Game Over, America: RMB Eclipses $ by 2021

Or so someone now says. Publicity-seeking economic commentators like making bold predictions that sometimes cause them to lose face. Alike various doomsday cult pronouncements that the world will come to an end at a certain date, there is no hiding from being discredited when giving certain dates for things to pass since you can't obviously weasel your way out of them. When you make a public pronouncement, it's on the record. For instance, Wolfgang Munchau is probably eating humble pie at the moment after his 7 December deadline for the euro's abolition came and went with nary a whimper. We're still waiting, bub.

I bring this up because Peterson IIE stalwart Arvind Subramanian makes similarly bold claims about China. More specifically, he takes a look at various economic indicators, extrapolates from them, and argues that 2021 will be the date when the world's most systemically important currency will be the yuan and not the dollar. Along the way, he looks at the rise and fall of eras of British (Pax Britannia) and American (Pax America) dominance and believes that China's rise is more imminent than most believe. Certainly others have made such predictions before--especially more political-economic types alike LSE IDEAS' erstwhile Senior Fellow Martin Jacques. However, Subramanian's take is potential unique in that he is an economist looking at marco data to make similar arguments--and sets a date to boot.

While it is true that linearly predicting China's economic progress based on recent years' performance should lead you to believe that America's eclipse is imminent, others would beg to differ. Certainly the US is going nowhere. With its "new normal" annual rate of growth between 1-2%, it surely isn't keeping up the pace to maintain a decent lead, compelling certain USA#1 cheerleaders to shift the goalposts of the seemingly inevitable American eclipse. The American has-beens may try to portray themselves as the still-ises, but the numbers certainly indicate otherwise.

At any rate, do catch Subramanian's new book on Eclipse: Living in the Shadow of China’s Economic Dominance. What follows is the press blurb to accompany the clip above:

In his new book, Arvind Subramanian presents the following possibilities: What if, contrary to common belief, China's economic dominance is a present-day reality rather than a faraway possibility? What if the renminbi's takeover of the dollar as the world's reserve currency is not decades, but mere years, away? And what if the United States's economic pre-eminence is not, as many economists and policymakers would like to believe, in its own hands, but China's to determine?

Subramanian's analysis is based on a new index of economic dominance grounded in a historical perspective. His examination makes use of real-world examples, comparing China's rise with the past hegemonies of Great Britain and the United States. His attempt to quantify and project economic and currency dominance leads him to the conclusion that China's dominance is not only more imminent, but also broader in scope, and much larger in magnitude, than is currently imagined. He explores the profound effect this might have on the United States, as well as on the global financial and trade system. Subramanian concludes with a series of policy proposals for other nations to reconcile China's rise with continued openness in the global economic order, and to insure against China becoming a malign hegemon.

I certainly think the RMB will become a major world currency. Perhaps it can even help stabilize what Robert Gilpin calls the non-system of flexible exchange rates that has made the world economy lurch from crisis to crisis more frequently given the lack of American stewardship. But, my inclination is to believe that it will be more important in Asia than in the rest of the world as it evolves to being more multipolar than unipolar. That is, while China may surpass the United States in terms of nominal GDP, trade and other indicators, but it probably will not aspire to global hegemony as it so often indicates in an echo of its Communist past. Pax Sinica? The Chinese may eventually become able to take up the lead in the international monetary system, but will they be willing? (As a counterpoint, the US too was reluctant to take up such a role in WWII's aftermath, so you never know.)