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>>In June, the European Central Bank announced that it had exchanged €500 million ($611 million) worth of US dollar reserves into yuan securities. This was a sm

>>In June, the European Central Bank announced that it had exchanged €500 million ($611 million) worth of US dollar reserves into yuan securities. This was a small shift—the ECB has €44 billion in foreign exchange reserves Before declaring fall of USA, blaming Trump for apocalypse and anointing Xi as the new Emperor, lets take step and really see the numbers. $611 million is a marginal amount when we are talking about foreign reserves, its sure not nothing, the Germans are basically telling Americans hey look what we can do here. Its a passive aggressive move but mostly symbolic. If they buy more Yuan, and Yuan to Dollar exchange rate gets effected. Walmart needs to shop somewhere else because Chinese goods are not cheap any more.

foepys 9y ago
I don't see anything passive aggressive in this. America's foreign policy is being criticized openly and showing that other countries don't necessarily only need the US-Dollar is an extension of that.
dogma1138 9y ago
Europe can buy all the yuan in the world and it won’t have any effect. The exchange rate between the dollar and the yuan is set by the rate at which China is buying US debt not by the global markets. China prints money to buy US debt it allows China to devalue its own currency without devaluing its assets and this deal allowed the US to pretty much generate as much currency as they want through cheap debt without devaluing it. The only thing that would affect Walmart is a tariff war with China, Europe can huff and puff all it wants but it isn’t a relevant player in this specific scenario.
- NicoJuicy 9y ago
  That's rude... Source? It's definitely not the CIA Factbook: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html https://www.cia.gov/library/publications/the-world-factbook/... Takeaway: EU GDP > America GDP ( don't forget, also the Euro vs USD rose since the start of 2018) ;)
  - dogma1138 9y ago
    The GDP of Europe is irrelevant for this scenario the monetary relationship between the dolllar and the yuan isn’t like most currencies. Until 2005 it was pegged to the dollar completely since then it’s effectively pegged to the rate at which China buys dollar bonds.
    - NicoJuicy 9y ago
      Do you have a source or reference where i can get a deeper information/knowledge about the relationship between the dollar, yuan and bonds?
      - dogma1138 9y ago
        This isn't something that can be put into a single paragraph, the top 3 results from Google seem to provide decent sources of information https://www.thebalance.com/dollar-to-yuan-conversion-and-history-3306089 https://www.thebalance.com/dollar-to-yuan-conversion-and-his... https://www.thebalance.com/how-does-china-influence-the-u-s-dollar-3970466 https://www.thebalance.com/how-does-china-influence-the-u-s-... https://www.cluteinstitute.com/ojs/index.php/IBER/article/download/3152/3200 https://www.cluteinstitute.com/ojs/index.php/IBER/article/do... However I haven't read them thoroughly, so I suggest you invest some time in doing some research. P.S. I really hate this source/citation discourse that is effectively taken over every debate on the internet opinions can be constructed out of vast amounts of information and experience and even casual observations tend to be the product of much more information that can be distilled into bit size pieces. Just do research and learn, stay away from wikipedia and go for academic and sources and don't shy from even biased opinion pieces as those tend to be some of the most valuable as they expose you to concrete positions and being wrong or right does not change their value.
        ethbro 9y ago
        Unfortunately, what you suggest is a circular set of actions. Why would I read comment sections if I'd already had the time and been able to find high quality sources to learned about the topic? If you don't feel like citing sources, or don't have any good ones handy, saying so is fine. But even providing the right terms to search can be helpful!
- dmichulke 9y ago
  > Europe can buy all the yuan in the world and it won’t have any effect. That is entirely wrong. There is only a limited amount of Yuan, so by definition the supply of Yuan is affected, no matter in which currency it is bought. Therefore, the price is affected as well. Will wheat in USD get more expensive if I buy all your wheat with Ruble? You bet it will.
  - Symmetry 9y ago
    The amount of Yuan isn't literally infinite but China can print new Yuan a lot faster than Europe can buy it up and, in practice, would absolutely need to in response to extra European demand so as to not suffer from a deflation induced depression.
    - gcb0 9y ago
      the amount EU can buy increases as they print more Yaun. not the other way around as you suggested on the first sentence.
  - dogma1138 9y ago
    The supply of the Yuan is controlled by China, but In this case the limit isn't the available supply of the Yuan at all. For Europe to buy Yuan it needs to exchange something for it, usually another currency likely in this case the dollar rather than EUR. The hard limit is more on how much EUR does China wants to hold and how much USD Europe is willing to spend on buying Yuan. Beyond that you also go into the realm of would China allow Europe to hold large amounts of Yuan, countries tend to be protective of their currency and restrict any single entity from holding amounts large enough to do substantial damage if dumped. Basically they would allow you to buy enough currency for them to benefit but not enough for you to hold it over their head.
- freeflight 9y ago
  > China prints money to buy US debt it allows China to devalue its own currency without devaluing its assets and this deal allowed the US to pretty much generate as much currency as they want through cheap debt without devaluing it. So China is printing money to buy up the debt generated by the US printing money? I'm not an economist, but that does not sound like a reasonable way for a world economy to run on.
  - dogma1138 9y ago
    Things are much more complicated than this, but essentially China as a primary exporter wants to keep the value of it's currency as low as possible since the exporters then benefit on exchange rates. It also wants stability so it basically pegs the Yuan to the dollar, historically directly and more recently in directly (the Chinese central bank sets more or less of a fixed exchange rate but it does allow it to deviate somewhat these days). Now to prevent the Chinese economy from being effectively run on and by foreign currency China heavily restricts the ownership and settlement in foreign currency internally. It basically forces the exporters/manufactures to exchange the foreign currency they paid in (usually USD) back to Yuan for any internal use (or alternatively if you want to do business in china you basically have to exchange your currency in Yuan it's the same thing). It then uses that surplus of foreign currency to buy other assets, primarily dollar bonds such as US treasury bonds which basically brings back all those dollars that came from the US and everywhere else in the world back to the US. And even this is like very very basic overview of things. On some level the US economy or at least the dollar economy is basically based on the fact that the dollars used in international trade have to come back to the US. Basically you buy dollars from the US, you use those dollars to buy something e.g. goods from China then those dollars go straight back to the US in exchange usually for "cheaper" dollar bonds. The debt economy a side the scheme is when viewed on a global scale is almost like you never actually own a dollar you simply rent it out.
    - gcb0 9y ago
      but isn't buying bonds only useful if you want to return those USD with the prospect of getting more back later on (ideally above inflation)
- Symmetry 9y ago
  You could make the claim that China was devaluing its currency in 1995 but since then the Yuan has been gaining in value relative to the dollar.[1] I think that became a talking point back when it was true and people have just been repeating it ever since without reexamining. [1]http://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate-historical-chart http://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate...
  - dogma1138 9y ago
    Those aren't mutually exclusive, this isn't as bad as the "currency wars" of the mid 90's where the US wen't crying all the time to the WTO about China at least publicly. But China very much still controls the exchange rate of the Yuan to the dollar and still devalues it's currency in order to boost exports.
    - Symmetry 9y ago
      How can you say China is devaluing its currency to boost when the price of the currency is increasing in dollar terms? And generally speaking you can't keep exports inflated for long by currency devaluation any more than you can use inflation to keep unemployment low. In the end the trade balance will revert to what you'd expect from the savings rates of the two countries, and in this case China's higher savings rate means it exports a lot more to the US than vice versa.
      - jessaustin 9y ago
        Clearly GP means that the price would be increasing more quickly without the hypothesized devaluation. Like most economic questions, this isn't binary.
- cryptonector 9y ago
  China could abandon mercantilism, or the U.S. as its main export market. That would have an effect for sure.
- olefoo 9y ago
  Did somebody say tariffs and trade wars? http://www.bbc.com/news/business-42784380 http://www.bbc.com/news/business-42784380 Not to mention which the post-world-war-II international order is falling apart politically which suggests there will be a monetary realignment in the not too distant future. This isn't a big deal because of the relative size of the flow; it's a big deal in the way that a dam suddenly spouting water around the edges is a big deal.
slivym 9y ago
This is kind of ridiculous. The purpose of reserves is not to send political messages. It's to provide a mechanism to manage monetary policy and it does that through buying back its liabilities. To do this effectively you must hold a strong currency as your reserve- there's no point holding Zimbabwe dollars. So any reasonable reserves for a European country today will be part Dollar, Pound, Yen and Yuan. How much of each should be proportional to how stable that currency is and how highly correlated it is to your own currency. This is not a political message, the ECB is just neutrally moving more towards Yuan as the Chinese economy gains importance relative to the US economy. That's all. It's not a good sign for the US, but the ECB has better ways to send political messages than buying $X00m dollars or Yuan.
- tylerhou 9y ago
  > It's not a good sign for the US IMHO this isn't necessarily true. A weaker dollar could mean stronger exports.
  - PietdeVries 9y ago
    Exports of what? iPhones? These are all made in China, and with the dollar dropping against the Yuan, anything the US imports from China (and also from Europe) will be getting more expensive. And with the dollar dropping, bonds in dollars will be less interesting for investors. Basically, the article suggests that where Trump is aiming to MAGA, the entire opposite seems to happen: the rest of the world accellerates where Trump hits the breaks. Take the example of solar panels: what good will this do to the US? It will make solar-companies doing less research as the Chinese competition is gone. It will impact consumers, and the environment. But it will hardly impact the Chinese - their export will be used internally and in Europe. Edit: yeah - the Europeans make cars... Volkswagen is the second largest in the world, after Toyota. Daimler (Mercedes) is fourth. Apparently, the top-16 based on revenue includes only 3 American companies...
    - swarnie_ 9y ago
      Do you make any cars which are viable in Europe?
vonnik 9y ago
This is bad reporting. The amounts are too small to be meaningful in the currency markets. In addition, China has enormous interest in maintaining the dollar as the reserve currency. Keeping the USD as reserve currency allows the US to borrow at very low rates, and borrowing at low rates is a pillar of its debt-driven economy. The US debt-driven economy is what makes a market for Chinese exports. And China's economy is basically exports plus infrastructure investments by state-owned enterprises. Take away the US for the exports and China has a huge problem. That's why it buys so many Treasuries. There's also an argument to be made that the yuan is over-valued. It took a nose-dive when China briefly removed currency controls (last year?) because a lot of people wanted to move their money out.
nwah1 9y ago
According to this same article, 1% of Europe's current reserves are in yuan, and $611 million is about 1% of that 1%. Or, in other words, 0.01% of the total 6.9 Trillion. Actually a bit less than that.

foepys 9y ago

I don't see anything passive aggressive in this. America's foreign policy is being criticized openly and showing that other countries don't necessarily only need the US-Dollar is an extension of that.

dogma1138 9y ago

Europe can buy all the yuan in the world and it won’t have any effect. The exchange rate between the dollar and the yuan is set by the rate at which China is buying US debt not by the global markets. China prints money to buy US debt it allows China to devalue its own currency without devaluing its assets and this deal allowed the US to pretty much generate as much currency as they want through cheap debt without devaluing it. The only thing that would affect Walmart is a tariff war with China, Europe can huff and puff all it wants but it isn’t a relevant player in this specific scenario.

NicoJuicy 9y ago
That's rude... Source? It's definitely not the CIA Factbook: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html https://www.cia.gov/library/publications/the-world-factbook/... Takeaway: EU GDP > America GDP ( don't forget, also the Euro vs USD rose since the start of 2018) ;)
- dogma1138 9y ago
  The GDP of Europe is irrelevant for this scenario the monetary relationship between the dolllar and the yuan isn’t like most currencies. Until 2005 it was pegged to the dollar completely since then it’s effectively pegged to the rate at which China buys dollar bonds.
  - NicoJuicy 9y ago
    Do you have a source or reference where i can get a deeper information/knowledge about the relationship between the dollar, yuan and bonds?
    - dogma1138 9y ago
      This isn't something that can be put into a single paragraph, the top 3 results from Google seem to provide decent sources of information https://www.thebalance.com/dollar-to-yuan-conversion-and-history-3306089 https://www.thebalance.com/dollar-to-yuan-conversion-and-his... https://www.thebalance.com/how-does-china-influence-the-u-s-dollar-3970466 https://www.thebalance.com/how-does-china-influence-the-u-s-... https://www.cluteinstitute.com/ojs/index.php/IBER/article/download/3152/3200 https://www.cluteinstitute.com/ojs/index.php/IBER/article/do... However I haven't read them thoroughly, so I suggest you invest some time in doing some research. P.S. I really hate this source/citation discourse that is effectively taken over every debate on the internet opinions can be constructed out of vast amounts of information and experience and even casual observations tend to be the product of much more information that can be distilled into bit size pieces. Just do research and learn, stay away from wikipedia and go for academic and sources and don't shy from even biased opinion pieces as those tend to be some of the most valuable as they expose you to concrete positions and being wrong or right does not change their value.
      - ethbro 9y ago
        Unfortunately, what you suggest is a circular set of actions. Why would I read comment sections if I'd already had the time and been able to find high quality sources to learned about the topic? If you don't feel like citing sources, or don't have any good ones handy, saying so is fine. But even providing the right terms to search can be helpful!
dmichulke 9y ago
> Europe can buy all the yuan in the world and it won’t have any effect. That is entirely wrong. There is only a limited amount of Yuan, so by definition the supply of Yuan is affected, no matter in which currency it is bought. Therefore, the price is affected as well. Will wheat in USD get more expensive if I buy all your wheat with Ruble? You bet it will.
- Symmetry 9y ago
  The amount of Yuan isn't literally infinite but China can print new Yuan a lot faster than Europe can buy it up and, in practice, would absolutely need to in response to extra European demand so as to not suffer from a deflation induced depression.
  - gcb0 9y ago
    the amount EU can buy increases as they print more Yaun. not the other way around as you suggested on the first sentence.
- dogma1138 9y ago
  The supply of the Yuan is controlled by China, but In this case the limit isn't the available supply of the Yuan at all. For Europe to buy Yuan it needs to exchange something for it, usually another currency likely in this case the dollar rather than EUR. The hard limit is more on how much EUR does China wants to hold and how much USD Europe is willing to spend on buying Yuan. Beyond that you also go into the realm of would China allow Europe to hold large amounts of Yuan, countries tend to be protective of their currency and restrict any single entity from holding amounts large enough to do substantial damage if dumped. Basically they would allow you to buy enough currency for them to benefit but not enough for you to hold it over their head.
freeflight 9y ago
> China prints money to buy US debt it allows China to devalue its own currency without devaluing its assets and this deal allowed the US to pretty much generate as much currency as they want through cheap debt without devaluing it. So China is printing money to buy up the debt generated by the US printing money? I'm not an economist, but that does not sound like a reasonable way for a world economy to run on.
- dogma1138 9y ago
  Things are much more complicated than this, but essentially China as a primary exporter wants to keep the value of it's currency as low as possible since the exporters then benefit on exchange rates. It also wants stability so it basically pegs the Yuan to the dollar, historically directly and more recently in directly (the Chinese central bank sets more or less of a fixed exchange rate but it does allow it to deviate somewhat these days). Now to prevent the Chinese economy from being effectively run on and by foreign currency China heavily restricts the ownership and settlement in foreign currency internally. It basically forces the exporters/manufactures to exchange the foreign currency they paid in (usually USD) back to Yuan for any internal use (or alternatively if you want to do business in china you basically have to exchange your currency in Yuan it's the same thing). It then uses that surplus of foreign currency to buy other assets, primarily dollar bonds such as US treasury bonds which basically brings back all those dollars that came from the US and everywhere else in the world back to the US. And even this is like very very basic overview of things. On some level the US economy or at least the dollar economy is basically based on the fact that the dollars used in international trade have to come back to the US. Basically you buy dollars from the US, you use those dollars to buy something e.g. goods from China then those dollars go straight back to the US in exchange usually for "cheaper" dollar bonds. The debt economy a side the scheme is when viewed on a global scale is almost like you never actually own a dollar you simply rent it out.
  - gcb0 9y ago
    but isn't buying bonds only useful if you want to return those USD with the prospect of getting more back later on (ideally above inflation)
Symmetry 9y ago
You could make the claim that China was devaluing its currency in 1995 but since then the Yuan has been gaining in value relative to the dollar.[1] I think that became a talking point back when it was true and people have just been repeating it ever since without reexamining. [1]http://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate-historical-chart http://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate...
- dogma1138 9y ago
  Those aren't mutually exclusive, this isn't as bad as the "currency wars" of the mid 90's where the US wen't crying all the time to the WTO about China at least publicly. But China very much still controls the exchange rate of the Yuan to the dollar and still devalues it's currency in order to boost exports.
  - Symmetry 9y ago
    How can you say China is devaluing its currency to boost when the price of the currency is increasing in dollar terms? And generally speaking you can't keep exports inflated for long by currency devaluation any more than you can use inflation to keep unemployment low. In the end the trade balance will revert to what you'd expect from the savings rates of the two countries, and in this case China's higher savings rate means it exports a lot more to the US than vice versa.
    - jessaustin 9y ago
      Clearly GP means that the price would be increasing more quickly without the hypothesized devaluation. Like most economic questions, this isn't binary.
cryptonector 9y ago
China could abandon mercantilism, or the U.S. as its main export market. That would have an effect for sure.
olefoo 9y ago
Did somebody say tariffs and trade wars? http://www.bbc.com/news/business-42784380 http://www.bbc.com/news/business-42784380 Not to mention which the post-world-war-II international order is falling apart politically which suggests there will be a monetary realignment in the not too distant future. This isn't a big deal because of the relative size of the flow; it's a big deal in the way that a dam suddenly spouting water around the edges is a big deal.

slivym 9y ago

This is kind of ridiculous. The purpose of reserves is not to send political messages. It's to provide a mechanism to manage monetary policy and it does that through buying back its liabilities. To do this effectively you must hold a strong currency as your reserve- there's no point holding Zimbabwe dollars. So any reasonable reserves for a European country today will be part Dollar, Pound, Yen and Yuan. How much of each should be proportional to how stable that currency is and how highly correlated it is to your own currency. This is not a political message, the ECB is just neutrally moving more towards Yuan as the Chinese economy gains importance relative to the US economy. That's all. It's not a good sign for the US, but the ECB has better ways to send political messages than buying $X00m dollars or Yuan.

tylerhou 9y ago
> It's not a good sign for the US IMHO this isn't necessarily true. A weaker dollar could mean stronger exports.
- PietdeVries 9y ago
  Exports of what? iPhones? These are all made in China, and with the dollar dropping against the Yuan, anything the US imports from China (and also from Europe) will be getting more expensive. And with the dollar dropping, bonds in dollars will be less interesting for investors. Basically, the article suggests that where Trump is aiming to MAGA, the entire opposite seems to happen: the rest of the world accellerates where Trump hits the breaks. Take the example of solar panels: what good will this do to the US? It will make solar-companies doing less research as the Chinese competition is gone. It will impact consumers, and the environment. But it will hardly impact the Chinese - their export will be used internally and in Europe. Edit: yeah - the Europeans make cars... Volkswagen is the second largest in the world, after Toyota. Daimler (Mercedes) is fourth. Apparently, the top-16 based on revenue includes only 3 American companies...
  - swarnie_ 9y ago
    Do you make any cars which are viable in Europe?

vonnik 9y ago

This is bad reporting. The amounts are too small to be meaningful in the currency markets. In addition, China has enormous interest in maintaining the dollar as the reserve currency. Keeping the USD as reserve currency allows the US to borrow at very low rates, and borrowing at low rates is a pillar of its debt-driven economy. The US debt-driven economy is what makes a market for Chinese exports. And China's economy is basically exports plus infrastructure investments by state-owned enterprises. Take away the US for the exports and China has a huge problem. That's why it buys so many Treasuries. There's also an argument to be made that the yuan is over-valued. It took a nose-dive when China briefly removed currency controls (last year?) because a lot of people wanted to move their money out.

nwah1 9y ago

According to this same article, 1% of Europe's current reserves are in yuan, and $611 million is about 1% of that 1%. Or, in other words, 0.01% of the total 6.9 Trillion. Actually a bit less than that.