Trade War with China
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Ahem, the guy who said it doesn't understand the basic math.
The way to devalue the yuan is to buy more treasurys.
Without that it won't work.
If they selling the they would want for it yuan, and that will make the dollar cheaper.
The US treasury is the most safest investment, what else the Chinese central bank can invest the money?
Bank account protected up to 90000 $?
Or Miami real estate?
Or Intel shares?
Hendrik_2000
Lieutenant General
China can invest in BRI infrastructure, buy a lot of mining and oil concession that facilitate trade and lessen dependence on US market
antiterror13
Brigadier
well, it is not about only math ... you may think you know better than the author. I'd bet the author knows macroeconomic much better than you. You only look at (or know) one equation .. in reality much more than that, unfortunately
How?
The US treasuries can be redeemed only for dollars.
If say you want to buy an oilfield in Kazakhstan , then you have to buy tenges on the market.
It will make the tenge stronger against the dollar, so the Kazah has to buy treasuries to stabilise the exchange rate of tenge/dollar.
So, it all that China can do is to transfer the treasuries to other countries if they willing to take it, and exchange it for investments in the given country,
The problem is China can't keep open the trade lanes, means if she will buy say Chilean investment then the US simply can cut off Chile from China, making the investment worthless. This is the reason why China can have only US (or UK : D) investment - the military power guarantee the payback of it .
Of course Chian can buy a lot of american cars, airplanes, computers, ICs, corn and so on from the dollars she receiving from the sale of treasuries.
well, it is not about only math ... you may think you know better than the author. I'd bet the author knows macroeconomic much better than you. You only look at (or know) one equation .. in reality much more than that, unfortunately
I know the trade, and the selling/buying things is around that.
And generally, the economists has very bad track record regard of understanding the work of economy, or giving even advice about basic strategies.
Hendrik_2000
Lieutenant General
China receive dollar when trading with other country China cannot repatriate those dollars or else with will create excess supply of yuan once those dollar are converted and drive inflation Too much yuan circulation in the country So China park those dollar proceeds in treasury Because those bureaucrat went to school in US an they believe dollar is the safest instrument to invest into
I am not sure if US dollar is the safest any more it is more of hype Would you lend money to chronic borrower that is debt up tho their neck. The only reason dollar is reserve currency because of petrodollar where everybody has to buy dollar in order to buy oil.
It a;los to appease the west for importing Chinese product and recycling the money in low interest loan or mortgage But the trumpf administration rock the apple cart All bet is off now
But instead of treasury they can use those dollar to buy mine, oil field built infrastructure
How US is going to cut the Chilean copper mine I am listening Embargo? It is declaration of war you know that
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Wait a second.
The Chinese central bank GUARANTEE the exchange rate of the dollar.
So, if I want to but one thousand rubber duck from china, then the central bank of china will exchange it on the pre-defined exchange rate.
I will take this money, and I will buy the ducks.
Now, I have the ducks, the manufacturer has the yuan, and the central bank has the dollars.
What can she do with the dollars?
IF the exchange rate float, then probably I will not buy the rubber ducks, because if there is too many person buying Chinese goods then the xchg rate will be unfavourable, and the trade would be not profitable.
So, what can do china with my dollars?
By my best knowledge the Chinese law doesn't accept the US dollar as tender money, and I think no one can pay his tax in dollar in China : )
So, I don't think that the government can pay any company in dollars in China : )
And even if the central bank does that all that happens is she will move off the money from his balancesheet to a private company balance sheet, and this company will buy the treasuries.
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