China's Threat to The U.S. Dollar Is Way Overblown

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SOURCES:

Timestamps:
0:00 - introduction
1:07 - motive
3:46 - sponsor
5:10 - the plan
6:12 - spendability
9:50 - investability
13:49 - liquidity
17:22 - concerns

Attribution:
- Paris 1962 images from glamourdaze on YT

Narrated and produced by Dr. Joeri Schasfoort
Research assistance: Oskar Matthey
Animations by: Hugo Bezombes
Made possible by feedback from: Carlo Humpert & Joram Kok

[miketheneanderthal]

I think any country with significant capital controls will have a difficult time becoming a reserve currency

[whcolours]

China doesn't want the end of the dollar system; becoming a new reserve currency, even challenging it would devastate its trade position.

[ddicin]

Demographic factors enter into this too. An ever smaller young people cohort in China will make a consumption driven economy harder to achieve. I'm glad you mentioned the liquidity angle because that's why I think this displacement theory will fall down. People outside china need their currency and would really rather get it not from borrowing but from exports of goods/services to China. People don't like to borrow.

[josephmassaro]

You had me on Ray Dalio being an economic analyst.

[lilytea]

0:05: 🌍 China's plan to end the dominance of the US dollar as the global reserve currency threatens the US' advantages in their global rivalry.
3:32: 💰 China's plan to end the dominance of the US dollar involves making the renminbi more attractive for international trade and investment.
7:08: 💰 The Chinese renminbi may become more spendable internationally if China's plan to settle oil and gas trades in renminbi is successful.
9:58: 📈 The accessibility and depth of the US financial markets make the US dollar more attractive for savings and investment compared to the Chinese renminbi.
14:10: 🌍 The liquidity of a currency is important for its attractiveness, and the US dollar scores high in this category with a 9 out of 10. On the other hand, China relies on borrowing to obtain foreign currency, which is a risky strategy.
16:53: 📈 China's plan to challenge the US dollar as a global reserve currency is still a long way off, but it is making progress.
Recap by Tammy AI

[purushottamsapkota]

I owe big part of my economics learning to you, Jourie. Your videos inspires me to be a central banker. Hopefully it’s there

[dathes]

A detailed video on international bank transfers would be interesting if it includes regulation around anti-money laundering/-terrorism and currency controls, together with overview of bank transfers such as ACH, Swift and others.

[LiamNI]

You didn't mention much about the tight currency control China wields over the RMB, or the manipulation of the value of RMB. Until the RMB is a free-floating currency, and foreigners have easy access to capital markets, the RMB won't even overtake the Swiss Franc as a usable currency, nevermind the other basket currencies such as the EUR, GBP or JPY.

[AnexoRialto]

The US dollar's reserve currency status means ALL international payments must go through the USA. I am in Spain and want to pay for something in Mexico in dollars. That payment has to go through, and therefore is controlled by, the NY Federal Reserve. That's what counties like Russia, China, or Iran would like to circumvent because of current or possible future sanctions.

[quedtion_marks_kirby_modding]

As you mention at the end, this plan will realisticly just work as a way to create a trade bloc between santioned countries.

[fejfo]

It would be interesting to see the EUR rated on the same scale

[adriansaw]

Opening up their capital accounts will result in net outflows of wealth by natives in PRC. Replacing USD will also mean RMB has to be exported which means trade deficits and manufacturing going to other countries. So...

[aluminiumsandworm]

I think talking about how the us dollar got to the point of world reserve currency would be helpful to the video. Part of understanding what it would take to replace a universal currency like the usd is understanding how it became such a currency in the first place. Overall, I liked the video a lot, but it just felt incomplete without some mention of the Bretton-Woods system.

[rubentarne]

Great video, Joeri! I like that you mention the trade balances. I had not really thought about the trade deficit as improving the USD stance in the currency hierarchy, but it makes a lot of sense. I also found your way of taking your knowledge-exporting business as example made it very easy to follow (as these cross-currency trades can become very hard to follow pretty quick).

[jdewit]

I have a question.
What if the US is no longer able to print more money in bonds because overseas countries are selling them back and the opecdollar no longer exists ???.

[yg]

I wish the little score sheet was available in a link, preferably with attribution information, so I could share it elsewhere.

[inuwooddog]

I would like to bring these points to the table:

1) The whole picture: While we are having a tunnel vision on China, this "De-Dolarisation" is not an isolated case exclusively by China. Latin America, Middle East, Africa, Asia are doing the same thing in different names and currencies.

2) The motivation: The Chinese currency could be the worst currency on the planet, but that not the point. It is literally De-Dolarisation This is not about the Chinese Yuan. President Joe Biden used the "financial nuclear bomb" on Russia, and that really freaked the rest of the world out.

Traditionally, we would diversify into Euro, Pound and Yen. But these currencies proved to be worthless since their countries subserviently followed the US sanctions, seizing client's assets and gold. We might as well just hold US Dollar.

This such situation, diversfy your currency reserve to US's rivals make perfect sense. Neither side can sanction us.

3) Technology: This is happening regardless of China. The technologies are growing, making alternative currencies and monetary system more and more viable. Change is constant. The idea of the US can keep doing exactly the same thing and get the same rewards forever is absurd. This single global reserve currency paradigm is gone.

4) China is just a developing country, and for valid reasons. Huge economy doesn't mean developed economy. It is unstable and lack of many facilities.

5) It's not really De-Dolarisation. Just diversification. Dollar will still dominate, just not dominate enough to use that "financial nuclear bomb" again.

[wk]

The rest of the world is ok with the USD being the reserve currency, the speed to de-dollarise is more related to the realisation that your money can very easily be stolen by the USD system. Its all about risk management. This is the biggest elephant in the room.

[jeffhicks]

People get way ahead of themselves. This isn't even on the Chinese radar until at least 2050. Right now they're more concerned about how they can manage their dollar denominated assets without getting ripped off by a debtor that seeks jubilee by means of inflation.

[faisalhadi]

A good explanation as always. Good job man 👍