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The Rise of the Renminbi Is Largely Symbolic

The international role of the dollar
was, at best, a minor footnote to this
Ask yourself: What special privileges does having a reserve currency bring? People who dont work in
international monetary economics
tend to make claims about America
having a unique ability to run trade
deficits, or to borrow in its own currency, or to extract large amounts
of resources from other countries
because of exorbitant privilege,
but none of this is true. At most, the
dollars special role might mean that
the United States has slightly lower
borrowing costs although theres
little evidence of that and a de
facto zero-interest loan from people
holding American currency outside
the country.
And its far from clear that China
will even get these minor payoffs:
Putting the currency in the S.D.R.
should have very little bearing on
the willingness of individuals to hold
the currency in cash, or even to buy
renminbi-denominated bonds.
The economist Maury Obstfeld wrote a nice survey of the
S.D.R. a few years back (here: bit.
ly/1PsozBt), which put things in
perspective. Essentially, the S.D.R.
at present provides a limited credit
line to countries that want to borrow
reserves of actual currencies from
other countries. The basket valuation of the S.D.R. is motivated by
denominational convenience, Mr.
Obstfeld wrote, and can be argued
to be quite incidental (and inessential) to the main purposes.
In other words, this is little more
than a minor change in accounting,
with trivial economic implications.

The International Monetary Fund

has included the renminbi in its
special drawing rights basket and
added a world of hurt to reporters
everywhere now theyll have to
deal with Chinas awkward currency
nomenclature. (As I understand
it, you should use renminbi and
yuan more or less like you use
sterling and the pound; the renminbi is the term for Chinese money
in general, the yuan a denomination
of its notes.)
Its a symbolic event China
is the first developing country to
achieve this status. And if you ask
me, it was a bit rushed: China is big,
but it still has capital controls, which
means that its currency isnt freely
negotiable the way that other major
currencies in the basket are.
How much difference does this
make for the real economy? Almost
Though thats not what you usually hear. A recent commentary
article in The New York Times by the
generally excellent economics correspondent Neil Irwin compared the
rise of the renminbi to the gradual
replacement of the British pound by
the American dollar as the predominant currency for global trade and
finance. He goes on to say that this
development was a crucial piece
of the nations rise to superpower
status. (Read the article here: nyti.
Actually, no it wasnt. The United
States became a superpower because its economy was huge by
1913 the economy was already about
as big as the combined economies
of Western Europe, and it was even
more dominant after World War II.


A Big Political Win

serve currency status has to do with
boosting its regional influence.

Mr. Krugman, I mostly agree

with you, but the interesting question is: Why does China even want
its reserve currency status?
This situation reminds me of
Japans desire to return to the gold
standard in the 1920s. The reasons
put forward by the government
involved prestige and status. However, historians have since identified
Japans far more political, and pragmatic, reasons.
Today, foreign policy observers
believe that Chinas desire for its re-



Miners on their way to begin their shift at the Tahsan coal mine, one of the largest coal mines in China. The International Monetary Fund
recently designated Chinas currency, the renminbi, as a global reserve currency, adding it to the group with the dollar, yen, euro and pound.

with unsustainable current account deficits (such as Mongolia)

will find it easier to replenish their
foreign exchange reserves. This
will only increase Chinas influence
in Africa, Eastern Europe and Central Asia.

Chinese President Xi Jinping is

all about prestige. This action from
the International Monetary Fund is
nothing more than a quid pro quo in
exchange for Chinas cooperation on
terrorism and climate change.

With the renminbi as a reserve

currency, many small countries

The idea that the renminbi

can act as a substantial reserve
currency is laughable, as is the
argument that the United States
became a superpower because of
the dollars status as a dominant
reserve currency.
For years, the Chinese regime has
played desperately at aggressive
international macroeconomics just

so that its officials can keep ahead

of the huge and destabilizing movement of people into Chinese cities
from impoverished rural areas.
Remember that Chinas entire leadership grew up on the philosophies
of Marx, Lenin and Mao. Despite the
views and policies of different individuals and factions, they all share
an analytic framework based on
the prospect of class conflict and an
ever-present revolution.
And a regime that acts in fear of
revolution is a laughable sponsor of a
reserve currency.

and more stable than at any point

since the 1960s.

to minimize the importance of the

issues that everyone else is talking about.

It seems to me that having the

worlds reserve currency puts
pressure on the United States to
carry a negative trade balance.
After all, we are the only country
that can print dollars, so if, say,
Brazil wants Argentina to pay for
hydroelectric power in dollars, there
better be enough dollars out there
for Argentina to do so. A positive
trade balance would shrink the number of dollars available.

The dollar is strong because the

American economy is stronger

Mr. Krugman, you always seem

Mr. Krugman, you write: How

much difference does this make
for the real economy? Almost
none. Thats correct, but you are
missing what all the fuss is about.
For China, this is a big political

Comments have been edited for clarity and
length. For Paul Krugmans latest thoughts
and to join the debate online, visit his blog at



For Trump, Everything Lools Like a Conspiracy

Doubling Down

Greg Sargent at The Washington

Post has lately been driving home the
point that Donald Trump just isnt
vulnerable to typical attacks from the
establishment at least during the
Republican primary. (The general
election might be different.) Catch Mr.
Trump making an utterly false assertion, and his supporters will consider
any pushback to be the liberal media
conspiring against him. And its driving establishment Republicans wild.
But really, why should they be
shocked? Think about what the establishment has to say about other issues.
Lamar Smith, the Republican chairman of the House Science, Space and
Technology Committee, has said that
global warming is a fraud, perpetrated
by a vast conspiracy at the National
Oceanic and Atmospheric Administration, which is itself presumably part of
an even larger global conspiracy within the scientific community. And when
the Obama administration reported
last year that large numbers of people
were signing up for the Affordable
Care Act, leading Republican senators
accused the White House of cooking
the books and Im unaware of any
apology or even acknowledgment that
they were wrong. In 2012, the conser-


vative commentator Rush Limbaugh

even claimed that one of the Batman
films was a conspiracy against Mitt
Romney. And on and on.
So how are base voters supposed
to know that Mr. Trumps claims
that the media suppressed films of
Muslims cheering on Sept. 11 mark
him as crazy, while all the other conspiracy theories on the right are O.K.?
I guess someone could put together

a cheat sheet listing acceptable and

unacceptable tin-hat views, but Mr.
Trump would just call that part of the
conspiracy, and a lot of people would
believe him.
Terror Politics
The conventional wisdom on the
politics of terror seems to be faring
just as badly as the conventional wisdom on the politics of everything.


Confident Lies Are Hard to Quell

The democratic thrust of the
American Revolution fostered the
idea that elected officials should
serve the electorate. The elite leaders of that uprising believed that the
voters, once they had chosen their
leaders, should rely on the superior
wisdom of these men. But this relic
of aristocratic politics could not survive in the political culture created
by the Revolution.
The concept of the sovereignty
of the people convinced voters that
they, not elected officials, knew best
what served the needs of the country, so they frequently punished poli-

ticians who acted too independently.

The tendency of candidates to pander to their constituency, while not
a universal phenomenon, nevertheless runs consistently through the
political history of the United States.
Donald Trump represents the
latest example of this tendency, at
a time when many voters feel that
their government has betrayed their

The Republican Party has fostered a base that is distrustful of

education and the opinions and

facts of outsiders.
The mistrust has been combined
with a mindset built around preserving the status quo. In a rapidly
changing world, they hate Michelle
and Barack Obama, in part, because
they are the poster children for a
United States that is swiftly becoming more racially and culturally
Mr. Trump lashes out at both the
liberals who are blamed for this
transformation and the others
(immigrants) who represent that
loss and change.

Support for Mr. Trump went up, not

down, in public polls after the recent
terror attacks in Paris clearly, Republican voters have not decided to
rally around the serious candidates.
And as Mr. Sargent noted in The Post,
polls suggest that the public trusts
Hillary Clinton as much, if not more,
than Republicans to fight terror.
May I suggest that these developments are related? After all, where
did the notion that Republicans are effective on terror come from? Mainly
from a rally-around-the-flag effect
after Sept. 11. But if you think about
it, President George W. Bush became
Americas champion against terror
because, um, the nation suffered a
big terrorist attack on his watch. The
whole thing never made much sense.
What Mr. Bush did do was talk
tough, boasting that he would get
Osama bin Laden dead or alive. But
he didnt. And guess who did?
So people who trust Republicans on
terror which presumably includes
the G.O.P. base are going to be the
kind of people who value big talk and
bluster over actual evidence of effectiveness. Why on earth would you
expect such people to turn against
Mr. Trump after an attack?

A lie is easy to formulate into a

sound bite. The counterargument
is almost always far more complex.
For instance, when someone
claims that 2+2=5, how do you begin
to attack that lie? Its so obviously
false that you are tempted to ignore
it at first. But once large numbers of
people start to believe it, you have to
play catch-up.

When evaluating the character

of Mr. Trump, Ben Carson, Marco
Rubio, Ted Cruz and the other Republican presidential candidates,
it could be useful to recall some
insightful words from Bertrand Russell: The fundamental cause of the
trouble is that in the modern world

In recent weeks, the Republican presidential candidate Donald Trump has been heavily criticized for making a number of
false statements that some commentators and pundits have argued express racist and nativist sentiments. However, Mr.
Trumps poll numbers among Republican voters have continued
to rise.
Mr. Trump is once again the
front-runner for the partys nomination, holding wide leads in
both national surveys and polls
in early primary states. Additionally, his support seems to have
strengthened in the wake of last
months terror attacks in Paris.
Following the attacks, Mr.
Trump reiterated his belief that
no Syrian refugees should be allowed to relocate to the United States, and warned that they
could constitute a Trojan horse
plot. Mr. Trump suggested that
these refugees, and perhaps Muslims in general, should be registered in government databases.
He has also claimed that Pres-

the stupid are cocksure while the

intelligent are full of doubt.

Our news media has become so

entertainment-focused that Mr.
Trumps outrageousness is precisely what keeps him at the forefront of the race.

People need their daily dose of

outrage. They are addicted to it
like a drug, and the drug dealers
are everywhere. Anyone who wants
to get elected and has nothing to offer sells outrage to get attention. And
any media outlet that doesnt want
to do the hard work to find the truth
sells outrage to stay in business.

ident Obama wants to allow

250,000 Syrian refugees into the
country, even though the president has committed to just 10,000.
Mr. Trump also recently
claimed that he saw thousands
of thousands of people cheering in New Jerseys predominantly Muslim communities after the
attacks of Sept. 11, 2001, in New
York. When confronted with evidence that no such celebrations
occurred, neither Mr. Trump nor
his campaign would admit to a
Trumps big insight is not simply that the details dont matter,
the political commentator Greg
Sargent wrote recently in The
Washington Post. Its that getting mired in the details is itself a
sign of weakness. ... Trumps supporters have been persuaded that
he will be a strong leader. Once
that decision has been made, any
liberal media fact-checking of
Trumps statements, particularly criticisms that seem politically
correct, only confirm that original impression.

Paul Krugman
joined The New
York Times in 1999
as a columnist on
the Op-Ed page
and continues
as a professor of
economics and
affairs at Princeton
University. He was awarded the
Nobel in economic science in 2008.
Mr. Krugman is the author or editor
of 21 books and more than 200
papers in professional journals and
edited volumes. His latest book is
End This Depression Now!