Writing on Vox.com, Matthew Yglesias says the so called quest by China to "overthrow the US dollar" is "laughably overhyped." Below are some quotes from his article and then a few added comments.
----------------------------------------------------------------------------------------"China this week received official status from the International Monetary Fund as the issuer of one of just five globally influential currencies that are used to peg the value of the IMF's Special Drawing Rights (SDR). If this sounds boring to you, Neil Irwin at the New York Times spices things up by suggesting that this "akin to what happened about a century ago, when the United States dollar was gradually supplanting the British pound as the predominant currency for global trade and finance," a move that "was a crucial piece of the nation’s rise to superpower status." Similarly, Matt O'Brien at Wonkblograises the prospect that China "might be like the U.S. 100 years ago": poised to displace us as the world's financial hub, just as we were poised to displace Britain at the dawn of World War I."
"The good news for those of you who don't know what any of this is about is that it's honestly not nearly as important as these stories are making it sound."
. . . . .
"So why the hype?
China has an ongoing and active program to send people to the moon.
Once upon a time, the United States and the Soviet Union were engaged in a high-profile "space race" to accomplish precisely this. It is not entirely clear to me why the superpowers became fixated on this moon goal, since there was never any indication that anything of value was on the moon. But it happened. And the US won. And then we sent a few more astronauts to the moon. And then having proved our point (whatever the point was), we stopped bothering. China is a large and important country whose large population and middling income combine to make it a major power on the world stage.
Consequently, the Chinese government is doing a bunch of "major power on the world stage" type of things. One of those is trying to send people to the moon. Lobbying the IMF to get into the SDR basket is a lot cheaper than sending people to the moon."
---------------------------------------------------------------------------------------------Added Comments: This article makes some good points that we have also made here on the blog. It's true that the addition of the yuan to the SDR basket is mostly just a symbolic event. It's true that the yuan is no short term threat to the US dollar as the leading global reserve currency. The author also takes the view that SDR's used at the IMF are not anything that people need to concern themselves with and dismisses them as having any meaningful role in the lives of the average person. As things stand today, that is also true.
However, what the future might bring is another story. The author assumes that things will always be as they are now in the future. He does contemplate what another financial crisis worse than 2008 might do to the existing financial and monetary system. Jim Rickards believes that such a future crisis will bring major monetary system change and that the IMF will step in to try and solve the problem at the global level using the SDR as a replacement reserve currency for the US dollar (he repeats that forecast in this recent Bloomberg TV interview). That seems impossible today, but time will tell if it becomes a reality at some point in the future. We won't know unless such a new major crisis unfolds.
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