A World Bank report says that the Chinese economy at $ 16.72 trillion is set to overtake the US, in PPP terms, by end 2014.Sounds impressive, but is dry statistics.Certainly the dollar has been declining for three decades now,losing almost half its value against other major currencies since 1985 and down 33% in the past 11 years alone. Yet it is the tallest world currency.Also,even as the U.S. economy remains sluggish their Fed presses on with massive Quantitative Easing, an euphemism for printing of notes , for upwards of three years now .Such monetary recklessness ought to have pulled down the dollar value and yet, as other economic blocs are doing worse ,investors continue to shift cash to US, boosting the dollar with increased inflows Doubling up as the world currency, dollar acts as an incentive for safe parking and has it going both ways , in domestic and the global economy !.
Under similar factors but on contrary reasoning, the status of the Chinese currency as also its apparent economic might ,is a far cry.Its profligate subterranean shadow banking system fuels liquidity enormously but not being subject to regulatory / market scrutiny as the dollar,a deep monetary malaise festers beneath. Coupled to this, its overt financial system burdened with huge non-performing loans, bad banks, inefficient state-owned enterprises and real estate bubbles, makes for a shallow and unreliable lead economy.Its Yuan / Renminbi is not a trading currency and stays non -convertible. China's fiscal and monetary burden imposed by unhealthy levels of money circulation hence remains caged within and can not be passed to other economies .The dollar has long had the the " exorbitant privilege " of every other world economy underwriting its continued global pre- eminence !.
Insightful!
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