The Renminbi as game changer
- By Ann Lee
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E-mail Beijing Review, February 10, 2014
Finally, the much discussed problems in America's K-12 public education as well as the uselessness of many college degrees from many U.S. colleges and universities undermines the ability of American labor to keep up with competition from global talent. The long held view that U.S. innovation will be America's trump card may also turn out to be a case of the emperor with no clothes. America's social media websites does little to improve the welfare of citizens; Apple products are losing their allure without Steve Jobs; and Tesla's electric cars may prove to be nothing but toys for the wealthy. Even fracking shale gas will have its limits. The only way to ensure that natural gas will continue to be produced in the United States is if there is enough demand to absorb the huge supply. Creating enough demand will require the United States to export natural gas by liquefying it into LNG and making it usable at the destination. However, the process of creating LNG adds so much additional cost to U.S. natural gas that other nations will no longer see it as a compelling source of energy.
Without strong economic fundamentals, more and more polite company will agree that the U.S. dollar is highly overvalued and at risk of going into freefall.
Of course, the U.S. buildup of its military is intended in part to coerce nations from abandoning the use of the U.S. dollar. The threat of military action on the part of the United States to maintain the status quo is no different than the coercive tactics used by imperial colonialists of earlier centuries to extract goods and services from developing countries without reciprocal exports. Everyone knows that the United States imports far more than it exports, and this trend shows no sign of reversing course as U.S. manufacturing continues to decline rapidly toward the single-digit percentage of GDP. The problem of relying on its military threat, however, may be effective against smaller nations, but would be suicidal against China. With China's trading partners and allies spanning the entire globe, U.S. military retaliation against China could easily invite the wrath of the entire world. No matter how superior the U.S. military is, it cannot wage war against billions of people and be certain of success.
Certainly no one wishes the U.S. dollar to depreciate suddenly and massively. Such a calamity will stop cross-border trade instantaneously and would inflict more harm than Lehman's collapse. Even the Chinese, who hold over $1 trillion in foreign reserves largely in U.S. Treasuries, hope never to see that day. But the fact that the Chinese recognize that such a scenario is not impossible, they certainly now see the need to accelerate the internationalization of the renminbi as serving their own interests as much as it serves the interests of Wall Street.
By providing the world with an alternative credible currency with the economic fundamentals to support its use, Chinese credit could displace the use of U.S. credit in a material way for the first time since Pax Americana. If that happens, the days that the United States can maintain consumption levels at 70 percent without inflation will be numbered.
The author is an adjunct professor at New York University and also the author of What the U.S. Can Learn From China
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