Tuesday, March 17, 2009


Niall Ferguson, that British historian now a Harvard professor, invented this unpronounceable word, Chimerica, to mean China and America are joined at the hip. The focal point is the inability of China to switch out of US Treasuries and, hence, out of US$. If China were to do so, it would depress both the price of Treasuries and the dollar hurting its own self-interest. A senior Chinese official said publicly "I hate you" for precisely this reason of Chimerican helplessness.

Don't laugh too soon. The history of economics suggests that alternatives could always be found or invented -- given time.

No country, especially China being the single largest creditor country to the US, with unmistakable geopolitical ambitions would want to remain stuck in this Chimerican dilemma. The greenback may remain strong today since it is the only reserve currency, but will it remain so forever?

I would bet China will now accelerate its financial reforms to enable its own currency, the RMB, to become a credible reserve currency in the not too distant future. 10 years max? The downfall of Wall Street should mark the beginning of the end of the supremacy of the US Dollar.

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