Even Beijing balks at price to pay for renminbi to become a reserve currency

[beijingwalker]

Even Beijing balks at price to pay for renminbi to become a reserve currency
September 30, 2014 12:08 am
By Martin Wolf

For the first time since industrialisation began two centuries ago, the world’s largest economy seems certain to be that of a non-western developing country run by the communist party.

This raises many questions. Among them is the potential role of its currency, the renminbi. Will it displace the dollar? Should the Chinese authorities want it to? Should the rest of the world want this? My tentative answer to all three is: no.

China’s economy is huge and a hugely influential. On one measure – gross domestic product at purchasing power parity (which adjusts for the differences in purchasing power of money across borders) – China has the largest economy in the world. Unless its economy is derailed, it will surely have the largest economy on any measure by the early 2020s.

China is the world’s largest exporter of goods and second largest importer. For its size, it has an open economy, with a higher ratio of trade to GDP than the US. China also holds the world’s largest foreign exchange reserves, now worth $4tn, an almost unbelievable 40 per cent of the country’s GDP.

Yet the size of the economy or of trade do not determine whether the rest of the world will want China’s liabilities to be among their principal reserve assets.

http://www.ft.com/intl/cms/s/0/d5927b7c-2ea4-11e4-afe4-00144feabdc0.html#axzz3FFWvluhq