This week, the World Bank published a report predicting the demise of the US dollar as the major reserve currency by 2025. The transition will be driven by emerging market growth rates of 4.7% a year, compared to only 2.3% for developed countries. Six countries, Brazil, China, India, Indonesia, Russia, and South Korea, will account for half of the world economy by then.
The greenback will be replaced by a multi-currency system made up of the dollar, the euro, and the Chinese renminbi. The evolution will be driven by a sharp rise in third party international trade, direct investment, and mergers and acquisitions. Global multinationals based in the developed world will play a diminishing role on the world stage.
While I agree with the report’s growth assumptions, its conclusions are a mile off. It assumes that Chinese growth continues at its blistering, double digit rates. It won’t. I see Chinese growth peaking out in five years, when its population pyramid starts to invert as a result of the “one child” policy. It also assumes that the Chinese float the renminbi, which they have been so far been loath to do. The rudiments of a domestic Chinese bond market have yet to develop.
As for the Euro, it would not exactly be my first choice for a reserve currency these days. It might not even exist in 15 years, at least in its current form.
Source: OilPrice.com
The greenback will be replaced by a multi-currency system made up of the dollar, the euro, and the Chinese renminbi. The evolution will be driven by a sharp rise in third party international trade, direct investment, and mergers and acquisitions. Global multinationals based in the developed world will play a diminishing role on the world stage.
While I agree with the report’s growth assumptions, its conclusions are a mile off. It assumes that Chinese growth continues at its blistering, double digit rates. It won’t. I see Chinese growth peaking out in five years, when its population pyramid starts to invert as a result of the “one child” policy. It also assumes that the Chinese float the renminbi, which they have been so far been loath to do. The rudiments of a domestic Chinese bond market have yet to develop.
As for the Euro, it would not exactly be my first choice for a reserve currency these days. It might not even exist in 15 years, at least in its current form.
Source: OilPrice.com
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