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I keep hearing people mention the Yuan as a reserve currency, but why would any country do that? China's economic and financial data reporting seems to be spot

I keep hearing people mention the Yuan as a reserve currency, but why would any country do that? China's economic and financial data reporting seems to be spotty at best. Also would you put your faith in the rule of law in a communist country? I'm not saying the United States or European Union are perfect, but I think their courts are more balanced and independent than in China.

econcon 6y ago
>but why would any country do that? China's economic and financial data reporting seems to be spotty at best. If yuan is good enough for china then it's good enough for other countries with lower GDP than china. China is where mega GDP numbers are happening, it's much better to use the currency of place where services/products are actually being produced rather than places where money is coming out of thin air with clever financial engineering.
nine_zeros 6y ago
> I keep hearing people mention the Yuan as a reserve currency, but why would any country do that? China's economic and financial data reporting seems to be spotty at best. Good question. And the answer to that is no serious country accepts Yuan as a reserve even after 10 years of China's GDP being number 2 in the world. People really don't trust Chinese government and it shows. The only reason the Yuan has a chance is because America chooses to not be a world leader in matters that affect the world (Paris agreement, UN, WHO etc). This leaves a power and money vacuum which disproportionately affects poorer countries. Think Sri Lanka or poorer African countries or sanctioned countries like Iran, Russia. These countries have only one country offering them development or aid or help. And that country's currency is Yuan and are happy to trade in Yuan. So slowly and steadily, yuan gets a place in their reserve mix and then becomes dominant because that's the only major country trading anything with them.
LatteLazy 6y ago
If you trade a lot with a country or borrow a lot from a country it makes sense to maintain at least some reserves in that countries currency. But yeah, it makes no sense to build up reserves and run a trade surplus with them without hedging into a currency that is reliable in the long term.
AnimalMuppet 6y ago
Their central banks are more independent than in China. (The courts are too, but for these purposes it's the central banks that matter.)

econcon 6y ago

>but why would any country do that? China's economic and financial data reporting seems to be spotty at best. If yuan is good enough for china then it's good enough for other countries with lower GDP than china. China is where mega GDP numbers are happening, it's much better to use the currency of place where services/products are actually being produced rather than places where money is coming out of thin air with clever financial engineering.

nine_zeros 6y ago

> I keep hearing people mention the Yuan as a reserve currency, but why would any country do that? China's economic and financial data reporting seems to be spotty at best. Good question. And the answer to that is no serious country accepts Yuan as a reserve even after 10 years of China's GDP being number 2 in the world. People really don't trust Chinese government and it shows. The only reason the Yuan has a chance is because America chooses to not be a world leader in matters that affect the world (Paris agreement, UN, WHO etc). This leaves a power and money vacuum which disproportionately affects poorer countries. Think Sri Lanka or poorer African countries or sanctioned countries like Iran, Russia. These countries have only one country offering them development or aid or help. And that country's currency is Yuan and are happy to trade in Yuan. So slowly and steadily, yuan gets a place in their reserve mix and then becomes dominant because that's the only major country trading anything with them.

LatteLazy 6y ago

If you trade a lot with a country or borrow a lot from a country it makes sense to maintain at least some reserves in that countries currency. But yeah, it makes no sense to build up reserves and run a trade surplus with them without hedging into a currency that is reliable in the long term.

AnimalMuppet 6y ago

Their central banks are more independent than in China. (The courts are too, but for these purposes it's the central banks that matter.)