because it's not the case at all. de-dollarization is picking up rapidly across most neutral/anti-US countries and this is the start of it. China is trading with Russia in yuan and even India has allowed small players to bypass USD and trade in INR directly https://www.reuters.com/world/india/india-allows-internation...
Something I have been shouting hoarse is that this war in Ukraine is going to have multi-generational effect on world order with USD coming under US pressure.
If Saudi drops USD, which now seems extremely unlikely, then it's truly a descent for the US empire.
The Chinese are demanding Russia trade in yuan because the Russian currency has, through a series of impressive self owns, become completely useless. If the Russian position was even a little less weak it wouldn’t fly because Russians don’t want yuan for the same reason Chinese people don’t, it’s an illiberal currency unsuitable for trade. That’s getting worse not better, because there is a moderate chance if China relaxed its currency controls it would crater their economy and bring the ruling class to an end.
Similarly, the INR is being (slightly) liberalized, not because Indians prefer international trade in their local currency but because it costs them so much to have such a bad currency.
There are reasons to think people would prefer a different currency to USD to be the reserve currency but it’s because it’s not liberal enough. Switching to extremely repressive currency regimes like the yuan or the rupee is counterproductive To the people who want a different international trade currency.
It's like company wanting to paying people with scrips redeemable to company-mart ( china market) and that locks you in, BCS it could be worthless if you don't use the money quickly and/or outside company premises
you're talking about the country that's exporting most consumer goods to the world and has positive trade balance with most countries it is trading with. those yuans are useful to any country in the world. nobody needs to hold yuans, they can readily be transformed in physical goods
I don't want Kasey junk bucks. Which is why I'm scratching my head at youre reasoning the largest economy in the world would accept worthless currency.
And if I held a gun to your head and demanded that you accept kasey_junk bucks?
China has some of the strictest currency controls in the world. To the point if you are doing treasury operations for an international business there you can’t use your normal financial rails to accomplish day to day tasks like manage payroll.
No one, including Chinese citizens, want to keep their cash there. For corporations this manifests in added costs, but for individuals (with even moderate means) it becomes a game of hide the assets. So much so that cities in the west are dealing with asset inflation specifically attached to Chinese buyers.
China doesn’t have a problem with western citizens over paying for property there.
Until a currency liberalizes it can’t become a reserve currency for international trade. So for the yuan we have 2 choices, it liberalizes (and perhaps tanks their leadership) or it stays second class. The current Chinese leadership believes the former is worse than the latter.
And if I held a gun to your head and demanded that you accept kasey_junk bucks?
I don't believe that's whats happening though.
The idea that Russia is holding a gun to china's head just doesn't make sense. Russia and China are part of the BRICS economic treaty, and this treaties main purpose is to see the dollar dethroned. I live in China FWIW and I don't see any of what you describe
Sorry, we’ve been talking past each other apparently. I believe China is strong arming Russia into using the yuan when Russia would prefer anything else. My belief is that this is a sign of how weak the Russian economy is, not a sign of yuan strength.
I 100% believe that the BRICS signatories want to see the dollar dethroned. I’m not even stating an opinion on whether it should be or not. My position is simple, illiberal currencies are not a viable alternative for international trade. A prerequisite for the yuan taking over as reserve currency is it becoming more liberal. That’s not currently the trend.
And fwiw I’ve been both a fx trader and worked in treasury operations for an international. I’ve dealt specifically with moving yuan.
You are right about yuan and it's also the reason why USD is hard to dethrone. Russia even made it amply clear that it won't use yuan for the reasons you mentioned. A proposal was to use basket of currency or a new currency backed by precious metals.
Pretty sure one of the above will happen over the next few years
The US is one of the largest global holders of precious metals. You could perhaps replace it with a rare earth basket but that is effectively the yuan…
> The idea that Russia is holding a gun to China's head just doesn't make sense.
You are absolutely right, because it is the other way around. China doesn't want to have problem with US and EU for dealing with Russia in USD or EUR, so it demands Russia to trade in yuans. Russia is therefore forced to sell its' oil and gas for yuans for the price set by China. The only leverage out of that situation is to trade with India and Turkey in rupees and liras, but India and Turkey can't offer lots of goods only China can.
> because the Russian currency has, through a series of impressive self owns, become completely useless.
Huh. Checks forex rates. Not worthless, USD/RUB went from 100 to 60. It's worth 167% what it was before Feb 2022. How do you explain that?
So many people forget that the value of a currency derives from considerations of supply and demand. When Russia said it demands to be paid in Rubles for some commodities, then this created a demand for Rubles. You may not like the demand, but it is a real demand.
A net exporting nation is not going to have a worthless currency, rather it will be able to control the value of its currency by either insisting that a portion of its exports be bought with its own currency, or -- equivalently -- allowing its exports to be bought with a tradeable currency and then selling that for rubles.
So the strength or weakness of the currency is going to be decided by the net export situation, and as Russia's trade surplus is much higher in 2022 than in 2021, earning roughly $330B in energy exports in 2022, a roughly ~40% increase from last year, it's currency is going to appreciate unless Russia takes steps to devalue it. And that's just energy. Russia is also a major global supplier of fertilizer, wheat, diamonds, gold, titanium, etc. That's what makes the ruble valuable, not what you think of Russia's geopolitical strategy. Currency markets don't reflect the moral value of a nation, they don't reflect their foreign policy, they reflect the net supply and demand for the nation's production. The world is hungry for oil, gas, coal, wheat, fertilizer, wood, titanium, potassium, gold, and diamonds. It is the value of these commodities that gives the Ruble its value.
In terms of China, Russia runs large trade surpluses against China because it is a major energy and food supplier to China. It has therefore accumulated a large amount of CNY reserves, just as the record of all those surpluses. It makes sense that it would use some of these reserves to purchase output from CNY or other countries willing to be paid in CNY. That use of foreign reserves does not mean that the Ruble is worthless, it means that Russia is spending some of its foreign reserves. Nothing particularly special going on here - China is more than eager to sell goods to Russia to reduce its trade deficit with that country.
And what are the currency volumes? What mechanisms can you use to turn rubles into other currencies that are legal in Russia? Can a bank or investor trade rubles currently? What are the interest rates charged to loan rubles? Those currency controls have the direct impact of making imports expensive or unattainable.
Russia is now mulling issuing yuan denominated bonds. As if they were a client state of China. That’s not because their economy is strong. Their trade surpluses are largely because their imports have collapsed.
The ruble/yuan pair is quite simply China taking advantage of a Russian economy that is teetering. Extrapolating out anything beyond that about global reserve currencies is folly.
(laughs satanically) Oh, well, Forex rates! Go try to buy USD with RUB for this rate. Go try to wire those USD out of Russia. Go try to withdraw your USD in cash. Go try to export that cash from Russia.
I am sorry for sounding like a jerk, but you don't understand the current situation in Russia. Country is under heavy sanctions and they are mountaining more and more every month. A good chunk of sovereign reserves are just frozen. Country is net exporting not because it has that much goods to offer, but because it cannot import anything. Yuans and rupees (and YTL) are spent immediately to buy anything from China or India or Turkey. "Anything" like on anything not on US/EU blacklist, because of course China, India and Turkey are more interested in avoiding secondary sanctions than profit from trade with official terrorist-state.
Russia is not officially a terrorist state beyond some symbolical declarations. EU and US still have large imports and also declaring them terrorist would also mean sanctioning secondary buyers like china India turkey.
Also rubles don't have to be exchanged for USD, you can use that to buy Russian gas, oil, arms, nuclear, wheat etc
> Oh, well, Forex rates! Go try to buy USD with RUB for this rate. Go try to wire those USD out of Russia. Go try to withdraw your USD in cash. Go try to export that cash from Russia.
I am sorry for sounding like a jerk, but you don't understand the current situation in Russia.
I mean, you must live in the U.S., which explains why you think your experience generalizes to the whole world and why you think if something is unavailable in the U.S., then it must be unavailable in the whole world.
But for other readers, consider for a moment that there is a world outside of Europe and North America. Consider for another moment that the vast majority of the planet lives in that world -- the world where Russia isn't being sanctioned, where you can purchase Russian output and sell goods to Russia, and demand for Rubles is high because even in the poorest nation on earth, they still need to buy oil, wheat, and fertilizer. They may not be importing a lot of iPhones, but Russian output they will import. This is why despite the sanctions imposed by a small minority of nations, the majority of nations is still purchasing Russian output, which is why Russia exported more to the rest of the World in 2022 than what was purchased in total in 2021. Shocking, I know.
In terms of how you trade fiat currencies, you need to keep in mind that fiat is non-convertible and therefore doesn't leave its own banking system.
All dollars are held in the U.S. system, and for a foreigner in, say, Brazil, to buy dollars, they become a depositor of a bank in Brazil which has a relationship with a bank in the U.S. that is a correspondent bank for the Brazilian bank. The Brazilian bank is a depositor in that U.S. bank, and the U.S. bank buys the dollars and holds them in an account assigned to the Brazilian bank, but which actually exists in the US system. Then the Brazilian bank creates a matching entry in the Brazilian system and assigns ownership of that corresponding account to you. But the dollars stay in the U.S. (here I am ignoring paper money, which can travel, but isn't important for forex rates.). When you decide to sell the dollars, the clearance happens in the U.S., someone else -- either a foreigner with a correspondent bank or a local with a direct domestic bank -- has the money transferred from the correspondent account to their account.
So to buy pounds, you need an account with a bank that has a correspondent account in England, and has reserves in the Bank of England. The pounds never leave England. That is how you buy pounds.
To buy Rubles, you need an account with a bank that has a correspondent account in Russia, and stores reserves with the Russian central bank. The largest correspondent bank is Sberbank. I am sorry that your local bank doesn't have a correspondent relationship with a Moscow bank, but there are plenty of other banks that do outside of that walled garden. This is how Japan and China buy oil and gas from Russia, for example.
So that is how you -- or rather, someone who has escaped the walls of the garden -- can own foreign fiat currencies. In terms of how you trade them, well, dollars are traded in US exchanges, CNY is traded in Chinese exchanges (there is a parallel currency for Hong Kong traded in HK exchanges) and rubles are traded in Russian exchanges. I understand you think the US exchanges are the entire world of forex exchange - perhaps you think they are the entire world of investment -- and that only a black void exists outside of that, but really there are currency exchanges all over the world. The forex rate I cited was from Moex (which is the largest), the Moscow exchange. The volume of forex transactions in Moex is about 18 Trillion rubles a month. After the Western sanctions, there was a decline in volume of about 30% as the Western customers exited the exchange, severing their correspondent relationship, so it would be about 25 Trillion forex transactions per month before the sanctions. Nations outside the West -- primarily in Asia -- account for that remaining 70% of Moex flow, 18 Trillion rubles a month is plenty of flow to support a net trade surplus of 330 Billion a year.
> you must live in the U.S., which explains why you think your experience generalizes to the whole world
On the contrary, I live in Serbia, but 45 years before that I lived in Russia and USSR. So I have a first hand experience with currrent Russia's situation and all the events led it here.
For now, you either cannot have an account on Russian exchange if you are non-resident, or even if you do - you just cannot do any trade. If you have an account with the bank which has connection to sanctioned Russian banks - you will be presented with the rate far different than that you see on Forex. And you have to trade not USD or EUR or other credible currency, but in yuan, which is cursed by CCP (even Chinese people don't want to keep their savings in yuan) or, even better, turkish lira, which is cursed by Erdogan and has tremendous inflation of 10-15% per year for last 5 years. Good luck exctracting you arbitraged value from those.
I also see a visible volume of rupee/ruble on MICEX, but I don't think the rupee is a viable alternative to yuan or TRY for that matter.
This is like the stupidest voluminous comment written by someone who has never observed a market for any length of time. Just the first paragraph is enough to dismiss the rest of this, even if it is accurate lol
It’s so interesting to me that people see the dollar at a long term high, a proxy war in which the US is kicking ass (we don’t even need to send troops, our old equipment is enough) and their takeaway is that the US is in decline.
The US is incredibly strong. That does not mean the dollar is in good shape. Too much strength for your currency of exchange / account is a bad thing. It is why crypto cannot be a currency even if the blockchain was rock solid tech. Nobody in their right mind will use a currency that is that volatile. You cannot price anything properly or run a business. Same with usd. Sure the guy above is exaggerating and he probably knows that, but dollar strength is a bad thing beyond a point. People in finance already understand this very well.
Not very volatile but the USD/Euro parity changed lot during the last five years. The BCE is obsessed with the stability of the currency, but I find that the FED is doing a much better job with the USD or maybe it's also the US economy being more resilient.
I think it’s the US economy being more resilient. Here in Europe things started falling apart when the interest rate went up to 1.75%. The US seems fine with double that.
I think the over regulating of the labor market and Ponzi style pensions are the two major factors. But it is hard to understand how they can be so different. I’d love to read something on the subject if anybody has any recommendations.
US definitely has declined from its peak position of '90-'00. By the end of the last century, even allies were openly voicing concerns over US being a hyperpower and not just a mere superpower. [They are calling us a superpower again.]
9/11 is the inflection point (and subsequent matter is my opinion) and regrettably for us Americans, the store was in the hands of neocons, who stupidly (they wrote in late 90s a document announcing to the rest of the world that ~'US will never permit anyone reaching parity to challenge', shit like that) misused our global position, and give motivation for various powers, including w/o a doubt ~Western allies, to review Swift's Gulliver's Travels ..
We pissed away blood, treasure, and reputation during the regime of the neocons (which spans D and R presidents, btw).
Do you think the laughably comical criticism of "world order" by the "mutlipolarity" gang, the likes of RF or CPC and junior friends, would be taken seriously by other world leaders/nations if US had not acted like a bully these past 2 decades?
We absolutely must re-examine our stewardship performance vis-à-vis the tacit acceptance of other major powers for this arrangement under sane leadership of US of A.
Second, Putin's adventure would not have happened in an environment of robust US prestige and power, but you appear to forget just how oddly our nation has been acting (at least as viewed from an external lens) in terms of our domestic politics. We've lost prestige on that end as well. What made this little man so confident? Why is he still hanging on? It should have been well over by now.
Finally, RF appears to have forced US to use mechanisms -- confiscation of sovereign reserves, etc. -- that I assure you must have scared the living light from all spectators with treasure trusted to the "international order". They are all saying 'but by the grace of god of mamon there go I'!
So we need to get our act together as a nation, if we intend to continue to insist that we are the responsible steward of the Global order.
> We absolutely must re-examine our stewardship performance vis-à-vis the tacit acceptance of other major powers for this arrangement under sane leadership of US of A.
I would much prefer a unipolar world with a benevolent US in the driver’s seat. I think the war in Ukraine shows that that is where we are right now. The idea that authoritarian regimes with a disdain for human rights (like China and Russia) should be allowed anywhere near an equal say in the future of this world is scary to me.
I agree though that this requires more restraint on the use of force than the “neocons” showed. Hopefully US leadership has learnt its lesson over the past two decades: the fact that you have the power to utterly destroy a country does not mean that you have the power to build one.
I will add that there is a legitimate concern, internal and external to the West that so far, given that this issue of ideological extremists (such as neocons) getting their hands on some elements of policy and executive arms of the West did not get a public accounting and redress -- how did it happen and what is to prevent it from happening again -- leaves open the possibility that the unipolar world may very well become uniformly fascist. This remains to be effectively addressed.
>US definitely has declined from its peak position of '90-'00. By the end of the last century, even allies were openly voicing concerns over US being a hyperpower and not just a mere superpower. [They are calling us a superpower again.]
People in the '90's would have bemoaned that the US was well down from its peak in The 40's (you know, when we had nuclear superiority for c. 5 years). But in neither era would an average Congolese citizen use a US-developed product for most of the day (though now they sure as hell use Android and Google). Soft influence is a thing too.
>9/11 is the inflection point
George Bush et al really wanted Americans to believe that, but why? It's not like Iraq is that much different from Vietnam. Both were ill-fated wars we mostly lost, but not in a way that makes our enemies see us as weak (Iraq, particularly its leaders, got annihilated, The US just failed at rebuilding)
>Second, Putin's adventure would not have happened in an environment of robust US prestige and power
Yeah, the Soviet Union never invaded bordering nations during the 20th century.
>We've lost prestige on that end as well. What made this little man so confident? Why is he still hanging on? It should have been well over by now.
You really weren't alive during the Cold War, huh? Remember Chernenko? The one that invaded Afghanistan? He held on just fine.
>Finally, RF appears to have forced US to use mechanisms -- confiscation of sovereign reserves, etc. -- that I assure you must have scared the living light from all spectators with treasure trusted to the "international order". They are all saying 'but by the grace of god of mamon there go I'!
Or they are saying 'better to be a friend of the US vs. an enemy!" It's not like we are picky in who we like (cough MBS cough), we just are opportunists who will welcome anyone who plays along.
> People in the '90's would have bemoaned that the US was well down from its peak in The 40's
>>9/11 is the inflection point
>George Bush et al really wanted Americans to believe that, but why? It's not like Iraq is that much different from Vietnam.
This to me fails to note the categorical difference between the US's role before and after the fall of the Soviet Union.
Before '90 US was representative of one of the candidate systems. After '90, "new world order" of George Bush (the elder). UN was supposed to be the mechanism for unleashing violent force. So Vietnam and Afghanistan may look the same on paper (superficially imo), but they are two entirely different matters as far as the "international community" is concerned. This was the sin of the neocons -- shattering that implicit accord among the powers.
> Second, Putin's adventure would not have happened in an environment of robust US prestige and power, but you appear to forget just how oddly our nation has been acting (at least as viewed from an external lens) in terms of our domestic politics.
I believe Putin perceived Biden as weak. Big mistake. Both of his more recent adventures were during Democrat administrations. The 2008 Russo-Georgian war was during the GW Bush administration, when the US was busy in Iraq and Afghanistan.
That’s like saying “cryptocurrency trades 7 zillion dollars of value per day but only $3M per day of actual business occurs, so actual business considerations can’t possibly affect the price of cryptocurrency”.
There is a whole lot of money moving around via forex transactions, but that doesn’t control the value of the dollar.
Not completely true. The current crisis is driven by foreign buyers not being enthusiastic about buying more US debt. The current inflation crisis is directly related to the large amount of price support for US debt provided by the US Fed in 2020-21.
US govt is essentially holding foreign creditors hostage. If you try to move away from US debt, they will just print more dollars and devalue all your (and everyone else's) assets. So the non-Western world (90% of humans) very strongly wants to dedollarize as smoothly as possible. US debt is extremely toxic, which isn't an obvious fact if you look at the surface only.
> US debt is extremely toxic, which isn't an obvious fact if you look at the surface only.
Is it? Why do you think so?
I’d say it’s the safest asset in the world. Sure, if you buy a 10y US bond you risk having some of the value eaten by inflation. But that’s a relatively “soft” risk in that hyperinflation is unlikely. Default I think is extremely unlikely.
US treasuries are sometimes called "return-free risk". It seems pretty clear that the US government is borrowing unsustainably high amounts. We can't keep this pace of borrowing up for very long. So either the government starts being financially responsible (how likely do you think that is?), or by the time those 10y bonds mature you'll either get highly devalued dollars or just nothing at all.
"The current crisis is driven by foreign buyers not being enthusiastic about buying more US debt."
That is largely irrelevant. As the world's reserve currency, the Federal Reserve could buy up Treasuries as needed. The domestic inflation problem is another matter.
If you have gold but can’t get your hands on USD then something is very wrong, but I doubt that is the case.