The yuan is displacing the dollar as a key currency

Sure the next 5-10 years might be worse for the Euro, but for things like a global reserve currency one should think in 50+ year frames anyway...

but "...with interest rates near 0%...", one would expect a great deal of activity in dollars.

>each center, when it was at its peak, was a place where foreign merchants felt safe and comfortable.

And talking about foreign merchants feeling safe and comfortable, did you ever ask how the American Indians felt as the US become an economic empire, or how comfortable it was for non-europeans to do business in the European colonies? Yes, London allowed a few traders from it's colonies but they worked damn hard to make sure the colonies didn't industrialize. India in particular become deindustrialized under British rule - all of India's cotton mills were packed up and send to Manchester, and the production of cloth forbidden. Even relatively small things like the production of salt in India was forbidden so British salt could be exported to India.

The majority of foreign merchants weren't even allowed to participate in British markets and were violently suppressed if they tried to. This world you speak of - where economies grew because they set up such nice and comfortable places to do business in - never existed.

You say China isn't open to business - why then is the entire Fortune 500 doing business in China and increasingly shifting more and more of their manufacturing there? There is cost, but there is also the fact that besides cost, as Steve Jobs told Obama, the expertise, supply chains and capability is shifting to China.

If you read any recent works on China, like the recent one on China by Dambiso Moyo - she makes the point that China is better at doing business with developing countries than America. http://www.dambisamoyo.com/

>Do foreign merchants feel they can make deals as equals with the native Chinese merchants?

This is exactly the point she addresses, and most African and many developing Asian countries are increasingly favoring dealing with Chinese. The Chinese pay more for resources, build useful infrastructure, and provide much needed goods at affordable prices - all things which are increasingly making it an essential part of the economic center in much of the world.

As a foreigner, I feel somewhat qualified to answer that question.

No. Categorically, no.

Economic orthodoxy asserted that an opening of the Chinese economy and FX regime necessarily precede yuan internationalisation. Observing currencies (and implicitly capital flows) moving in concert with the yuan absent those steps suggests a back-door route to internationalisation distinct from the traditional IMF/B-W path (and thus off the radars of the American and European financial centres).

Given that currencies and capital markets are in large part a confidence game, i.e. punctuated equilibria versus smooth progressions, seeing premature, and more shockingly shadow, internationalisation is profound.

  "But I am saying that the next center will be open to the 
  world, in the same way that previous economic centers 
  were."

However, the stronger point that comes from your comment is that the USA needs to look at how it is drifting from a place where foreign merchants can gather safely and trade freely, and how that will certainly affect the future prosperity.

And you'll note that Japan has had a much, much higher debt-to-GDP ratio for quite some time, but has had sluggish growth throughout. The U.S. debt-to-GDP ratio was higher during WWII.

The main reason for this reply is that we shouldn't be cutting spending right now. Governments should be running deficits during recessions. For proof of how poorly cutting your way to growth works, take a look at most of the countries in the E.U. (and no, we are not on our way to Greece. It's a horrible analogy. Greece was on the Euro, not their own currency. Their goods, therefore, are not competitive. So rather than external devaluation, a weak currency, high inflation, they're having internal devaluation, people have to accept lower living standards).

Interestingly enough, the largest area of long-term debt growth is health care costs (medicare and medicaid). The Bush tax cuts are number 3 or 4. The ACA takes some initial steps in order to slow the growth of Medicare and Medicaid. The Ryan plan does, too, but by moving the cost to the elderly.

Also, it is mathematically as much a problem of not raising revenue as it is a problem of cutting spending. Strange that you did not mention this.

It isn't at all obvious that the level of the national debt is the only issue influencing the dollar's usage as a reserve currency.

This sort of deleveraging would suck too much money out of the economy. We are barely hanging on borrowing a trillion dollars a year.

The most likely scenario: minimal economic growth and near-zero interest rates for the foreseeable future.

> Special drawing rights were created by the IMF in 1969 and were intended to be an asset held in foreign exchange reserves under the Bretton Woods system of fixed exchange rates. After the collapse of that system in the early 1970s the SDR has taken on a far less important role.[5] Acting as the unit of account for the IMF has been its primary purpose[Williamson 1] since 1972.

> Private parties do not hold or use them.

Not exactly new developments: http://news.google.com/newspapers?nid=1828&dat=19801006&...

The Yuan isn't really a publicly traded currency which is why it's interesting, I guess.

http://en.m.wikipedia.org/wiki/Bretton_Woods_system