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The Future of International Liquidity and the Role of China

<p>An employee counts Renminbi banknotes at a branch of Bank Of China in Changzhi, Shanxi province on March 31, 2009.</p>
An employee counts Renminbi banknotes at a branch of Bank Of China in Changzhi, Shanxi province on March 31, 2009. (Stringer - China Business/Reuters)
  • Alan M. Taylor
    Souder Family Professor of Arts and Sciences, Department of Economics, University of Virginia

Overview

Financial crises in the 1930s and 1970s showed the world that economic instability results when demand for international liquidity allows a small number of countries to run up massive debts in their own currencies. Named for the economist who first described the scenario in the 1960s, this “Triffin Paradox” threatens the global financial system again today as demand for reserves has skyrocketed among emerging market economies. In this Center for Geoeconomic Studies Working Paper, produced in association with CFR’s International Institutions and Global Governance program, Professor Alan Taylor considers whether China might play a larger role in stabilizing the world economy by supplying a reserve asset of its own—an internationalized renminbi.t

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