Chinese Economics Thread

[FugitiveVisions]

You end up with dollars in your reserve mainly because you either sell to Americans, who pay in the USD, or you would prefer the dollar to some other currency because it is less volatile in value.

The Chinese don't have to keep any dollars on its reserves. It can simply stop buying the dollar on the forex market to prop up the exchange rate. If it does that, then Chinese exports become more expensive relative to exports from other countries and the Chinese would end up with less dollar reserves. But apparently it's the Chinese themselves who want the dollar. That's what makes the term hegemony so absurd.

Also, when you export goods to other countries, would you rather that you pay you in pesos or the dollar? You go with the dollar because it's a relatively stable currency.

 

[FugitiveVisions]

The weakness of the Dollar hegenomy is not intrisic to the use of the dollar, but that using it means using the US Banking, Financial and Regulatory Systems and it is these that have been discredited by the current crisis. All the prescriptive measures so far have been to treat the symptoms rather than the cause. The cause is of course the very same Senior Executives that remain in position rather than custody.

Using the us banking system? If that means parking the money in US instruments then that's tautological. Using the regulatory system? I don't know what that refers to.

Nobody risks Billions to the hands of Institutions in which they have no confidence and confidence in Wall Street is currently zero. This is why other nations will look for alternative trade and reserve currencies.

You are talking about investing in US institutions, which is a totally different subject matter altogether. But let's see what actually happened vs. what you said happened. What actually happened was that the borrowing needs of the Fed created a deflationary event around world, which means that citizens of other countries took their savings to the US. Even China with 2 trillion of reserves backing up its currency suffered an estimated hot money outflow of 120 billion dollars in the last quarter. Money talks, bull[censored] walks. If it's not money, it's....

 

[Schumacher]

Does anybody remember the political/economic reasons why we went of the gold standard. Was it Nixon who took us off the gold standard?

Like Pla101 said, it's the usual reasons of too much spendings etc. But I believe one of the last straws was the French taking their US$ to Washington to ask to be exchanged with gold. The US stopped backing their $ with gold soon later.

 

[SampanViking]

Using the us banking system? If that means parking the money in US instruments then that's tautological. Using the regulatory system? I don't know what that refers to.



You are talking about investing in US institutions, which is a totally different subject matter altogether. But let's see what actually happened vs. what you said happened. What actually happened was that the borrowing needs of the Fed created a deflationary event around world, which means that citizens of other countries took their savings to the US. Even China with 2 trillion of reserves backing up its currency suffered an estimated hot money outflow of 120 billion dollars in the last quarter. Money talks, bull[censored] walks. If it's not money, it's....

No I am just talking about International Dollar Denominated Transactions. You cannot just use Foriegn Currency (the dollar to every other nation other than the US) in isolation, you need to arrange and organise your transactions through US Banks or your own National Subsidiary based and regulated in the US. This is why Iran stopped selling its Oil in dollars, as it gave the US to much ability to seize its Oil Revenues before they could be repatriated.

Many trades may use various Banking Instruments in preference to simple currency although these too will all be dollar denominated. If therefore you have reason to doubt the integrity of the Institutions you are dealing through, and the Proberty of the Managers and Regualtors that run and oversee them, you are not going to want to expose your working Capital or Savings to them, its as simple as that and precisely what we are seeing.

When banks do not even trust each other enough to deposit their own cash in each other, what kind of message do you think this is sending out? If I deposit several Billion into a Bank (yeah I know, I wish) in order to complete a transaction I damn well want to be sure that the Bank and my cash is going to still be there in the morning!

 

[FugitiveVisions]

No I am just talking about International Dollar Denominated Transactions. You cannot just use Foriegn Currency (the dollar to every other nation other than the US) in isolation, you need to arrange and organise your transactions through US Banks or your own National Subsidiary based and regulated in the US. This is why Iran stopped selling its Oil in dollars, as it gave the US to much ability to seize its Oil Revenues before they could be repatriated.

Many trades may use various Banking Instruments in preference to simple currency although these too will all be dollar denominated. If therefore you have reason to doubt the integrity of the Institutions you are dealing through, and the Proberty of the Managers and Regualtors that run and oversee them, you are not going to want to expose your working Capital or Savings to them, its as simple as that and precisely what we are seeing.

When banks do not even trust each other enough to deposit their own cash in each other, what kind of message do you think this is sending out? If I deposit several Billion into a Bank (yeah I know, I wish) in order to complete a transaction I damn well want to be sure that the Bank and my cash is going to still be there in the morning!

I think you are talking about two issues. One is a political issue and the other an economic issue. The political issue involves whether dollar payments arranged through the US banking system could be seized by US authorities for political reasons. Such cases are too rare to speak in terms of a hegemony. Besides, if the Treasury decides to expropriate someone's holdings in its custodial holdings, it puts American investments abroad in danger too.

The second issue is whether the banking system is solvent and could protect your money. The FDIC offers protection of deposits up to a certain amount. There is also a program called CDARS that protects up to a few million I think by spreading out large deposits among different banks. But common, if you are talking about a solvency issue, that's not something that's restricted to US banks. You would lose your shirt at a British or Brazilian bank before you do at Citi. And this really has nothing to do with the 'dollar hegemony'.

 

[pla101prc]

Like Pla101 said, it's the usual reasons of too much spendings etc. But I believe one of the last straws was the French taking their US$ to Washington to ask to be exchanged with gold. The US stopped backing their $ with gold soon later.

lol i never knew that. it seems that the only times where the french actually liked americans are when they were either fighting the brits or germans

 

[SampanViking]

I think you are talking about two issues. One is a political issue and the other an economic issue. The political issue involves whether dollar payments arranged through the US banking system could be seized by US authorities for political reasons. Such cases are too rare to speak in terms of a hegemony. Besides, if the Treasury decides to expropriate someone's holdings in its custodial holdings, it puts American investments abroad in danger too.

The second issue is whether the banking system is solvent and could protect your money. The FDIC offers protection of deposits up to a certain amount. There is also a program called CDARS that protects up to a few million I think by spreading out large deposits among different banks. But common, if you are talking about a solvency issue, that's not something that's restricted to US banks. You would lose your shirt at a British or Brazilian bank before you do at Citi. And this really has nothing to do with the 'dollar hegemony'.

I am sorry but you have left me utterly confused by your post. It seems you do not see how US Financial Institutions and regulators play any part in the dollar being the Global Trade/Reserve currency. Is that correct?

Does anyone else following this conversation have a similar problem?

Thanks

 

[FugitiveVisions]

I am sorry but you have left me utterly confused by your post. It seems you do not see how US Financial Institutions and regulators play any part in the dollar being the Global Trade/Reserve currency. Is that correct?

Does anyone else following this conversation have a similar problem?

Thanks

I don't see any confusion. My point is that the US is the global trade/reserve currency precisely because most of world trade and capital flows are conducted in the dollar.

If you want to defend your home currency, what currency would you rather hold, the yen? the euro? You can do that, but the FDI and debt funding are mostly coming from America, and when people take their money out of your country, you better have some dollar if you don't want your currency to collapse.

Same thing with trade. Arabs want to sell oil? That's fine. But they better expect the US to pay them in the dollar and not the Yuan or the Yen.

The dollar as the global currency is a simple reflection on the structure of the world trade and capital system. Your banking regulator sitting in an office in the Fed got nothing to do with that.

 

[pla101prc]

fugitive no one is denying the prominence of US dollar. we are talkin about the inevitable demise of its hegemonic status.

 

[FugitiveVisions]

fugitive no one is denying the prominence of US dollar. we are talkin about the inevitable demise of its hegemonic status.

That's not what Viking is talking about.