong dollar, United State...
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...for the GLOBAL ECONOMIC CRISIS WHAT’S THE PROBLEM? (No brainwashing ) The Triffin dilemma (or the Triffin paradox) is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives. This dilemma was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country whose currency foreign nations wish to hold (the global reserve currency) must be willing to supply the world with an extra supply of its currency to fulfill world demand for this 'reserve' currency (foreign exchange reserves) and thus cause a trade deficit. The use of a national currency (i.e. the U.S. dollar) as global reserve currency leads to a tension between national monetary policy and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: some goals require an overall flow of dollars out of the United States, while others require an overall flow of dollars in to the United States. The Triffin dilemma is usually used to articulate the problems with the U.S. dollar's role as the reserve currency under the Bretton Woods system, or more generally of using any national currency as an international reserve currency. There was a solution to the Triffin dilemma for the U.S.: reduce the number of dollars in circulation by cutting the deficit and raising interest...
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...once said “Give me control of a nation’s money and I care not who makes the laws.” Both the Euro and the US Dollar are managed and administered by a central bank. In the US the Federal Reserve is the central bank. The European Central Bank administers the Euro. Central Banks are not government entities nor are they democratically elected and controlled entities. Central Banks are private institutions that are owned by their member banks. The ability to control a currency gives a tremendous financial advantage to private banks that have influence in the Central bank system. Currency systems that have a Central Bank and legal tender laws are monopolies – there is no competition at all with currencies. Only one currency is recognized by the government as its official currency. Economic activity that takes place within the currency system may have market influence but the currency itself is immune from competitive forces domestically. Certain currencies are “reserve currencies” meaning that they are held by other governments as foreign exchange reserves. The US Dollar and the Euro are two major reserve currencies. The advantage of having a reserve currency is that a government that issues the currency can spend in excess of their revenues because of outside demands for their currency. This gives those governments artificial...
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...Title: Reserve currencies Name Institution Question 1: About the video According to the video, the traditional role of the US dollar as a reserve currency is rapidly changing. This is because: i. The US economy is no longer the leading economy. It has been replaced by the Chinese economy. Currently, the US economy is only 20% of the world’s economy. Furthermore, it does not provide safe and liquid assets required by the global economy ii. Other currencies such as the Japanese Yen have appreciated by more than 30% in the last few years According to the article, other currencies should come up to share the privilege of being the reserve currency with the US dollar. The Euro, the Japanese Yen and the Chinese Yuan are possible candidates. In fact, the world will be a safer place if other reserve currencies are introduced. However, each potential candidate has its share of problems, which include: i. The Euro has been damaged by the Euro-zone crisis. Consequently, its share in the international reserves has declined tremendously. ii. Demographics in Japan makes the Japanese Yen not a possible candidate iii. For the Chinese Yuan to replace the dollar, China needs to strengthen its banks and financial institutions in order to achieve capital convertibility within five years. On the other hand, the US dollar has a number of strengths that makes it continue enjoying the privilege of being a reserve currency. These include: i. The US economy is relatively...
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...O C C A S I O N A L PA P E R S E R I E S N O 1 2 3 / F E B R UA RY 2 011 THE INTERNATIONAL MONETARY SYSTEM AFTER THE FINANCIAL CRISIS by Ettore Dorrucci and Julie McKay OCCASIONAL PAPER SERIES NO 123 / FEBRUARY 2011 THE INTERNATIONAL MONETARY SYSTEM AFTER THE FINANCIAL CRISIS by Ettore Dorrucci and Julie McKay1 NOTE: This Occasional Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. In 2011 all ECB publications feature a motif taken from the €100 banknote. This paper can be downloaded without charge from http://www.ecb.europa.eu or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=1646277 1 European Central Bank, Ettore.Dorrucci@ecb.europa.eu, Julie.McKay@ecb.europa.eu. The views expressed in this paper do not necessarily reflect those of the European Central Bank. The authors would like to thank, outside their institution, A. Afota, C. Borio, M. Committeri, B. Eichengreen, A. Erce, A. Gastaud, P. L'Hotelleire-Fallois Armas, P. Moreno, P. Sedlacek, Z. Szalai, I. Visco and J-P. Yanitch, and, within their institution, R. Beck, T. Bracke, A. Chudik, A. Mehl, E. Mileva, F. Moss, G. Pineau, F. Ramon-Ballester, L. Stracca, R. Straub, and C. Thimann for their very helpful comments and/or inputs. © European Central Bank, 2011 Address Kaiserstrasse 29 60311 Frankfurt am Main, Germany...
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...The Inevitable Economic Collapse Prelude “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” – Arthur Schopenhauer Unless you have been living in a cave or been in a coma the last five years, it should be blatantly obvious (even to the casual observer) that the U.S. Economy is near implosion. The meltdown of 2008 was child’s play compared to what is lurking on the horizon. While the government artificially stimulates the economy by printing new money and propping up the stock market to make things appear rosy, economists are sounding the alarm to get ready for the biggest economic collapse in the history of America. It is not about pessimism or optimism, it is about the facts. The truth is that America is bankrupt at every level and no amount of bailouts, stimulus packages, budget cuts, or tax increases will get us out of the debt hell we have created. So, what is really going on with our economy and how did we get in this mess? What options do we have? What are the consequences of those options? Economics 101: Deficit vs. National Debt Deficit is basically the shortcomings in the budget for any given year. If the government has $300 billion in available funds and it spends $350 billion, it has a deficit of $50 billion. At the end of that year, what happens to the $50 billion owed? It gets rolled over...
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