China will shy away from the dollar, causing a collapse for the U.S. currency, predicts Andy Xie, an independent economist who was formerly chief Asia Pacific economist for Morgan Stanley.
The U.S. government’s move to inflate itself out of recession is “pushing China towards developing an alternative financial system,” Xie writes in the Financial Times.
“For the past two decades China’s entry into the global economy rested [partly] on … pegging the renminbi to the dollar,” he explains.
“The dollar peg allowed China to leverage the U.S. financial system for its international needs, while domestic finance remained state-controlled.”
Xie writes, “This dual approach has worked remarkably well. China could have its cake and eat it too.”
But China knows it must one day become independent of the dollar.
“Its recent decision to turn Shanghai into a financial centre by 2020 reflects China’s anxiety over relying on the dollar system,” Xie explains.
“The year 2020 seems remote,” he points out.
“However, if global stagflation takes hold, as I expect it to, it will force China to accelerate its reforms to float its currency and create a…market-based financial system.”
Result: “The dollar will collapse,” Xie says.
Others don’t expect the dollar to go away so quickly. China recently proposed that the IMF’s special drawing right replace the dollar as the world’s reserve currency.
The SDR is “basically the Esperanto, at best, of international currencies,” Harvard economist Jeffrey Frankel told The Wall Street Journal.
© 2017 Newsmax. All rights reserved.