China’s currency, the renminbi (RMB), will probably not supplant the US dollar as the world’s reserve currency, except possibly “in the very long term,” the Davos summit has been told.
Speaking at the World Economic Forum's annual meeting, Professor Lawrence Summers, of Harvard University, says while the RMB will continue to internationalise, “the centrality of the dollar is unlikely to change in a major way.
Professor Summers, who is also a former Secretary of the US Treasury, says, “just as there is a basic inertia in languages of communication, there’s a basic inertia in mediums of exchange.”
John Zhao, the chief executive officer of Hony Capital, however, expects freer exchange of the RMB “will come much sooner than most of us expect.”
He cites Chinese Communist Party chairman Xi Jinping’s recent trip to Shenzhen, during which he visited Qianhai, a special zone set up for experimentation in RMB internationalisation, as a sign of China’s intent to globalise its currency.
Professor Summers also spoke of “the reality that China holds some trillions of dollars of liquid financial assets around the world, on which it is earning an extremely low rate of return, while at the same time there are important shortages of investments in key sectors of the world.”
Huge amounts of capital flowing from poorer countries to richer countries is “unprecedented territory”, he says, and will require important deliberations.