WASHINGTON, August 7 (RIA Novosti) - The Chinese Renminbi (RMB) could surpass the US Dollar as the next international reserve currency if the US continues to undermine its currency through “unconventional monetary policies, a professor at University of California, Davis Wing Thye Woo told RIA Novosti.
“Even if China does not do anything and the US financial markets are perceived to be unsafe, there will be a switch-over [to the Renminbi]. That is what will happen,” Woo said.
Despite the current standing of Shanghai as the sixth largest financial center in the world, China has been taking steps through the ASEAN alliance, the BRICS association and its role in the Asian Development Bank to increase the use of the RMB in international trade transactions. According to China Daily, the RMB is currently the seventh most widely used world currency, after only five years of exposure to the international marketplace.
There are doubts about the likelihood of China’s ascent to the first level international financial center, comparable to New York or London, because of the perception of market safety. However, according to Woo, the safety of western financial markets is also in doubt. He said that the “unconventional monetary policies in, not just the US, but in Europe and in Japan” undermine those currencies.
Discussing the round-robin of loose monetary policies from Federal Reserve Chairman Alan Greenspan leading into the housing bubble and the ongoing Federal Reserve policies of purchasing mortgage backed securities and keeping rates extra low, Woo questioned whether “the medicine that killed us is the medicine that cures us?”
“It undermines the dollar. It makes the US financial market unsafe,” Woo said criticizing the easy money policy in the United States.
In such a condition, he noted that the actions of the US in continuing this trend will do more to promote the RMB as an international reserve currency than any action taken by China.
“It is not necessarily what the Chinese do, but what we do to ourselves that is the problem,” Woo concluded.