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The US wields incredible negotiating power and hegemony because the dollar is the world’s reserve currency. Like the British pound and the Dutch guilder before

The US wields incredible negotiating power and hegemony because the dollar is the world’s reserve currency. Like the British pound and the Dutch guilder before it, if that loses reserve currency status it will be harder to borrow on favorable terms, which would affect the entire US economy. This is a big step in that perhaps starting to happen over the next few decades.

smalllangmodel 2mo ago
I really hope this is one step into a more multipolar world, maybe without a single hegemon the world is easier to change for the better
- ForHackernews 2mo ago
  Historically a more multipolar world has been a more violent and chaotic world, but maybe this time will be better.
  - smalllangmodel 2mo ago
    Well I wouldn't say it's peaceful now, or has been in the past... Actually there's few years that the US wasn't at war.
    - zeryx 2mo ago
      Compared to the time of great powers before WW1 and during, this has been by far the most peaceful the globe has been for a very long time
    - dimitrios1 2mo ago
      Please, for the love of God, speak to someone who is actually from a war torn country and understand how privileged all of us have been to live in the west. Even the wars we have been part of in the middle east have been minor disruptions to the Pax Americana: we really don't feel the effect of the wars we are in.(another problem in of itself). 99% of us got to grow up without the fear of military violence, and go about our lives.
      - ranguna 2mo ago
        OP's point still stands? They didn't say there were no wars, only that that are less deaths. Not sure what the point of your comment is in this thread. The premise that is being discussed is volume of world wide war. Not war itself.
    - carlosjobim 2mo ago
      The entire Iran "war" will probably have less casualties than a single day of World War I.
      - smalllangmodel 2mo ago
        which makes it peace?
    - joha4270 2mo ago
      The world /is/ peaceful right now... relatively that is. Not to say there isn't war, but they're small wars with a million deaths being a big one. More people died in Second World War[1] than in all wars since then combined. If not for the Russian Civil War and WW2, the same would probably true for the Great War. War is terrible, but the fraction of people who died in wars the last 75 years is substantially smaller than the 75 years before that and I do think that is worth celebrating. I am not confident this will hold for the next 75 years [1]: https://en.wikipedia.org/wiki/List_of_wars_by_death_toll https://en.wikipedia.org/wiki/List_of_wars_by_death_toll
      - bilbo0s 2mo ago
        Now I know I'm the big bad military guy saying this, but just give it a chance. Do you think that maybe the reluctance to engage in large wars over the last 75 years is a benefit of the nuclear deterrent rather than political ideologies, or world view narratives, or hegemons? Just kind of noticing that the 75 year figure you put out there kind of dovetails nicely with the existence of the nuclear deterrent in multiple global arsenals. Obviously, I believe in the nuclear deterrent. Just wondering if there are other people out there willing to admit that it has been the best tool in mankind's toolbox for obliging people to talk to each other rather than go to war.
        jacquesm 2mo ago
        As long as it works... and maybe one day it will no longer work and then at least we can point back to discussions such as these and say 'you were right, up to a point'. The problem with weapons is that usually weapons end up being used. And with the US now no longer working against proliferation the risks are going up.
  - elzbardico 2mo ago
    The monopolar world has been incredibly violent and chaotic for everyone else but the west.
    - WarmWash 2mo ago
      We're mostly just way better at using nightmares to farm clicks.
username_my1 2mo ago
This whole house of card is very modern, there was no such thing as "Reserve currency" not even the British pound, it was the most traded currency. but holding a currency's (debt) as a foreign reserve instead of gold is very recent phenomena, even central banks reserves or their function is also rather modern phenomena. while Yuan usage in trade will reduce the US influence, the amount of assets held in dollar nominated investments is so so much bigger, and this will very slowly change if it will at all.
- roryirvine 2mo ago
  The pound did act that way to some extent, but only within the Sterling Area and only between 1931 to 1972. Prior to that, people might have talked about the pound as if it were a reserve currency in the same way the USD is today but, as you say, actual foreign reserves were based on gold.
- mohamedkoubaa 2mo ago
  Very telling that even top economists are unable to imagine a world without a reserve currency when that is the state of nature (even in antiquity there were multiple currencies, not just gold)
decimalenough 2mo ago
The yuan will never become a reserve currency as long as China maintain tight currency controls around importing and exporting it. It's very difficult to (legally) send CNY out or China. The euro is in a much better position to be adopted as an alternative, but its share of global reserves has been flat at around 20% for years. https://data.imf.org/en/news/imf%20data%20brief%20march%2027 https://data.imf.org/en/news/imf%20data%20brief%20march%2027
- thehumanmeat 2mo ago
  Exactly. It's always been posturing.
- westpfelia 2mo ago
  No, and I dont think China wants the Yuan to be the reserve currency. But this is a good step in allowing better currency trading/exchange. Which can make imports between the EU and China cheaper.
  - tommica 2mo ago
    For a moment, after that EU will come up with a new regulation / taxation causing everything to become more expensive again.
    - throw-the-towel 2mo ago
      Will? It's already happening, the EU is putting tariffs on China.
- seanieb 2mo ago
  Does the world still require a reserve currency? Spreading risk across the Dollar, Yuan, and Euros seems more logical. While the hurdles and friction associated with foreign exchange (FX) and international transfers were significant when reserve currencies were crucial, they are not as big an issue today.
- phkahler 2mo ago
jillesvangurp 2mo ago
One consequence of the transition to renewable energy and electrified transport, is that oil imports will start to decline. And the dollar is of course the currency of choice for that. The US economy and other countries that export fossil fuels will feel the impact over the next decade or so. The energy transition might go a lot quicker than people seem to expect. Currently about 20% of global car sales is electric. In some countries it's well over 50%. China of course being one of them. And they are making rapid progress with electrifying freight as well. This is already impacting their fossil fuel imports. They still import a lot. One effect that I think people underestimate is that while it will take a long time for all the ICE vehicles to disappear, the new ones do most of the driving. So, new EVs have a relatively large impact on fuel consumption and imports pretty early on. E.g. Chinese diesel imports apparently already are being impacted by their rapid deployment of tens of thousands of electrical trucks. Soon hundreds of thousands. That's already a third of the market in China and will probably head for well over 50% in a few short years. The EU is not that far behind. The ripple effect that's going to have on oil trading, refinery capacity, etc. is going to be substantial. Of course current geopolitics is speeding things up massively. LNG and oil scarcity is causing a lot of issues globally and countries are accelerating moves to reduce their dependence on that.
- UltraSane 2mo ago
  People will keep burning oil as long as it makes economic sense to do so.
- thelastgallon 2mo ago
  Demand destruction will collapse profits and accelerate the oil/dollar downfall. Saudi Arabia can profitably pump oil probably under $10/barrel. If demand drops, thats where oil should be. China with [EVs|Solar|BESS|Turbines] will replace all of the fossil fuel countries (US, middle-east, Russia). This is probably the biggest transition in the history of mankind. This is energy production, storage and all the appliances that use electricity. After this, its incredibly hard for any other country to compete.
  - toomuchtodo 2mo ago
WJW 2mo ago
I think this has the causality reversed. The dollar is the world's reserve currency because the US wields incredible negotiating power and has been the de facto military hegemony in the past few decades. It seems likely that the dominance the US has enjoyed in the recent past will diminish somewhat as other blocks with larger population bases catch up on the technology and industrialization fronts, and eventually start flexing their industrial might to create peer-level militaries.
- elzbardico 2mo ago
  US Military has been a paper tiger in reality for quite some time. The problem is that Trump decided to demonstrate this in practice. It is becoming obvious for gulf countries that US military protection is worth nothing.
  - ben_w 2mo ago
    The US military may be ossifying into a paper tiger, but I'd say Iran mainly shows Trump is a coward and an idiot. From what I hear, what Trump did with Iran was burn through the US stockpile of certain fancy special-purpose wepons you're really only meant to use to punch a hole for your conventional forces to enter by. Trump is not willing to send in those conventional forces, because many of those personel will die. Trump may not care about the lives of the US personel per se, but with the mid-terms coming up he will care about the impact of those deaths on the election result. Also: Gulf Wars I and II had a lot of build-up and prep, moving forces into the area; this was diving straight in because someone (my Israeli namesake) flattered Trump's ego. Now I also think it's not even controversial to say that drone warfare is radically changing the nature of engagements. I don't believe the US could take on present-day Iran, owing to Iran's production of militarily relevant quantities of cheap and good-enough drones; a saturation attack can drain the defensive capabilities of warships, and while the exact performance is classified, a slow upgrade cycle would probably allow a saturation attack to overwhelm the *sensor* capabilities from not too long ago. Laser defence systems may change that, but those aren't all-weather solutions, and the sea is the exact worse case for this. And I don't know if anyone's thinking about saturation attacks with submersible drones.
budsniffer952 2mo ago
Losing the reserve currency doesn't happen in a vacuum. It happened to the British and Dutch because their empires were dismantled. So, yeah, it could happen to the US, slowly, over time (it already is). But nobody wakes up tomorrow and says they no longer want USD. Where are you parking the money, yuan?
- MichaelZuo 2mo ago
  Deutche Bank I imagine is doing this because a significant fraction of their customers literally want to park their money in yuan? If it was some rounding error they wouldn’t have bothered spending money to set it up and get all the clearances.
  - spwa4 2mo ago
    It seems worth mentioning that this allows DB to allow Yuan transactions to happen, bypassing any US sanctions. Since DB is not doing this without agreement from the German government and the ECB, this can be taken as an indication that they intend to do business with China the US does not approve of. At least, they want the option. (and yes, it does not mean that the US is entirely without options to hinder China trade, just makes things harder. In this case, a lot harder)
    - noir_lord 2mo ago
      > this can be taken as an indication that they intend to do business with China the US does not approve of. At least, they want the option. Indeed, it also acts as a counter balance/hedge against the US's demands in the future. The problem for Europe is simply that we need to trade with both sides fairly openly or our entire economic model collapses - We are massively dependent on US technology and Chinese industrial capacity - too dependent frankly.
      - swat535 2mo ago
        That's the ideal model. Nations should be able to trade everyone without being under threat.
cyanydeez 2mo ago
The current admin has destroyed much of the government backing. Its to he seen if the global business fail to uphold its value.
Zigurd 2mo ago
As other people on this thread will point out the Yuan is not close to replacing the dollar, nor is any other aspect of the Chinese financial system highly competitive, even with the staggering rise of corruption in the US. But this is yet another indicator of the loss of soft power, which is much farther gone than, I'd say, 90% of Americans realize. The supposedly smart people in the tech industry should be alarmed by the loss of soft power. A lot of tech revenue comes from overseas, but if US technology is seen to be the tool of an unreliable, belligerent, corrupt, authoritarian government, that revenue will evaporate, and it will happen faster than, for example, fundamental international finance changes. And yet these supposedly smart people have lined up behind our government.
- noir_lord 2mo ago
  It's a variation of the maxim "Don't make the customer think", what you want them to do should be the default action and you want them to do without thinking. For some people in Europe now, they think about whether the thing they are buying/subscribing to is in the US or owned by a US company in a way that simply didn't happen in the recent past.
  - pocksuppet 2mo ago
    And all foreign transactions were done with a USD intermediary until the USA started making countries and banks question whether that was a good idea.
dimitrios1 2mo ago
And its going to be incredible to watch how many of our own country will be gleefully cheering this on as if the replacement will be better for them.
wuschel 2mo ago
How come Deutsche Bank, a German bank, is the first bank doing this? And why now? Is it because the less friendly political stance towards Europe from the US side that the tables have turned a bit? I also wonder how much political backing a bank needs to offer a service with the implications towards the status of an allied currency as reserve currency status - small as it may be for now.
maxglute 2mo ago
USD exorbitant privilege is mostly just exorbitant now that sanction evasion solved problem due to US going ham. Central banks pulling out of treasuries, rates increase selling to institutional vs marginal buyers, USD just terminal debt serving sink hole now. Ironically PRC can now lend out USD from their reserves and trade surplus at better rates than FED... the answer to USD in meantime for PRC is PRC USD, every dollar PRC recycles their USD is a dollar not buying treasuries that makes USD reserve more onerous to maintain. LBH PRC not dumb enough to dig itself into Triffin deindustrialization hole US has. IMO Yuan positioning itself to be better than a reserve currency, it'll be premium currency for PRC tech stack (everything do be primogem) once PRC overtake west in critical strategic goods - ultimately, whoever controls discounted society sustaining tech / commodities stack long term controls payment preference. In meantime, PRC more than fine USD continue it's decline into debt serviced casino where somehow now house net loses until US inevitably have to debase/inflate away leaving others holding bag. There's really no alternative scenario (i.e. default) for USD at this point. Downstream of that is FX re reevaluations etc, i.e. PRC nominal > US nominal is not going to take years, is not dependant on PRC vs US growth, in the end it will take a few months of FX swing outside of either party's controls.
- kanwisher 2mo ago
  how could yuan be a reserve currency when its not even legal for its citizens to move it out of the country beyond $50k a year. they have extreme currency controls
  - maxglute 2mo ago
    [flagged]
    - BigTTYGothGF 2mo ago
      > libtard Hey. Don't.
    - maxglute 2mo ago
      LIOtard
seydor 2mo ago
it wields power with missiles, with the dollar as a consequence
skybrian 2mo ago
The US is also has very large investment markets that are attractive to investors worldwide. Countries that export to the US can build up large US investments, and not just bonds either. (Flip side of trade deficit.) It seems hard to say when that would change.
ActionHank 2mo ago
That horse has already bolted and bought a whole new stable with blackjack and hookers in a foreign country. The US is in for a hard couple decades ahead given they aren't leading innovation, manufacturing, finance, geopolitics, and even their military power is now in question. At least they owned the libs.
tealmoonx 2mo ago
[dead]
carefree-bob 2mo ago
Being the reserve currency means the rest of the world accumulates your liabilities as their savings, i.e. it means you are the world's largest debtor, and the world's largest net importer. That is how the rest of the world accumulates your currency - because they sell more to you than they buy from you, allowing them to accumulate your fiat. So this "reserve currency" status is a great burden to US industry, which is why China has created a web of laws that effectively make it illegal to be a reserve currency. The entire east asian bloc has industrialized based on an export led growth model -- that is, exporting more than they import, and thus being accumulators of other nation's currencies. It's not that they need to accumulate dollars, they just need to accumulate some other country's currency, otherwise it's mathematically impossible to run a trade surplus. A lot of people don't understand this distinction between positive and negative -- e.g. accumulating the currency of other nations and other nations accumulating your currency. These people hold to what I call the fallacy of "the equality of all good things". These are the same people that argue for a "strong dollar" and also "strong exports", when actually these are opposites. I think of this as a form of tribalism, where the analysis is limited to "our guy good, their guy bad. X good, Y bad". Such people are resistant to trade offs, e.g. you get the advantage of cheap consumer goods by being a net importer, but you have the disadvantage of losing jobs and industries to those nations that are willing to have expensive consumer goods for their populations in order to export more and import less. In any case, continuing with lists of fallacies, we can say that America having a "strong economy" has little to do with its reserve currency status. Rather, it needs 1) a large bond market 2) investor rights protections 3) a legal framework allowing foreign capital inflows and outflows, with little friction. 4) A relatively stable currency. To see how important this is, take the example of Russia, which decided that it will sell its oil to India by accumulating rupees. That's great, there was much celebrating "multipolarity" but the fact of the matter is the Rupee has lost over 20% of its value (in dollar terms) since Russia started accumulating it, and India has laws blocking Russia from selling its rupee holdings for other currencies, it can only use those Rupees to purchase Indian goods and take them back to Russia. So now Russia has tons of rupees it can't use except to buy Indian goods, and has started requiring India to pay with Quatari Riyal, as Quatar as more investor friendly laws. Also, there is not that much you can buy with Riyal, when you have two hundred billion dollars of value a year you want to park in some foreign jurisdiction, Quatar just can't absorb that. China isn't willing to accept it. India will accept it but not let you take it out. Where are you gonna put it? So we see, we have already left the world of "America declining! The Dollar is collapsing!", because like it or not, even though America has tarnished its reputation of respecting investor rights, it's still miles ahead of any alternative when you need to park overseas earnings. China blocks foreign capital inflows. Europe suffers from all the problems that the US does and even moreso as they are now openly seizing foreign ships and the bank accounts of private citizens - for example freezing bank accounts of people with Russian sounding last names - and Europe has even more barriers to moving money in and out. So in which jurisdiction will you park your overseas earnings if not the US? There is no alternative. No alternative is even beginning to appear over the horizon. While I am holding forth on all these fallacies, another one is what I call the "balloon theory" of trust. This is the assumption that because the US, which used to be a high trust, investor-rights respecting nation, but has begun losing those investor rights credentials after seizing the sovereign assets of Afghanistan, Iran, Venezuela, Syria, as well as other official enemies - that because of this, some other nation must magically arise that will have that reputation for respecting foreign investor rights. E.g. that trust is a balloon, and if you squeeze one part of it, another must by necessity expand. This also comes from tribalism, e.g. the view that if your enemies suffer that you must benefit. But trust isn't like that, it could just be that as the US begins to look less attractive, then no other nation will take its place, and this will create real problems for the export-led growth economies in Asia, as they need some nation whose currency they can accumulate in order to run the trade surpluses needed for them to maintain domestic employment.
tedggh 2mo ago
It’s very unlikely that the USD will lose its status particularly to the Yuan. You can do that mental calculation yourself. Would you convert all of your lifesavings from USD to Yuans today or in the next 10 years? The answer is probably “not a chance”. The reason is simple, liquidity and trust. China has no comparable open and independent financial institutions international central banks can trust, nor can they have them without surrendering control over their monetary policy. So as long as there’s no alternative to the USD (BRICS will likely fail), it will continue being the default global currency for reserves, debt and trade.
- ksbd-pls-finish 2mo ago
  >Would you convert all of your lifesavings from USD to Yuans today or in the next 10 years? I don't own and dollars and I have no plans to keep dollars now or in 10 years. I own some stock, mostly total world ETFs (traded in EUR, but a significant part of their holdings is obviously American). So does it really matter?
- herbst 2mo ago
  Just checked. The last 2 years yuan was way more stable than USD compared to CHF and the last 5 years about similar. I don't see why I would prefer USD Especially, realistically speaking i buy WAY more from china than the US
  - tedggh 2mo ago
    Economic stability alone is not enough for a currency to be an important store of wealth. China doesn’t have a free floating exchange, it has very strict capital controls and lacks political and legal predictability. You need very specific institutional foundations to have a currency like the USD, which the Chinese political system rejects. The US has an independent legal system. If you have a dispute with the US government you can take it to an independent court. In China, you have no way to sue the CPP. China is a single party socialist republic with all the political authority concentrated at the top, so one high impact event like the sudden dead of Xi Jinping could send its economy into fallout because of political uncertainty. In the US the system is explicitly designed to absorb this type of shocks. So for these and many other reasons the Yuan under the current Chinese political system will never be a serious contender to the USD as global currency, it’s just way too much institutional risk for foreign investors. It’s also very unlikely the CPP will ever pick a Yuan rivaling the USD vs political control over their domestic policy. They can’t have both.
carefree-bob 2mo ago
If you are trying to apply lessons from the gold standard era to lessons in the current era of non-convertible fiat currencies, then you are going to draw the exact opposite of the correct conclusions. There is a fundamental difference in how global capital flows work when the world uses specie flows versus when the world does not. Here is one hint. The reason why currencies like the Spanish dollar or Dutch guilder became standards were primarily questions of prestige and minting quality as you held those currencies in your own possession. But everyone could recognize a guilder and so when dealing with a foreigner, it was easier to have them. In that type of environment, being a global export power meant that you were a global gold issuer because you sold your goods to the rest of the world, got their gold (or silver), melted it down, and issued your own stamped gold or silver coins, that circulated all over the world. If that is your mental model of foreign trade today, then please read a bit further in your history books, because we live in the world of non-convertible fiat money. This means that when China sells $100 of stuff to America, it doesn't get to take that money home, the money is kept in an American bank account, with the name of that chinese seller as the beneficiary of the account. It's a non-convertible currency. A dollar is always a dollar, China can't melt it down and convert it to a Yuan. So now, to be the reserve currency doesn't mean that your specialized minting tech is being stored in central banks all over the world, it means that central banks all over the world have deposit accounts in your banking system. And that can only happen by being the world's largest importer, the exact opposite of the situation in the age of the Dutch trading empire. Your entire analysis is backwards.
DarkNova6 2mo ago
At this point it is not a question of whether this will happen but only when. Next to digital currencies and the yuan, Trump has successfully killed the Petrodollar. The free influx of money, and particularly investor money that gave the US an evergreen advantage will seize. Slow at first, then more and more as time moves on.
markus_zhang 2mo ago
My observation is that the Globalization that started from the late 80s/early 90s following the fall of the USSR and the opening of China gives tremendous wealth to the elites based in the US and the EU. However, its foundation was laid decades ago in the ruins of Western Europe, where financial and intelligence power combine to rule over the Western world. The immense wealth was but a mundane by-product that corrupted the mind. Fast forward to today, it takes a lot of effort to reverse the trend and remake the US into an industrial superpower.
dzonga 2mo ago
I feel like the corrupt Trump regime has accelerated this. what other people tend to forget - money is just an exchange mechanism - the real currency is energy. europe is already paying for Russian gas in rubble, china will soon exclusively be taking payments in yuan. with so much green energy coming online - do you really need a massive foreign currency buffer - if you're not buying finite hydrocarbon energy ?
Animats 2mo ago
This is not yet about making the renminbi a full reserve currency. China still imposes exchange controls. There's historical reluctance in China to expose the internal economy to external market forces. And a lot of rich people in China who would like to get more money out. This lack of free convertibility limits the use of the renminbi outside China.
epolanski 2mo ago
The US wields incredible negotiating power period. In way too many fields. It worked when the country wanted to be a globalist force and lead by example (albeit it was partially pretending to set an example, US exceptionalism is ingrained in US culture and politics). It doesn't work in an anti-globalist world, especially one in which allies are bullied.
seanmcdirmid 2mo ago
One advantage America has, and will remain having as an advantage as long as its broken: it borrows a lot of dollars. So if China wants to save a few billion dollars, it is super easy to do it by just bidding for US treasuries, rather than trying to convert it to yuan and somehow putting it in its own economy where it won't cause overheating. America is essentially just a debtor of last resort, that is the superpower of the dollar.
UltraSane 2mo ago
I have heard this hundreds of times before.
fryanyway_swe 2mo ago
I would rather it be Euro than Yen from China

smalllangmodel 2mo ago

I really hope this is one step into a more multipolar world, maybe without a single hegemon the world is easier to change for the better

ForHackernews 2mo ago
Historically a more multipolar world has been a more violent and chaotic world, but maybe this time will be better.
- smalllangmodel 2mo ago
  Well I wouldn't say it's peaceful now, or has been in the past... Actually there's few years that the US wasn't at war.
  - zeryx 2mo ago
    Compared to the time of great powers before WW1 and during, this has been by far the most peaceful the globe has been for a very long time
  - dimitrios1 2mo ago
    Please, for the love of God, speak to someone who is actually from a war torn country and understand how privileged all of us have been to live in the west. Even the wars we have been part of in the middle east have been minor disruptions to the Pax Americana: we really don't feel the effect of the wars we are in.(another problem in of itself). 99% of us got to grow up without the fear of military violence, and go about our lives.
    - ranguna 2mo ago
      OP's point still stands? They didn't say there were no wars, only that that are less deaths. Not sure what the point of your comment is in this thread. The premise that is being discussed is volume of world wide war. Not war itself.
  - carlosjobim 2mo ago
    The entire Iran "war" will probably have less casualties than a single day of World War I.
    - smalllangmodel 2mo ago
      which makes it peace?
  - joha4270 2mo ago
    The world /is/ peaceful right now... relatively that is. Not to say there isn't war, but they're small wars with a million deaths being a big one. More people died in Second World War[1] than in all wars since then combined. If not for the Russian Civil War and WW2, the same would probably true for the Great War. War is terrible, but the fraction of people who died in wars the last 75 years is substantially smaller than the 75 years before that and I do think that is worth celebrating. I am not confident this will hold for the next 75 years [1]: https://en.wikipedia.org/wiki/List_of_wars_by_death_toll https://en.wikipedia.org/wiki/List_of_wars_by_death_toll
    - bilbo0s 2mo ago
      Now I know I'm the big bad military guy saying this, but just give it a chance. Do you think that maybe the reluctance to engage in large wars over the last 75 years is a benefit of the nuclear deterrent rather than political ideologies, or world view narratives, or hegemons? Just kind of noticing that the 75 year figure you put out there kind of dovetails nicely with the existence of the nuclear deterrent in multiple global arsenals. Obviously, I believe in the nuclear deterrent. Just wondering if there are other people out there willing to admit that it has been the best tool in mankind's toolbox for obliging people to talk to each other rather than go to war.
      - jacquesm 2mo ago
        As long as it works... and maybe one day it will no longer work and then at least we can point back to discussions such as these and say 'you were right, up to a point'. The problem with weapons is that usually weapons end up being used. And with the US now no longer working against proliferation the risks are going up.
- elzbardico 2mo ago
  The monopolar world has been incredibly violent and chaotic for everyone else but the west.
  - WarmWash 2mo ago
    We're mostly just way better at using nightmares to farm clicks.

username_my1 2mo ago

This whole house of card is very modern, there was no such thing as "Reserve currency" not even the British pound, it was the most traded currency. but holding a currency's (debt) as a foreign reserve instead of gold is very recent phenomena, even central banks reserves or their function is also rather modern phenomena. while Yuan usage in trade will reduce the US influence, the amount of assets held in dollar nominated investments is so so much bigger, and this will very slowly change if it will at all.

roryirvine 2mo ago
The pound did act that way to some extent, but only within the Sterling Area and only between 1931 to 1972. Prior to that, people might have talked about the pound as if it were a reserve currency in the same way the USD is today but, as you say, actual foreign reserves were based on gold.
mohamedkoubaa 2mo ago
Very telling that even top economists are unable to imagine a world without a reserve currency when that is the state of nature (even in antiquity there were multiple currencies, not just gold)

decimalenough 2mo ago

The yuan will never become a reserve currency as long as China maintain tight currency controls around importing and exporting it. It's very difficult to (legally) send CNY out or China. The euro is in a much better position to be adopted as an alternative, but its share of global reserves has been flat at around 20% for years. https://data.imf.org/en/news/imf%20data%20brief%20march%2027 https://data.imf.org/en/news/imf%20data%20brief%20march%2027

thehumanmeat 2mo ago
Exactly. It's always been posturing.
westpfelia 2mo ago
No, and I dont think China wants the Yuan to be the reserve currency. But this is a good step in allowing better currency trading/exchange. Which can make imports between the EU and China cheaper.
- tommica 2mo ago
  For a moment, after that EU will come up with a new regulation / taxation causing everything to become more expensive again.
  - throw-the-towel 2mo ago
    Will? It's already happening, the EU is putting tariffs on China.
seanieb 2mo ago
Does the world still require a reserve currency? Spreading risk across the Dollar, Yuan, and Euros seems more logical. While the hurdles and friction associated with foreign exchange (FX) and international transfers were significant when reserve currencies were crucial, they are not as big an issue today.
phkahler 2mo ago

jillesvangurp 2mo ago

One consequence of the transition to renewable energy and electrified transport, is that oil imports will start to decline. And the dollar is of course the currency of choice for that. The US economy and other countries that export fossil fuels will feel the impact over the next decade or so. The energy transition might go a lot quicker than people seem to expect. Currently about 20% of global car sales is electric. In some countries it's well over 50%. China of course being one of them. And they are making rapid progress with electrifying freight as well. This is already impacting their fossil fuel imports. They still import a lot. One effect that I think people underestimate is that while it will take a long time for all the ICE vehicles to disappear, the new ones do most of the driving. So, new EVs have a relatively large impact on fuel consumption and imports pretty early on. E.g. Chinese diesel imports apparently already are being impacted by their rapid deployment of tens of thousands of electrical trucks. Soon hundreds of thousands. That's already a third of the market in China and will probably head for well over 50% in a few short years. The EU is not that far behind. The ripple effect that's going to have on oil trading, refinery capacity, etc. is going to be substantial. Of course current geopolitics is speeding things up massively. LNG and oil scarcity is causing a lot of issues globally and countries are accelerating moves to reduce their dependence on that.

UltraSane 2mo ago
People will keep burning oil as long as it makes economic sense to do so.
thelastgallon 2mo ago
Demand destruction will collapse profits and accelerate the oil/dollar downfall. Saudi Arabia can profitably pump oil probably under $10/barrel. If demand drops, thats where oil should be. China with [EVs|Solar|BESS|Turbines] will replace all of the fossil fuel countries (US, middle-east, Russia). This is probably the biggest transition in the history of mankind. This is energy production, storage and all the appliances that use electricity. After this, its incredibly hard for any other country to compete.
- toomuchtodo 2mo ago

WJW 2mo ago

I think this has the causality reversed. The dollar is the world's reserve currency because the US wields incredible negotiating power and has been the de facto military hegemony in the past few decades. It seems likely that the dominance the US has enjoyed in the recent past will diminish somewhat as other blocks with larger population bases catch up on the technology and industrialization fronts, and eventually start flexing their industrial might to create peer-level militaries.

elzbardico 2mo ago
US Military has been a paper tiger in reality for quite some time. The problem is that Trump decided to demonstrate this in practice. It is becoming obvious for gulf countries that US military protection is worth nothing.
- ben_w 2mo ago
  The US military may be ossifying into a paper tiger, but I'd say Iran mainly shows Trump is a coward and an idiot. From what I hear, what Trump did with Iran was burn through the US stockpile of certain fancy special-purpose wepons you're really only meant to use to punch a hole for your conventional forces to enter by. Trump is not willing to send in those conventional forces, because many of those personel will die. Trump may not care about the lives of the US personel per se, but with the mid-terms coming up he will care about the impact of those deaths on the election result. Also: Gulf Wars I and II had a lot of build-up and prep, moving forces into the area; this was diving straight in because someone (my Israeli namesake) flattered Trump's ego. Now I also think it's not even controversial to say that drone warfare is radically changing the nature of engagements. I don't believe the US could take on present-day Iran, owing to Iran's production of militarily relevant quantities of cheap and good-enough drones; a saturation attack can drain the defensive capabilities of warships, and while the exact performance is classified, a slow upgrade cycle would probably allow a saturation attack to overwhelm the *sensor* capabilities from not too long ago. Laser defence systems may change that, but those aren't all-weather solutions, and the sea is the exact worse case for this. And I don't know if anyone's thinking about saturation attacks with submersible drones.

budsniffer952 2mo ago

Losing the reserve currency doesn't happen in a vacuum. It happened to the British and Dutch because their empires were dismantled. So, yeah, it could happen to the US, slowly, over time (it already is). But nobody wakes up tomorrow and says they no longer want USD. Where are you parking the money, yuan?

MichaelZuo 2mo ago
Deutche Bank I imagine is doing this because a significant fraction of their customers literally want to park their money in yuan? If it was some rounding error they wouldn’t have bothered spending money to set it up and get all the clearances.
- spwa4 2mo ago
  It seems worth mentioning that this allows DB to allow Yuan transactions to happen, bypassing any US sanctions. Since DB is not doing this without agreement from the German government and the ECB, this can be taken as an indication that they intend to do business with China the US does not approve of. At least, they want the option. (and yes, it does not mean that the US is entirely without options to hinder China trade, just makes things harder. In this case, a lot harder)
  - noir_lord 2mo ago
    > this can be taken as an indication that they intend to do business with China the US does not approve of. At least, they want the option. Indeed, it also acts as a counter balance/hedge against the US's demands in the future. The problem for Europe is simply that we need to trade with both sides fairly openly or our entire economic model collapses - We are massively dependent on US technology and Chinese industrial capacity - too dependent frankly.
    - swat535 2mo ago
      That's the ideal model. Nations should be able to trade everyone without being under threat.

cyanydeez 2mo ago

The current admin has destroyed much of the government backing. Its to he seen if the global business fail to uphold its value.

Zigurd 2mo ago

As other people on this thread will point out the Yuan is not close to replacing the dollar, nor is any other aspect of the Chinese financial system highly competitive, even with the staggering rise of corruption in the US. But this is yet another indicator of the loss of soft power, which is much farther gone than, I'd say, 90% of Americans realize. The supposedly smart people in the tech industry should be alarmed by the loss of soft power. A lot of tech revenue comes from overseas, but if US technology is seen to be the tool of an unreliable, belligerent, corrupt, authoritarian government, that revenue will evaporate, and it will happen faster than, for example, fundamental international finance changes. And yet these supposedly smart people have lined up behind our government.

noir_lord 2mo ago
It's a variation of the maxim "Don't make the customer think", what you want them to do should be the default action and you want them to do without thinking. For some people in Europe now, they think about whether the thing they are buying/subscribing to is in the US or owned by a US company in a way that simply didn't happen in the recent past.
- pocksuppet 2mo ago
  And all foreign transactions were done with a USD intermediary until the USA started making countries and banks question whether that was a good idea.

dimitrios1 2mo ago

And its going to be incredible to watch how many of our own country will be gleefully cheering this on as if the replacement will be better for them.

wuschel 2mo ago

How come Deutsche Bank, a German bank, is the first bank doing this? And why now? Is it because the less friendly political stance towards Europe from the US side that the tables have turned a bit? I also wonder how much political backing a bank needs to offer a service with the implications towards the status of an allied currency as reserve currency status - small as it may be for now.

maxglute 2mo ago

USD exorbitant privilege is mostly just exorbitant now that sanction evasion solved problem due to US going ham. Central banks pulling out of treasuries, rates increase selling to institutional vs marginal buyers, USD just terminal debt serving sink hole now. Ironically PRC can now lend out USD from their reserves and trade surplus at better rates than FED... the answer to USD in meantime for PRC is PRC USD, every dollar PRC recycles their USD is a dollar not buying treasuries that makes USD reserve more onerous to maintain. LBH PRC not dumb enough to dig itself into Triffin deindustrialization hole US has. IMO Yuan positioning itself to be better than a reserve currency, it'll be premium currency for PRC tech stack (everything do be primogem) once PRC overtake west in critical strategic goods - ultimately, whoever controls discounted society sustaining tech / commodities stack long term controls payment preference. In meantime, PRC more than fine USD continue it's decline into debt serviced casino where somehow now house net loses until US inevitably have to debase/inflate away leaving others holding bag. There's really no alternative scenario (i.e. default) for USD at this point. Downstream of that is FX re reevaluations etc, i.e. PRC nominal > US nominal is not going to take years, is not dependant on PRC vs US growth, in the end it will take a few months of FX swing outside of either party's controls.

kanwisher 2mo ago
how could yuan be a reserve currency when its not even legal for its citizens to move it out of the country beyond $50k a year. they have extreme currency controls
- maxglute 2mo ago
  [flagged]
  - BigTTYGothGF 2mo ago
    > libtard Hey. Don't.
  - maxglute 2mo ago
    LIOtard

seydor 2mo ago

it wields power with missiles, with the dollar as a consequence

skybrian 2mo ago

The US is also has very large investment markets that are attractive to investors worldwide. Countries that export to the US can build up large US investments, and not just bonds either. (Flip side of trade deficit.) It seems hard to say when that would change.

ActionHank 2mo ago

That horse has already bolted and bought a whole new stable with blackjack and hookers in a foreign country. The US is in for a hard couple decades ahead given they aren't leading innovation, manufacturing, finance, geopolitics, and even their military power is now in question. At least they owned the libs.

tealmoonx 2mo ago

[dead]

carefree-bob 2mo ago

Being the reserve currency means the rest of the world accumulates your liabilities as their savings, i.e. it means you are the world's largest debtor, and the world's largest net importer. That is how the rest of the world accumulates your currency - because they sell more to you than they buy from you, allowing them to accumulate your fiat. So this "reserve currency" status is a great burden to US industry, which is why China has created a web of laws that effectively make it illegal to be a reserve currency. The entire east asian bloc has industrialized based on an export led growth model -- that is, exporting more than they import, and thus being accumulators of other nation's currencies. It's not that they need to accumulate dollars, they just need to accumulate some other country's currency, otherwise it's mathematically impossible to run a trade surplus. A lot of people don't understand this distinction between positive and negative -- e.g. accumulating the currency of other nations and other nations accumulating your currency. These people hold to what I call the fallacy of "the equality of all good things". These are the same people that argue for a "strong dollar" and also "strong exports", when actually these are opposites. I think of this as a form of tribalism, where the analysis is limited to "our guy good, their guy bad. X good, Y bad". Such people are resistant to trade offs, e.g. you get the advantage of cheap consumer goods by being a net importer, but you have the disadvantage of losing jobs and industries to those nations that are willing to have expensive consumer goods for their populations in order to export more and import less. In any case, continuing with lists of fallacies, we can say that America having a "strong economy" has little to do with its reserve currency status. Rather, it needs 1) a large bond market 2) investor rights protections 3) a legal framework allowing foreign capital inflows and outflows, with little friction. 4) A relatively stable currency. To see how important this is, take the example of Russia, which decided that it will sell its oil to India by accumulating rupees. That's great, there was much celebrating "multipolarity" but the fact of the matter is the Rupee has lost over 20% of its value (in dollar terms) since Russia started accumulating it, and India has laws blocking Russia from selling its rupee holdings for other currencies, it can only use those Rupees to purchase Indian goods and take them back to Russia. So now Russia has tons of rupees it can't use except to buy Indian goods, and has started requiring India to pay with Quatari Riyal, as Quatar as more investor friendly laws. Also, there is not that much you can buy with Riyal, when you have two hundred billion dollars of value a year you want to park in some foreign jurisdiction, Quatar just can't absorb that. China isn't willing to accept it. India will accept it but not let you take it out. Where are you gonna put it? So we see, we have already left the world of "America declining! The Dollar is collapsing!", because like it or not, even though America has tarnished its reputation of respecting investor rights, it's still miles ahead of any alternative when you need to park overseas earnings. China blocks foreign capital inflows. Europe suffers from all the problems that the US does and even moreso as they are now openly seizing foreign ships and the bank accounts of private citizens - for example freezing bank accounts of people with Russian sounding last names - and Europe has even more barriers to moving money in and out. So in which jurisdiction will you park your overseas earnings if not the US? There is no alternative. No alternative is even beginning to appear over the horizon. While I am holding forth on all these fallacies, another one is what I call the "balloon theory" of trust. This is the assumption that because the US, which used to be a high trust, investor-rights respecting nation, but has begun losing those investor rights credentials after seizing the sovereign assets of Afghanistan, Iran, Venezuela, Syria, as well as other official enemies - that because of this, some other nation must magically arise that will have that reputation for respecting foreign investor rights. E.g. that trust is a balloon, and if you squeeze one part of it, another must by necessity expand. This also comes from tribalism, e.g. the view that if your enemies suffer that you must benefit. But trust isn't like that, it could just be that as the US begins to look less attractive, then no other nation will take its place, and this will create real problems for the export-led growth economies in Asia, as they need some nation whose currency they can accumulate in order to run the trade surpluses needed for them to maintain domestic employment.

tedggh 2mo ago

It’s very unlikely that the USD will lose its status particularly to the Yuan. You can do that mental calculation yourself. Would you convert all of your lifesavings from USD to Yuans today or in the next 10 years? The answer is probably “not a chance”. The reason is simple, liquidity and trust. China has no comparable open and independent financial institutions international central banks can trust, nor can they have them without surrendering control over their monetary policy. So as long as there’s no alternative to the USD (BRICS will likely fail), it will continue being the default global currency for reserves, debt and trade.

ksbd-pls-finish 2mo ago
>Would you convert all of your lifesavings from USD to Yuans today or in the next 10 years? I don't own and dollars and I have no plans to keep dollars now or in 10 years. I own some stock, mostly total world ETFs (traded in EUR, but a significant part of their holdings is obviously American). So does it really matter?
herbst 2mo ago
Just checked. The last 2 years yuan was way more stable than USD compared to CHF and the last 5 years about similar. I don't see why I would prefer USD Especially, realistically speaking i buy WAY more from china than the US
- tedggh 2mo ago
  Economic stability alone is not enough for a currency to be an important store of wealth. China doesn’t have a free floating exchange, it has very strict capital controls and lacks political and legal predictability. You need very specific institutional foundations to have a currency like the USD, which the Chinese political system rejects. The US has an independent legal system. If you have a dispute with the US government you can take it to an independent court. In China, you have no way to sue the CPP. China is a single party socialist republic with all the political authority concentrated at the top, so one high impact event like the sudden dead of Xi Jinping could send its economy into fallout because of political uncertainty. In the US the system is explicitly designed to absorb this type of shocks. So for these and many other reasons the Yuan under the current Chinese political system will never be a serious contender to the USD as global currency, it’s just way too much institutional risk for foreign investors. It’s also very unlikely the CPP will ever pick a Yuan rivaling the USD vs political control over their domestic policy. They can’t have both.

carefree-bob 2mo ago

If you are trying to apply lessons from the gold standard era to lessons in the current era of non-convertible fiat currencies, then you are going to draw the exact opposite of the correct conclusions. There is a fundamental difference in how global capital flows work when the world uses specie flows versus when the world does not. Here is one hint. The reason why currencies like the Spanish dollar or Dutch guilder became standards were primarily questions of prestige and minting quality as you held those currencies in your own possession. But everyone could recognize a guilder and so when dealing with a foreigner, it was easier to have them. In that type of environment, being a global export power meant that you were a global gold issuer because you sold your goods to the rest of the world, got their gold (or silver), melted it down, and issued your own stamped gold or silver coins, that circulated all over the world. If that is your mental model of foreign trade today, then please read a bit further in your history books, because we live in the world of non-convertible fiat money. This means that when China sells $100 of stuff to America, it doesn't get to take that money home, the money is kept in an American bank account, with the name of that chinese seller as the beneficiary of the account. It's a non-convertible currency. A dollar is always a dollar, China can't melt it down and convert it to a Yuan. So now, to be the reserve currency doesn't mean that your specialized minting tech is being stored in central banks all over the world, it means that central banks all over the world have deposit accounts in your banking system. And that can only happen by being the world's largest importer, the exact opposite of the situation in the age of the Dutch trading empire. Your entire analysis is backwards.

DarkNova6 2mo ago

At this point it is not a question of whether this will happen but only when. Next to digital currencies and the yuan, Trump has successfully killed the Petrodollar. The free influx of money, and particularly investor money that gave the US an evergreen advantage will seize. Slow at first, then more and more as time moves on.

markus_zhang 2mo ago

My observation is that the Globalization that started from the late 80s/early 90s following the fall of the USSR and the opening of China gives tremendous wealth to the elites based in the US and the EU. However, its foundation was laid decades ago in the ruins of Western Europe, where financial and intelligence power combine to rule over the Western world. The immense wealth was but a mundane by-product that corrupted the mind. Fast forward to today, it takes a lot of effort to reverse the trend and remake the US into an industrial superpower.

dzonga 2mo ago

I feel like the corrupt Trump regime has accelerated this. what other people tend to forget - money is just an exchange mechanism - the real currency is energy. europe is already paying for Russian gas in rubble, china will soon exclusively be taking payments in yuan. with so much green energy coming online - do you really need a massive foreign currency buffer - if you're not buying finite hydrocarbon energy ?

Animats 2mo ago

This is not yet about making the renminbi a full reserve currency. China still imposes exchange controls. There's historical reluctance in China to expose the internal economy to external market forces. And a lot of rich people in China who would like to get more money out. This lack of free convertibility limits the use of the renminbi outside China.

epolanski 2mo ago

The US wields incredible negotiating power period. In way too many fields. It worked when the country wanted to be a globalist force and lead by example (albeit it was partially pretending to set an example, US exceptionalism is ingrained in US culture and politics). It doesn't work in an anti-globalist world, especially one in which allies are bullied.

seanmcdirmid 2mo ago

One advantage America has, and will remain having as an advantage as long as its broken: it borrows a lot of dollars. So if China wants to save a few billion dollars, it is super easy to do it by just bidding for US treasuries, rather than trying to convert it to yuan and somehow putting it in its own economy where it won't cause overheating. America is essentially just a debtor of last resort, that is the superpower of the dollar.

UltraSane 2mo ago

I have heard this hundreds of times before.

fryanyway_swe 2mo ago

I would rather it be Euro than Yen from China