A strong dollar: help or harm?

Area of Science:

• International Finance
• Monetary Policy
• Global Economics

Background:

• The internationalization of the Chinese Renminbi (RMB) is progressing, yet faces significant hurdles.
• The US dollar's strength is linked to sound economic policies and fundamentals.
• Global economic competitors like Europe, Japan, and China currently lack the strength to challenge the US dollar.

Purpose of the Study:

• To analyze the factors contributing to a strong national currency.
• To evaluate the potential of the Renminbi to become a major global reserve currency.
• To assess the impact of US and Chinese economic policies on currency strength and international order.

Main Methods:

• Qualitative analysis of economic policies.
• Review of international financial trends.
• Comparative assessment of major global economies.

Main Results:

• Obstacles to Renminbi internationalization include capital controls, exchange rate management, and financial repression.
• The phase one trade deal with China has unrealistic targets.
• Protectionist US policies could increase upward pressure on the US dollar.

Conclusions:

• A strong currency is in the national interest, supported by strong policies and fundamentals.
• China is not rapidly building the foundations necessary for the Renminbi to become a major international currency.
• The US dollar is likely to remain strong due to its sound policies and the relative weakness of competing economies.