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If the renminbi is as shaky and dangerous as Martin Wolf argues, why was it made part of IMF’s SDRs in October 2016?

Thursday, April 6, 2017 16:44
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Sir, Martin Wolf writes: “US policymakers should worry about China’s capital account, not its current account. That is where danger now lies… Given its macroeconomic imbalances, China could unleash considerable global mayhem… Capital would pour out, the renminbi would tumble and, in time, a globally unmanageable current account surplus would emerge…Today’s credit growth and consequent financial fragility are a direct consequence of the desire to prevent this from happening” “Chinese finance is storing up trouble” April 6.
Aha! And so what do we do? And so what does Martin Wolf suggest President Trump does when meeting his Chinese counterpart Xi Jinping in Florida this week?
Is all this just another excuse to lash out at Trump, in this case Trump’s concerns with the deficits in the trade account, those deficits that Wolf strangely seems to argue are totally disconnected to the capital accounts. In truth all this about “the macroeconomic imbalance” reads just like pure vintage Wolf. 
He for instance insists with a “China’s external accounts already played a significant role in the run-up to the financial crisis of 2007-08.” Significant perhaps but still much smaller than the role the distortions produced by Basel’s risk weighted capital requirements for banks played… like for AAA rated securities and Greece
But Sir, we should ask, where was Martin Wolf when, on October 1, 2016, the IMF made the renminbi part of its Special Drawing Rights… and thereby de facto awarding it a reserve currency status? Was that not a much more important moment for Wolf to step forward and opine, than a meeting at a Mar-a-Lago in Florida this week?
PS. Of course, Trump is Trump, and we should never completely ignore the possibility he will try to arrange a financial conference that could give to Mar-a-Lago the same type of historic fame that the Bretton Woods Conference awarded the Mount Washington Hotel. (What hotel owner would not love that?)


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