Yesterday was momentous, but we should not lose sight of the head of the IMF saying that the Chinese renminbi could take
steps to becoming a global reserve currency. To be specific: Dominique Strauss-Kahn has in mind adding renminbi to the IMF’s Special Drawing Rights system. In itself, no big deal – but a
notable kiss being blown to Beijing.
It fits a trend. The Chinese, notoriously, manipulate the value of their currency to keep their goods cheap, so they can’t have their currency treated with reserve status. But power is
shifting – and America’s fiscal misbehaviour has unsettled international investors. John Peace, chairman of UK bank Standard Chartered, put it well the other day: “the last decade was characterized by ‘made in China’.
This one by ‘owned in China’. The next one: ‘paid by China’.” This week an Oxford academic, Karl Gerth, published a book As China Goes, So Goes the World, where he predicts
that it will soon become common for leading British shops to accept the renminbi.
China has long complained about the dollar’s status as a reserve currency, but it’s starting to act. A few weeks
back, Russia and China said they’d abandon dollar trade dealings with each other and use their own
currencies instead. With Obama now printing freshly-minted dollars to fund his own staggering debt-fuelled consumption drive, you can understand how international investors would be nervous. But so
far, they’ve not had very much real choice. There is the distinct sense of all this changing, and sooner than the West would like.