If the renminbi is as shaky and dangerous as Martin Wolf argues, why was it made part of IMF’s SDRs in October 2016?

Sir, Martin Wolf writes: “US policymakers should worry about China’s capital account, not its current account. That is where danger now lies… Given its macroeconomic imbalances, China could unleash considerable global mayhem… Capital would pour out, the renminbi would tumble and, in time, a globally unmanageable current account surplus would emerge…Today’s credit growth and consequent financial fragility are a direct consequence of the desire to prevent this from happening” “Chinese finance is storing up trouble” April 6.

Aha! And so what do we do? And so what does Martin Wolf suggest President Trump does when meeting his Chinese counterpart Xi Jinping in Florida this week?

Is all this just another excuse to lash out at Trump, in this case Trump’s concerns with the deficits in the trade account, those deficits that Wolf strangely seems to argue are totally disconnected to the capital accounts. In truth all this about “the macroeconomic imbalance” reads just like pure vintage Wolf. 

He for instance insists with a “China’s external accounts already played a significant role in the run-up to the financial crisis of 2007-08.” Significant perhaps but still much smaller than the role the distortions produced by Basel’s risk weighted capital requirements for banks played… like for AAA rated securities and Greece

But Sir, we should ask, where was Martin Wolf when, on October 1, 2016, the IMF made the renminbi part of its Special Drawing Rights… and thereby de facto awarding it a reserve currency status? Was that not a much more important moment for Wolf to step forward and opine, than a meeting at a Mar-a-Lago in Florida this week?

PS. Of course, Trump is Trump, and we should never completely ignore the possibility he will try to arrange a financial conference that could give to Mar-a-Lago the same type of historic fame that the Bretton Woods Conference awarded the Mount Washington Hotel. (What hotel owner would not love that?)

PS. Frankly, how can a country that blocks a search engine like Google has its currency included in IMF's SDRs?

If it isn’t totally broke, don’t tinker with it too much.

Sir Martin Wolf argues many reasons for “Why agreeing a new Bretton Woods is vital” November 4, but, given that one of the fundamental pillars of our whole financial system, namely the market’s confidence in the dollar, is in fairly good shape, if only perhaps because of lack of confidence in anything else, we should at least be very careful not to tinker too much with something that might not be that broken.

Of course there are some precautionary or corrective measures. Among these and in reference to when Wolf says “Keynes would be horrified that the world has let the genie of free capital flows out of the bottle” I have always considered that slowing down somewhat the capital movements around the world, with some type of there’s-no-need- to-so-much-rush-tax, would help us to avoid some of the stampedes and therefore benefit us all, in a systemic way.

We also should not forget that besides the financial system there are some other very serious unresolved issues that limit our current growth possibilities, like the environment and energy. Had for instance some emerging countries not accumulated reserves, and invested them in US public debt, and pushed instead their on the margin much more energy intensive domestic growth, we would perhaps have seen oil well over 200 dollar per barrel. In this respect, more than a new Bretton Wood, we need to decrease the consumption of oil in the developed countries, so as to open up the growth possibilities for the developing world that do not destabilize the whole world.

As to the huge foreign currency reserves of emerging countries let us not forget that the real danger with them is not so much their size but that they are controlled by so few government officials. Had these reserves belonged to many millions of citizens instead, it would then have been called capital flights, and they would have been pursued without clemency.

And then of course one of the most vital what to do’s, is to get to the bottom to why the world was not able to react when it knew or should easily have known, that things were heading in the wrong directions. In other words… where were Martin Wolf’s many influential economists when they were sorely needed?