3 ms·
> It's not as simple as just being in existence. There's > alot of 'trust' to it too, Countries could easily > diversify against the USD on their rese
by runeks 10y ago
> It's not as simple as just being in existence. There's
> alot of 'trust' to it too, Countries could easily
> diversify against the USD on their reserve baskets. The
> CNY isn't a significant proportion of any basket
> because of the lack of trust & free liquidity with it.
I'm not quite sure what you're referring to here. What are countries' "reserve baskets"?
Central banks hold bonds as assets on their balance sheet, not medium of exchange. These assets are what the medium of exchange is issued against in the first place. I'm arguing that it is not possible for foreign central banks to just choose to switch out US Treasury bonds with Chinese government bonds, because the Chinese bonds have terrible liquidity -- and bond liquidity isn't particularly good in times of crisis to begin with.
- akhatri_aus 10y agoCentral Banks usually have to hold reserves of other countries currencies, or more generally a basket of reserves that it can use with another Central Bank for the purposes of trade or moving capital beyond the border. Say I buy a container of iron ore from Australia from the US, the process needs money to flow to Australia. In this flow the Federal Reserve would provide to the Reserve Bank of Australia (RBA) some of the assets in this currency basket to back its claim, it simply says the RBA is owed that (and subsequently the RBA can use that against USD trade, or use that against some other trading partner). So this way that the person I buy ore from in Australia has his credit in his account backed by something intrinsic (owed to him by the RBA, owed to the RBA by the Fed). No money has really flowed between countries, just the Fed owes the RBA assets in this currency basket as a result. This communication is done using the Bank for International Settlements which allows these reserves to be exchanged between other countries when they trade amongst each other. Hence it's important the basket contain assets that are universally acceptable and can store value. It used to be Special Drawing Rights, and before that Gold. The Federal Reserve's gold hoard is also amongst this basket. The terminology remains from the basic function of exchange accounting under the Bretton woods system, in principle using fiat instead of Gold. This method was devised to avoid countries having to ship gold to each other. They could simply owe it to another Central Bank and trade against that. The bonds are stored in a different form as part of their monetary policy, the functions in this sort of basket is part of the Fed's function with international settlements.
- redcalx 10y agoI'm increasingly of the opinion that bitcoin has all the qualities required for international bank transfers and settlements.