As a thought experiment, let us consider the size of China's economy and its growth potential compared to that of the USA.
China 2008 GDP $7.80 Trillion (PPP from CIA – World Factbook)
US 2008 GDP $14.29 Trillion (PPP)
US 2007 GDP $14.11 Trillion (PPP)
US 2006 GDP $13.83 Trillion (PPP)
If we project a growth rate of 7% for China, based on the past few years performance, for the next 9 years, GDP rises to $15.34 Trillion
If we project a growth rate of 1% for the US, (except for a 2% contraction in 2009) based on an expectation of economic stagnation, for the next 9 years, GDP rises to $15.32 Trillion
According to these calculations, it would appear that China's economy will exceed the value of the United States by 2018.
If this occurs, and the Chinese move to a convertible currency, continued US dollar dominance as the world's reserve currency would be unlikely, in my view.
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