“Looking forward, IMF projections imply that the dollar zone will return to the sizeable deficits that were last seen in the mid-1980s. On this view, the dollar zone current account deficit would be larger than it has been since the euro came into existence 20 years ago. On current evidence, if the renminbi becomes a key currency, it would carry a substantial share of global GDP out of the dollar zone. This would leave the dollar zone deficit all the wider.” ~ Hiro Ito and Robert N McCauley
BIS Working Papers No 762 A key currency view of global imbalances by Hiro Ito and Robert N McCauley Monetary and Economic Department Bank of International Settlements
This working paper contributes to a growing body of work that breaks free of the “triple coincidence” often assumed in international finance. A currency’s domain does not coincide with the borders of the jurisdiction that issues it. Instead, key currencies enjoy global use. A key currency perspective can change how global imbalances look to economists, policymakers and market participants.
Chinese Yuan: offshore (CNH) and onshore (CNY)