In the monetary system organized with US leadership at the end of World War II, currencies were linked to the US dollar, which was linked to gold. The US accounted for over half the world's output of goods and services. By the mid 1950s, all East Asia accounted for only about 4 percent of global output. China's economic reforms began only 30 years ago. By then, the US dollar had begun its decline. Its official convertibility to gold at $35 was suspended in 1971. Today gold is priced in the market at over $1,100, and China's foreign exchange reserves exceed $2.4 trillion.

As the dollar declined over time, US trade deficits increased, challenging economic orthodoxy. Today US debt levels, fiscal deficits and entitlements have climbed to unsustainable levels, leaving the US increasingly dependent on China for credit.

China is under pressure to reduce its trade surplus by revaluing the renminbi - but China is understandably concerned about protecting its investments from a further decline of the dollar. It will appreciate the renminbi in its own good time, as it diversifies its investments and internationalizes its currency. A stronger renminbi would help contain inflation. It would foster domestic consumption and reduce the cost of imports.