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.
I wonder if it has anything to do with the currency apparently being backed by an immense reserve of oil (proven to the world by this year's geopolitical events), then coal, and then a massive amount of renewable solar, hydro, wind kWh's and infrastructure to deliver it to homes and shops.
More and more it feels like a nation's kWh throughput is the new metric to track its global influence in manufacturing, industry, and financial services. In other words electric power now equates to global power.
It will be interesting to see how much of Thucydides Trap plays out in currency and trade as opposed to military conflict. I am hopeful that economic and financial warfare absorbs the brunt of the power struggle.
China has some internal documents that address the Thucydides Trap with a Chinese idiom, "There are no just wars in the Spring and Autumn Period."
> China has some internal documents
how did you get to see them? that must be a very interesting story.
Can you elaborate a little? I suspect it is a well known concept, but its the first time I heard of it in this context.
Essentially its a very old (~2.5k year) idea that the interaction between an incumbent power and rising "challenger" power inevitably leads to war between the two. I was expressing my hope that if this does happen, the war can play out in less destructive arenas - one of which is in the competition for reserve currency status which the US has held for the whole of the modern era. This article possibly points at China's first shots in this conflict
The obvious counterexample would be the previous most powerful empire in the world (ie the UK) ceding that title to the USA after collapsing after WW2? No war between the UK and the US was needed.
The UK was a declining power that had been absolutely gutted by war and owed huge debts to the US that it had accrued to fund the war. I believe Thucydides Trap is more about the situation we have now with the US and China where both are moving from strength to strength.
President Xi of China mentioned it when the US President visited him in May.
https://www.hks.harvard.edu/faculty-research/policy-topics/i...
utterly repulsive ai slop
Yes, but I liked that the article mentioned how Xi has been saying this for a long time.
I switched the link to Harvard.
Rising power challenges the fading imperial hegemony. In this case, CNY displacing USD.
CNY displacing USD would entail allowing people outside China to buy really significant quantities of CNY-denominated financial products. This would entail CNY/USD changing so CNY is more expensive, because the default currency for financial products currently existing is USD. Which would slap a corresponding huge price increase with 0 increase in quality to all Chinese export. Which would murder Chinese manufacturing export. Which would entail laying off some grand proportion of an industry that employs 5% of the _human_ race. Which is why they're not gonna do that.
I don't think China wants to make the CNY the reserve currency because it would decimate China as a manufacturing hub. They prefer China to be Jakob to the U.S. being Esau. The red lentil soup can be quite bitter.
Is China still rising or already in decline?
Relative to the US it’s not a straightforward answer but China is definitely not rising in the way it was a decade ago and has been outpaced by the us
The answer is really not a clear cut as you assume any longer.
I’ll believe it when I see it, there’s a spread between onshore and offshore yuan exchange rates due to currency manipulation. It becomes harder to manipulate a currency as more of it is created, and AFAIK countries are not loading up on Chinese govt debt, but I may just be unaware?
The USD hegemony isn’t because of oil, it’s because everyone wants dollar-denominated assets. Treasury bonds, US real estate, US equities, etc. Possibly Chinese exports could soak up some of the yuan demand?
I, for one, would appreciate if we could just move on past these incessantly destructive power struggles as humanity.
Humans can not “move on” from human nature no matter how much people try to will it
It's as much "human nature" as being a slave was once the nature of some (chosen) peoples.
Conflict between humans is much much more nature than slavery was. Just look at animals. Flock animals often have conflicts which others. But none of them have ”slaves” (at least no how humans understand it)
Coincidently, Deutsche Bank is notorious for having been involved in all sorts of money laundering
I have this pet theory that is fueled with ignorance but kind of make sense to me: The correct value of the USD would be adjusted to match the tech company valuations sans AI(Apple can be a good guide IMHO) when they serve 350M people instead of 8B people as AI makes software obsolete and the geopolitics and the US government behavior dismantles any network or lock in effects.
I'm interested to understand your theory better but right now the way you've expressed it is hard to make sense of for me.
I wonder if this might be a reaction to the "blindsided" ECB, following a US decision to prop up the Japanese yen. This would be an interesting fracture. https://www.ft.com/content/d9922d0b-51a0-48be-811b-42e08f909...
Change happens gradually, and then suddenly.
What does that mean?
It means that nations are beginning to abandon (or at least hedge against) the dollar as the world's currency, due to the host nation's instability and global political situation. "Great Again", indeed.
Layman here, from what I understand this is a major news : it means China is allowing a foreign corporation (european commercial bank) to offer Yuan currency services to clients. Given how tight of a currency control policy the CCP has, it’s quite surprising that they would let a foreign based company into their currency dealings.
It means you can settle an international transaction in CNY with Deutsche Bank. Imagine a European lender financing a project in Nigeria that involves purchasing a lot of infrastructure from China.
It means the dollar is dying.
People have been saying the dollar is dying since the 19th century. They said it again during the Great Depression, the end of Bretton Woods and the 2008 Financial crisis..
US dollar value was held by several pillars, among which- pax americana, petro dollar/assets and innovation sector. Pax americana is dismantled by US itself. Petro chemicals are threatened by ren transition and China. Tech sector still ensures having a lead in innovations. Guess what'll happen when/if pax americana will be fully dead, most important economies like EU/China/India will be able to supply own needs with less petrol products since the rest will com from ren and when/if tech AI pops/turns into a fiasco. Nothing lasts forever and US dollar is no exception
The difference is now the US has a leader that is actively encouraging its downfall.
Is it a yuan or is it a Renminbi?
It's a little confusing, but technically RMB (renminbi) is the official name of the currency and CNY (yuan) is the base unit of the currency. Think of it like the difference between USD ("US Dollar") vs "dollar and cents", except there is no fractional yuan equivalent of cents, so it's all just yuan.
Pretty sure the jiao (角) (1/10th of a yuan) is still in use?
Oh yeah, you're right, I forgot about that. It doesn't really get used much except occasionally for very small transactions, usually ones less than 10yuan.
The currency code is CNY or Chinese Yuan. Yuan itself is like “dollar,” with many different countries calling their currency “dollars.” Renminbi refers to the Chinese currency as a whole rather than any particular unit.
Fun fact: the Japanese yen and Korean won are both cognates of "yuan". The character 圆 simply means "round" as in circular.
Both. Renminbi is the currency name, while the yuan is the base unit.
Not a good thing. China is an authoritarian regime, which we need to reduce dependency on, not increase it.
Blood money isn't red in color. USA has more war crimes in the past 5 decades than almost all other major countries combined. But that doesn't matter when you're profiting. Same goes here.
We also need to reduce our depency on USA which is currently signaling it is a hostile nation that consider and invasion of Europe in the form of an occupation of Greenland. It is possible USA:a admin is just lying about their hostile intentions but that in itself is a reason to reduce dependence on America
The USA is also currently signalling hostilities towards Brazil. They're hostile to all.
The US is not that different.
The US is infinitely worse, at least China is predictable.
Yeah, can't say I disagree. I expected Trump to be authoritarian but I thought he'd actually at least try to be smart about it.
Would this also mean we can get a EuroDollar systems for the Yuan? As in, Deutsche Bank can create loans denominated in Yuan without Chinese central bank control?
If there's one thing you can do now that will set you up for the next 20–30 years: it’s learning Mandarin.
The trouble is that a billion people speak Mandarin already and many of them speak very good English as well, so your own skillset as a second language learner isn't very likely to be valuable. Unfortunately learning any language is rarely a valuable market skill on its own.
With advanced AI real time translation I don't see any need for that.
Ah, yes, the best way to react to increased authoritarianism in the US is to checks notes begin doing more business with a country that is the final word in authoritarianism.
the big difference is that China is not bombing anyone, and causing chaos to it's allies..
They are supporting countries doing the bombing…
> not bombing anyone
Not that they wouldn't bomb Taiwan if they thought they could get away with it. The reason they can't, of course, is that doing so carries the risk of starting a thermonuclear war with the United States.
> causing chaos to it's [sic] allies...
Well, there's two ways to think about this.
1) China doesn't really have allies. They've a long history of pissing off their neighborhood extending back centuries.
2) They very much are causing chaos to allies, given that the Vietnamese went so far as to buy American military goods to help defend their portion of the South China Sea, which China sees as theirs.
Trump is making China great again.
Pity about the USA....
The end of the Petro Dollar?
Soviet-China-Iran - Petro Yuan?
Don't think that China stands that close with Russia and Iran. Or needs them, for that matter.
Russia and Iran are irrelevant in the global economy.
There won't be a petro-anything. In 30 years the oil industry will no longer be the resource upon which the whole world turns, and will instead be just another industrial input.
There was never a petro-anything. It's always been and is the Eurodollar global reserve currency. https://en.wikipedia.org/wiki/Eurodollar
Soviet?
"but at what cost" ?
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Deutsche banks slogan should be "If you need to do something shady call Deutsche".
At some point china will loose the ability to keep its global currency (Yuan, should be inflating) decoupled from the domestic one (Renminbi is deflating). They have been keeping long running issues in Banking, and Relestate at bay but a global recession (and were on the cusp it seems) is going to be brutal to china.
I suspect that if (when?) that hits this will turn into another Deutsche scandal.
I don't like, trust or trade with China.
But america xD
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.
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.
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
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.
For a moment, after that EU will come up with a new regulation / taxation causing everything to become more expensive again.
Exactly. It's always been posturing.
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.
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.
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?
> nobody wakes up tomorrow and says they no longer want USD
Depends what happens tomorrow
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.
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.
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.
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
Historically a more multipolar world has been a more violent and chaotic world, but maybe this time will be better.
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.
The current admin has destroyed much of the government backing. Its to he seen if the global business fail to uphold its value.