Turning from green to red - The yuan is displacing the dollar as a key currency
urged them, in effect, to pay less attention. Many policymakers in emerging markets complain that Fed easing destabilises their economies, contributing to higher inflation and asset prices. Mr Bernanke pointed out that emerging economies can insulate themselves from his decisions by simply decoupling their currencies from the dollar. It is their habit of shadowing America’s currency, however loosely, that obliges emerging economies to ease monetary policy whenever he does.
all very logical and sensible….
according to a new study by Arvind Subramanian and Martin Kessler of the Peterson Institute for International Economics in Washington, DC, the dollar’s influence is waning in the emerging world. Currencies that used to shadow the greenback are no longer following it so closely. Some are floating more freely. But in other cases they are steadily falling under the spell of a different currency: the yuan.
this seems to be a natural phenomenon called “growth” - as the world’s economies progress, they moderate and balance each other, it’s the basic underpinnings of modern global economics.
by the less nuanced, it is used to create scary hyperbole about impending u.s. doom and loss of international prestige and power, a psychology we can call ‘pre-eminent dominance’ - or the level of need one needs to feel ‘superior’ as opposed to ‘equal’.
Some inflation-prone emerging economies, such as Ecuador, have adopted the dollar as their official currency. Others, such as Jordan, peg their exchange rate to it. These official policies are one measure of the dollar’s international role.
this is due to the dollar’s stability, and not the preconception of ‘dominance’, which isn’t a lexicon Global Economics uses with ease (dominance in essence suggests a form of economic fascism, as opposed to an economically balancing force).
as seen here:
Based on this measure, the dollar still exerts a significant pull over 31 of the 52 emerging-market currencies in their study.
and here we see the effects of lack of stability, not superiority:
But a number of countries, including India, Malaysia, the Philippines and Russia, appear to have slipped anchor since the financial crisis. Comparing the past two years with the pre-crisis years (from July 2005 to July 2008), they show that the dollar’s influence has declined in 38 cases.
and the result is:
the region is now on a yuan standard. Seven currencies in the region now follow the yuan, or redback, more closely than the green (see chart). When the dollar moves by 1%, East Asia’s currencies move in the same direction by 0.38% on average. When the yuan moves, they shift by 0.53%.
read more at the economist