"..Prasad is ultimately discussing the path of the RMB to reserve currency status.
It's not quite there yet, but it's getting there. While the dollar accounts for 64 percent of global reserve currency holdings, and the euro 21 percent, the RMB was up to 1.1% as of 2014. It's in the conversation. Prasad writes early on that the non "market determined" exchange rate of the RMB is a barrier to it becoming more of a reserve currency, but it seems he gets the story backwards. While the RMB's peg to the dollar isn't absolute a la 1994, it's still pretty tight. And that's the problem when we consider the dollar's 21st century volatility. Money is most useful when it's stable. Prasad intuitively knows this from his early analysis of China's currency history. Assuming Chinese monetary authorities move in the direction of RMB-price stability (whether through a gold definition, or more intriguingly private money issuance), odds are the RMB's use as a reserve currency will increase. One can only hope. Treasury's oversight of the dollar has been atrocious over the last 16 years to the logical detriment of the global economy. A better, more stable RMB would perhaps force Treasury to get serious.
One other weak point of the book was Prasad's all-too-typical assertion that the U.S. economy recovered more rapidly from the 2008 thanks to the Fed printing "large amounts of money rapidly" alongside a U.S. government that "used fiscal policy aggressively." That's just silly. And Prasad surely knows why. The Fed quite simply can't increase so-called "money supply" where economic activity doesn't already rate it. If he doubts this, he need only ask himself how long the dollar proceeds from Fed purchases of bonds from Baltimore, Compton, or Buffalo, NY banks would stay in all three locales as performing loans. After that, simple logic tells us that Paul Ryan and Nancy Pelosi can't allocate precious resources extracted from the real economy as well as Warren Buffett, Bill Gates and Jeff Bezos can. Prasad's already good writing would be so much better if he weren't so eager to be conventional at times. And if he might throw statistics aside in favor of common sense. Simply put, neither the Fed nor Congress can allocate resources more effectively than can the private sector. As for this notion that the economy will halt if Congress won't spend what savers will not, let's be serious. Recessions when left alone correct quickly precisely because people spend less such that their savings morph into the very investment that powers the recovery. As for saving that doesn't become investment, banks don't take in deposits to stare at them lovingly; rather banks pay for deposits only to lend them out immediately. To save isn't to not consume as economists think. In truth, when we save our consumption is shifted to someone else eager to consume. Getting more specific, notions of "export-led growth" are utterly nonsensical. We're exporting so that we can import. Always.
Yet despite the quibbles with commentary that Prasad is seemingly too smart to associate himself with, Gaining Currency is otherwise very good. If readers are willing to look beyond the conventional economist-speak previously discussed, they'll come away much more informed. Prasad provides readers with an interesting overview of Chinese currency history, and then offers myriad fun facts and commentary about the impact of S&P downgrades on U.S. and Japanese debt (it's not what you'd expect), how Chinese investors get around rapidly eroding capital controls, why Treasuries are so attractive to global investors (it's not necessarily a quality thing), along with the exciting development of China's "shadow" financing system.
And while Prasad is plainly an optimist about China's future, he describes as "far-fetched" the notion that the RMB will eventually overtake the dollar as the world's reserve currency. I hope he's wrong. One way he could be proven wrong is if China's monetary authorities seek what economists like him strangely decry: stability of the unit as a measure of value. If Chinese monetary authorities ditch the dollar in favor of currency stability, watch out. What is 1.1% reserve penetration will quickly soar. The problem is that Prasad and his esteemed colleagues recoil at the very RMB stability that would give the dollar serious competition, all the while serving as a massive investment lure into China.
По книге "Gaining Currency: The Rise of the Renminbi"
Эсвар Прасвар, профессор Корнельского университета
О финансах. В тему американо-китайского противостояния.
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