Global Economics

In: Other Topics

Submitted By 55tum55
Words 853
Pages 4
Title: Reserve currencies

Question 1: About the video
According to the video, the traditional role of the US dollar as a reserve currency is rapidly changing. This is because: i. The US economy is no longer the leading economy. It has been replaced by the Chinese economy. Currently, the US economy is only 20% of the world’s economy. Furthermore, it does not provide safe and liquid assets required by the global economy ii. Other currencies such as the Japanese Yen have appreciated by more than 30% in the last few years
According to the article, other currencies should come up to share the privilege of being the reserve currency with the US dollar. The Euro, the Japanese Yen and the Chinese Yuan are possible candidates. In fact, the world will be a safer place if other reserve currencies are introduced. However, each potential candidate has its share of problems, which include: i. The Euro has been damaged by the Euro-zone crisis. Consequently, its share in the international reserves has declined tremendously. ii. Demographics in Japan makes the Japanese Yen not a possible candidate iii. For the Chinese Yuan to replace the dollar, China needs to strengthen its banks and financial institutions in order to achieve capital convertibility within five years.
On the other hand, the US dollar has a number of strengths that makes it continue enjoying the privilege of being a reserve currency. These include: i. The US economy is relatively stable as compared to the Euro economy ii. The US banks and other financial institutions within the United States plays a bigger role in financial stability as compared to financial institutions in China, Europe and Japan iii. Low inflation rates in the US. Currently, the inflation rate stands at around 1 percent
Question 2: About the article
Part 1
Financial crises have been a…...

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