The future of the dollar and China's expanded role as a global economic power to be reckoned with will be in the spotlight as Chinese President Hu Jintao meets with President Obama at the White House on Wednesday.
In a rare interview, Hu signaled in written responses to questions from TheWall Street Journaland TheWashington Post that China regarded the current dollar-dominated international monetary system as a "product of the past."
For perspective on Wednesday's summit meeting, AdvisorOne spoke with David Malpass (left), principal of economic consulting firm Encima Global and a former chief economist of Bear Stearns who has held senior positions in the Treasury and State departments. Malpass is the author of a recent policy paper on China's growth outlook.
Is the yuan on its way to becoming an international reserve currency?
I don't think the yuan will supplant the U.S. dollar, but it's already being used more in cross-border trade, for example with Russia.
Does the U.S. want this?
The U.S. has encouraged China to make the yuan more convertible, meaning investors can buy it and sell it more readily.
So what's the issue?
China has been moving in the right direction. So the issue is whether it could move faster. Recall that in the 1990s, several Asian countries made their capital accounts convertible, and that was one of the causes of the Asia crisis. They moved too fast toward convertibility without having the banking regulation in place [beforehand].
