Former Minneapolis Fed Governor writes that "currency union" breakup must be managed
The Chinese yuan is the world's most important currency, at least for financial markets. Since the turmoil in August, it has constantly been in focus. It draws the ire of confused politicians and is seen by all sides as a panacea.
Former Minneapolis Fed Governor Narayana Kocherlakota writes that it will inevitably float freely from the US dollar and the only way to smooth the transition is planning and coordination.
He argues that the Fed must play a key role:
"U.S. and Chinese policymakers must recognize the global importance of their currency union and pursue its inevitable dissolution in a much more collective and deliberate fashion. U.S. monetary policy should be at the top of their agenda: There's a significant risk that if the Fed keeps tightening in 2016, it could force an abrupt break-up. The resultant disorder in the world economy would not serve Americans well"
