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From Financial Crisis to Global Recovery$
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Padma Desai

Print publication date: 2011

Print ISBN-13: 9780231157865

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231157865.001.0001

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The Dollar’s Future as a Reserve Currency

The Dollar’s Future as a Reserve Currency

(p.173) 7 The Dollar’s Future as a Reserve Currency
From Financial Crisis to Global Recovery

Padma Desai

Columbia University Press

This chapter analyzes the relationship between Chinese and U.S. monetary policy. It specifically looks into the nations' partnership during the global financial crisis when both nations were at an impasse. The monetary policy of the U.S. Federal Reserve is supported by the saving inflows from China, who invested the country's dollar earnings (from export surpluses) in U.S. Treasury bonds. However, due to the crisis, the U.S. was left with an unsustainable housing bubble, leading to the renminbi, the Chinese currency, to depreciate due to burgeoning export surpluses. Chinese authorities were therefore left to decide on whether or not to appreciate the renminbi. Appreciating it would serve U.S. interests as China would send fewer exports to the U.S. and deprive fewer Americans of their jobs. On the other hand, the Chinese commerce ministry, which is in charge of exports and imports, disapproves of the motion as it would impair the export and domestic import-substituting sectors of the nation.

Keywords:   Chinese monetary policy, U.S. monetary policy, global financial crisis, Federal Reserve, U.S. Treasury bonds, renminbi, housing bubble

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