American Consequences - September 2020

and digital-payments platforms (Alipay and WeChat Pay) that other countries could adopt in their own local currency. So, while the dollar’s position is safe for now, it faces significant challenges in the years and decades ahead. True, neither China’s economic system (state capitalism with financial controls) nor its technocratic- authoritarian political regime has much appeal in the West. But the Chinese model has already become quite attractive to many emerging markets and less democratic countries. Over time, as China’s economic, financial, technological, and geopolitical power expands, its currency may make inroads in many more parts of the world. © Project Syndicate

as a reserve currency. Given the current mix of U.S. economic policies, this is a growing risk. Another risk is the loss of U.S. geopolitical hegemony, which is one of the main reasons why so many countries use the dollar in the first place. There is nothing new about the hegemon’s currency being the global reserve currency. This was the case with Spain in the 16th century, the Dutch in the 17th century, France in the 18th century, and Great Britain in the 19h century. If the coming decades bring what many have already called the “Chinese century,” the dollar may well fade as the renminbi rises. Weaponization of the dollar via trade, financial, and technology sanctions could hasten the transition. Even if American voters elect a new president in November, such policies are likely to continue, as the Cold War between the U.S. and China is a long-term trend, and U.S. strategic rivals (China and Russia) and allies alike are already diversifying away from dollar assets that can be sanctioned or seized. At the same time, China has been introducing more flexibility to its own exchange rate, gradually relaxing some capital controls, and creating deeper debt markets. It has convinced more trade and investment partners to use the renminbi as a unit of account, means of payment, and store of value, including in foreign reserves. It is building an alternative to the Western-led Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) system and working on a digital renminbi that eventually could be internationalized. And its own tech giants are creating huge e-commerce

So, while the dollar’s position is safe for now, it faces significant challenges in the years and decades ahead.

Nouriel Roubini , Professor of Economics at New York University’s Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the U.S. Federal Reserve, and the World Bank. His website is, and he is the host of

American Consequences


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