[The International Monetary] Fund should focus its surveillance on the systematically important countries issuing major reserve currencies. The frequent outbreak of crises since the collapse of the Bretton Woods system indicates that the fundamental weakness of the international monetary system lies in its undue reliance on a single currency.
The upward pressure on the renminbi in the early twenty-first century arose in the midst of generalized dollar weakness. Sharp interest rate reductions by the US Federal Reserve after September 11, 2001, coupled with mushrooming US current account deficits, were met by a decline in the value of the US dollar against most major world currencies from 2002 onwards. Subsequent Federal Reserve rate hikes were insufficient to more than temporarily suspend the dollar downturn in 2005, and dollar depreciation quickly reaccelerated in the face of continued record US trade deficits and new Federal Reserve rate cutting initiated in the second half of 2007. Whereas a past major devaluation of the dollar in 1933–1934 has itself been seen as a key policy shift that permitted sufficient monetary expansion to reverse deflation pressures in the 1930s (Bernanke, 2002), its impact is remembered more negatively in China – where it put great pressure on the economy and induced a monetary regime change that facilitated an ultimately disastrous inflationary spiral (see Chapter 5). Dollar depreciation is certainly not an official goal today.