Chinese Economics Thread
- Thread starter Norfolk
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Where do they store huge amounts of oil?
Just hike the rmb by 2-3% per year over the next 10 years.
China will continue as is, depreciating the yuan when necessary to preserve exports. By the time China surpasses US in nominal GDP, somewhere around the turn of the decade, China will have the larger economy by ~40%.
You could store it in super large oil tankers strategically placed around the world waiting for instructions to deliver in such and such a place. Provided, of course, you became a world oil trader. Even if just breaks even, transforming the reserves in USD, Euros, CHF and Yens would justify doing it.
But you do not need to deal exclusively with oil. There are dozens of metals you could corner the market with such huge reserves.
Copper, zinc, nickel, palladium, aluminum, etc... etc... etc... All of those easily negotiated and highly liquid. Asides from protecting reserves, you might even make a handsome buck doing so.
As Russia has bitterly seen it, keeping you reserves in those currencies is now proven to be a folly.
Three trillion dollars equivalent in reserves can let you all the markets of those metals and then some.
Hard currency (????) as foreign reserves is nowadays complete and utter folly. Ask Putin.
Keep your reserves in something no one can steal from you.
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That was the old plan. Dual circulation means that China is ready to accept an appreciated Yuan. And with so high commodity prices, it also helps in keeping inflation down
Btw, what is China supposed to do with the fake dollars and euros? Better to invest in internal circulation
I am sorry to contradict you, but I beg to differ. Appreciating the Yuan is something which you definitely do not want to do.
What makes a currency strong is having huge surpluses in its balance of payments.
China receives each day a tsunami of hard currency which it must, necessarily, NOT convert in Yuans. That is why China has so many USD treasury bills (not converted into yuan), and deposits in foreign banks denominated in Sterling Pounds, USD, CHF and Yens.
THAT IS ALSO ONE OF THE MOST IMPORTANT REASONS TO HAVE THE BELT AND ROAD INITIATIVE. To get rid of the excess foreign currency which cannot, should not, be converted into yuans and is to risky to accumulate in other countries currencies.
Using those parameters, the Yuan is by far the strongest currency in the planet. This not wishful thinking. This is a hard fact of life.
It has absolutely everything to become a hard currency reserve for the world, maybe even THE reserve currency of the world, with possibilities of replacing the USD in a relatively short period of time.
HOWEVER...
The price of becoming the reserve currency of the world is having consistently HUGE trade deficits. This is a blessing, but can also be a curse if one abuses this power. It means you can buy anything around the world, be it commodities, be it machinery, ships, wars, etc.... by simply printing green (or in China's case RED) rectangular pieces of paper)
Have you ever wondered how come the US has for the past 50 (yes, fifty) years not had a single year with trade surplus?
Enough for the time being.
In4ser
Junior Member
It's the Triffin Dilemma. Reserve Currencies must be stable and strong but it tends to create trade deficits because a stronger currency makes exports less competitive and the overwhelming demand for the currency makes it tempting for the issuer to create debt and print money like the US is doing now. For those reasons, it may not be in China's interest to have the yuan be the reserve currency.
Does triffin dilemma also counts for a basket of currency? Like the imf special drawing rights or keynes bancor idea.