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You're missing the part where people abandon the RMB as a store of value and Chinese bonds become worth nothing. They become worth nothing because people reali
by scottiebarnes 4y ago
You're missing the part where people abandon the RMB as a store of value and Chinese bonds become worth nothing.
They become worth nothing because people realize the central bank will inflate away the future value of any RMB, and thus holding RMB or any asset that derives value from future RMB (including stocks in businesses whose revenue or dividends are in RMB) become worth nothing.
Good money is supposed to be a good store of value as well. If RMB cannot store value, people will not use it. If people do not use it, it becomes worthless.
- whatever1 4y agoThat is the nice thing about government. They can enforce things. So even if you don't want RMB if the government pays you with RMB then you take it. That means that banks, contractors, employees etc all get RMB. Government can also force trade parties to trade with its own currency, like Russia does today.
- scottiebarnes 4y agoDidn't seem to work out for Zimbabwe, Hungary, Venezuela, etc.
- whatever1 4y agoFor failed states why do you have the expectation that their currency (Fiat or otherwise) will not collapse? Venezuela was stripped of its manufacturing capabilities with the exit of foreign investment due to sanctions. Their former petroeconomy now is worth nothing. The intrinsic value of their currency is lost, as the Venezuelan gdp in absolute terms disappeared. Currency exchange rates is the least of their problems. They are out of value. Not out of valuable cash.