Can the euro or Chinese renminbi ever rival the dollar?

As we struggle to come to terms with still-smarting wounds over 9/11, following the poignant 10th anniversary of the attacks, and the seemingly perennial eurozone crisis – Moody's just today having downgraded two major French banks because of their exposure to Greek debt – it is a difficult to lift our gaze and scan the horizon. But as we know, only one thing is certain in life and that is that change marches on regardless. Keeping this in mind, it seems a suitable juncture to ask - is it time for European political and business leaders to start analysing the potential for major fluctuations in currency trading and stability?

For, geopolitical shift is happening and we are in it. As a result of the rise of the east and the decline of the west – the tectonic plates of currency dominance are starting to move in different directions. The dollar, much like the United States itself, seems to be in incontrovertible decline. At the same time, the euro – despite the current problems on the periphery - and the Chinese renminbi may have a future as rival reserve currencies, if their advocates are to be believed.

Bruegel think-tanker Zsolt Darvas has written a thought-provoking piece on the potential "dethroning" of the dollar for PublicServiceEurope.com here. In his analysis, Darvas states: "New countries are emerging in terms of global output. And in about a decade from now - the US, the euro-area and China will have a broadly similar economic power. The world never had such an evenly distributed output before. Gradually, this should lead to a fall in the dollar's role - even though today neither the euro, nor the Chinese renminbi is in a position to challenge the supremacy of the dollar. A multipolar world could emerge, largely due to market forces and national policies, which would be structured around two or three international currencies – presumably the dollar, the euro and the renminbi. "

Meanwhile, Arvind Subramanian of the Institute for International Economics wrote in the Financial Times this week: "The renminbi could displace the dollar, as the premier reserve currency, within the next decade or soon thereafter." There is no doubt the US will do all it can to protect the its pre-eminent place at the top of the world currency order, but any circling of the wagons may be too little too late. Especially, if more oil-rich countries start to reject the dollar for trading in the all-important petroleum market. When the fog of the eurozone crisis eventually lifts, assuming it does, the next task ahead will be to position the single currency strategically on the global stage. Otherwise, Europe could once again be behind the curve.