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They can always sell dollars in foreign exchange for other currencies, local currencies or gold or bitcoin. The reason they hold $ is a 'belief in our currency

They can always sell dollars in foreign exchange for other currencies, local currencies or gold or bitcoin. The reason they hold $ is a 'belief in our currency won't inflate' (by monetizing debt) which implies 'belief in our debt' If China is a net exporter to Argentina or Venezuela, rest assured they are selling those currencies as fast as they can

option_greek 7y ago
Actually they don't even let them settle in their own currency. Almost all of the global trade happens in dollar or euro or yen. Even loans between countries happen in these currencies along with interest payments.
joe_the_user 7y ago
It's not a belief our currency won't inflate, it's a belief our currency won't inflate or lose value any more than other vehicles. Note that even gold "inflates" through the production of gold mines - and gold miners produce more as the price of gold (in dollars or equivalents) rises so mining serves as a check on the relative value of gold.
- whatshisface 7y ago
  Some definite inflation to mean slipping value relative to a benchmark basket of goods, in which case I think gold has historically been deflationary.
- roenxi 7y ago
  Well sorta. In real terms, the price of gold is anchored to the amount of energy required to mine a kilo of gold with a sustainable margin. That quantity doesn't change very much (in real terms) over time. Compare that to, say, American dollars, where we expect at some point (hopefully not in the next few decades) the government will lose its discipline and allow the dollar's value to drop to 0, its true marginal cost of production. My memory is the vast majority of governments have cracked on that score, sooner or later. Really it reflects a belief in the as-observed-in-the-market marginal cost to produce, which is easier to think about than inflation. It also explains bitcoin and shows how important the large pool of mining power is.
  - JumpCrisscross 7y ago
    > the price of gold is anchored to the amount of energy required to mine a kilo of gold with a sustainable margin This ignores subsidies and tariffs. Those factors dominate pricing over energy equivalence.
  - leg100 7y ago
    > Well sorta. In real terms, the price of gold is anchored to the amount of energy required to mine a kilo of gold with a sustainable margin. That quantity doesn't change very much (in real terms) over time. Could you explain more about why it is the amount of energy required that determines the price? That could get rather circular (what determines the price of energy). A Marxist would say it is the quantity of labour power required; a classical economist would say it is the balance of supply and demand, but I haven't heard this one about energy.
    - roenxi 7y ago
      I mean that in the fairly basic sense of mining gold being a physical process; so it uses energy. The point is that it is possible to bring a practically unbounded amount of new dollars into the market at a cost-to-create of 0 (ie, in real terms, new dollars can be created for free) and cause inflation. Which is exactly what the central banks try to do except in a controlled manner. Can't happen with gold, because the marginal cost of creating new gold is roughly the price of gold. The 1-2% increase in supply from mining isn't going to cause real inflation in gold that behaves anything like inflation in the dollar. Supply increases to meet demand, but the value that the gold represents does not change. If someone finds a super-nugget the size of a cargo ship to mine that might change, but that isn't what the original point by joe_the_user was going to.
      - leg100 7y ago
        You've failed to explain your original premise, i.e. it is energy that determines the price of gold. You've made some tautological points that get us no where.
  - digitalengineer 7y ago
beijou 7y ago
This wouldn't make any difference, it just means someone else now holds those same dollars. The existence of the dollars as an export surplus means someone is going to hold those treasries. At least until they are used to buy US exports - the only way bringing those dollars back domestically. It goes further because it basically means a country is likely to be in deficit if these surplus dollars lay around somewhere - Twin Deficit Hypothesis.

option_greek 7y ago

Actually they don't even let them settle in their own currency. Almost all of the global trade happens in dollar or euro or yen. Even loans between countries happen in these currencies along with interest payments.

joe_the_user 7y ago

It's not a belief our currency won't inflate, it's a belief our currency won't inflate or lose value any more than other vehicles. Note that even gold "inflates" through the production of gold mines - and gold miners produce more as the price of gold (in dollars or equivalents) rises so mining serves as a check on the relative value of gold.

whatshisface 7y ago
Some definite inflation to mean slipping value relative to a benchmark basket of goods, in which case I think gold has historically been deflationary.
roenxi 7y ago
Well sorta. In real terms, the price of gold is anchored to the amount of energy required to mine a kilo of gold with a sustainable margin. That quantity doesn't change very much (in real terms) over time. Compare that to, say, American dollars, where we expect at some point (hopefully not in the next few decades) the government will lose its discipline and allow the dollar's value to drop to 0, its true marginal cost of production. My memory is the vast majority of governments have cracked on that score, sooner or later. Really it reflects a belief in the as-observed-in-the-market marginal cost to produce, which is easier to think about than inflation. It also explains bitcoin and shows how important the large pool of mining power is.
- JumpCrisscross 7y ago
  > the price of gold is anchored to the amount of energy required to mine a kilo of gold with a sustainable margin This ignores subsidies and tariffs. Those factors dominate pricing over energy equivalence.
- leg100 7y ago
  > Well sorta. In real terms, the price of gold is anchored to the amount of energy required to mine a kilo of gold with a sustainable margin. That quantity doesn't change very much (in real terms) over time. Could you explain more about why it is the amount of energy required that determines the price? That could get rather circular (what determines the price of energy). A Marxist would say it is the quantity of labour power required; a classical economist would say it is the balance of supply and demand, but I haven't heard this one about energy.
  - roenxi 7y ago
    I mean that in the fairly basic sense of mining gold being a physical process; so it uses energy. The point is that it is possible to bring a practically unbounded amount of new dollars into the market at a cost-to-create of 0 (ie, in real terms, new dollars can be created for free) and cause inflation. Which is exactly what the central banks try to do except in a controlled manner. Can't happen with gold, because the marginal cost of creating new gold is roughly the price of gold. The 1-2% increase in supply from mining isn't going to cause real inflation in gold that behaves anything like inflation in the dollar. Supply increases to meet demand, but the value that the gold represents does not change. If someone finds a super-nugget the size of a cargo ship to mine that might change, but that isn't what the original point by joe_the_user was going to.
    - leg100 7y ago
      You've failed to explain your original premise, i.e. it is energy that determines the price of gold. You've made some tautological points that get us no where.
- digitalengineer 7y ago

beijou 7y ago

This wouldn't make any difference, it just means someone else now holds those same dollars. The existence of the dollars as an export surplus means someone is going to hold those treasries. At least until they are used to buy US exports - the only way bringing those dollars back domestically. It goes further because it basically means a country is likely to be in deficit if these surplus dollars lay around somewhere - Twin Deficit Hypothesis.