China May Be the Biggest Economy but Its Currency Falls Short as the Standard for Global Transactions

Expert Pitch

Steven C. Kyle, an expert in macroeconomics and government policy and an economics professor at Cornell’s Dyson School of Applied Economics and Management, says as long as China continues to have controls on capital movements, their currency will never be the standard for global transactions.

Kyle says:

“Though China's averaged standard of living remains far below that of the average American, China's population is so big that they have now surpassed us as the world's largest economy. This has long been foreseen as China's growth trends have continued upward for many years. Though China is a major exporter to the U.S., it is not yet as big a market for U.S. exports as its size might lead one to believe – but that too eventually should happen though it would take a mighty brave economist to forecast when.

“As for China pushing to make its currency the standard for global transactions – they can push but it is up to the rest of the world to actually agree and use their currency – and that seems unlikely in the near future. The relative value of currencies depends not on whether they are used for transactions but whether they are used as a store of wealth. U.S. Treasury bonds remain the preferred vehicle for world investors, particularly in times of financial uncertainty. As long as China continues to have controls on capital movements they can never hope to take over this role.”


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