Daniel W. Drezner
They write inflammatory copy. You decide.
I’m at the point in my life when there are only three occasions that prompt the watching of cable news: 1) An election night; 2) A real-time breaking news event in which video has a comparative advantage over the web; 3) Being on the treadmill on a slow sports day with nothing good on basic ...
I’m at the point in my life when there are only three occasions that prompt the watching of cable news:
1) An election night;
2) A real-time breaking news event in which video has a comparative advantage over the web;
3) Being on the treadmill on a slow sports day with nothing good on basic cable.
So yesterday was no. 3, and I caught a report on Fox News about "pre-summit brinkmanship" on the part Hu Jintao. The headline was accurate: "China’s President Hu Jintao: Dollar-Based System ‘Thing of the Past.’" And I should stress that Fox News was hardly the only news outlet to jump on this turn of phrase.
That said, some perspective might be in order. The statement came from a series of answers that
a committee of propaganda writers with the stylistic panache of Andrei Gromyko Hu provided to the Wall Street Journal and Washington Post.
Let’s reprint the question and answer in full, shall we?
Q: What do you think will be the US dollar’s future role in the world? How do you see the issue of making the RMB an international currency? Some think that RMB appreciation may curb China’s inflation, what’s your view on that?
HU: The current international currency system is the product of the past. As a major reserve currency, the US dollar is used in considerable amount of global trade in commodities as well as in most of the investment and financial transactions. The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level.
It takes a long time for a country’s currency to be widely accepted in the world. China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development. But making the RMB an international currency will be a fairly long process. The on-going pilot programs for RMB settlement of cross-border trade and investment transactions are a concrete step that China has taken to respond to the international financial crisis, with the purpose of promoting trade and investment facilitation. They fit in well with market demand as evidenced by the rapidly expanding scale of these transactions.
China has adopted a package plan to curb inflation, including interest rate adjustment. We have adopted a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Changes in exchange rate are a result of multiple factors, including the balance of international payment and market supply and demand. In this sense, inflation can hardly be the main factor in determining the exchange rate policy (emphases added).
Meh. First of all, Hu isn’t saying anything here that hasn’t been said by other Chinese officials since early 2009.
Second of all, Hu didn’t say that the RMB was going to be supplanting the dollar anytime soon. In fact, he pretty much said the opposite of that. China wants a multiple-reserve currency regime, and they’re moving veeeerrrrrry slowly to bring their currency into the conversation. And minus the RMB, as I’ve said before, there ain’t much in the way of viable alternatives right now.
If you read the rest of the answers, there’s a lot of
CCP boilerplate "stiffly worded answers" mixed in with "a positive note on bilateral ties," as Richard MacGregor of the Financial Times notes. What I don’t see is any brinkmanship.
Substantively, however, what about the future? Will a multiple currency reserve system work? It’s a vision shared by Barry Eichengreen, Nicolas Sarkozy, and…. well, I’m not sure who else. I have my doubts, but I can’t quite convey them in a single blog post.
What do you think?