Renminbi Rules: The Conditional Imminence of the Reserve Currency Transition

33 Pages Posted: 17 Sep 2011

See all articles by Arvind Subramanian

Arvind Subramanian

International Monetary Fund (IMF); Center for Global Development

Date Written: September 15, 2011


Against the backdrop of the recent financial crisis and the ongoing rapid changes in the world economy, the fate of the dollar as the premier international reserve currency is under scrutiny. This paper attempts to answer whether the Chinese renminbi will eclipse the dollar, what will be the timing of, and the prerequisites for this transition, and which of the two countries controls the outcome. The key finding, based on analyzing the last 110 years, is that the size of an economy – measured not just in terms of GDP but also trade and the strength of the external financial position – is the key fundamental correlate of reserve currency status. Further, the conventional view that sterling persisted well beyond the strength of the UK economy is overstated. Although the United States overtook the United Kingdom in terms of GDP in the 1870s, it became dominant in a broader sense encompassing trade and finance only at the end of World War I. And since the dollar overtook sterling in the mid-1920s, the lag between currency dominance and economic dominance was about 10 years rather than the 60-plus years traditionally believed. Applying these findings to the current context suggests that the renminbi could become the premier reserve currency by the end of this decade, or early next decade. But China needs to fulfill a number of conditions – making the reniminbi convertible and opening up its financial system to create deep and liquid markets – to realize renminbi preeminence. China seems to be moving steadily in that direction, and renminbi convertibility will proceed apace not least because it offers China's policymakers a political exit out of its mercantilist growth strategy. The United States cannot in any serious way prevent China from moving in that direction.

Keywords: Reserve Currency, Dollar, Sterling, Renminbi, China

JEL Classification: F02, F31, F33

Suggested Citation

Subramanian, Arvind, Renminbi Rules: The Conditional Imminence of the Reserve Currency Transition (September 15, 2011). Peterson Institute for International Economics Working Paper No. 11-14, Available at SSRN: or

Arvind Subramanian (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Center for Global Development

2055 L St. NW
5th floor
Washington, DC 20036
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics