China's Alleged "Victory Plan" Over the US Dollar

Every few months someone promotes complete silliness regarding China displacing the US. Here we go again.

Daniel Lacalle vs Peter Schiff

The winner by a mile is Lacalle. There is no victory for China.

Here are some reasons Lacalle did not mention, but I have mentioned on numerous occasions.

  1. As long as China runs a trade surplus with the US, it will accumulate US assets, primarily US treasuries. The recent instances in which China allegedly "dumped" treasures was in fact a move to stop capital flight.
  2. China does not even float the yuan. It is sheer idiocy to promote the yuan as a reserve currency or even a major global currency until it does.
  3. To hold the status of the world's reserve currency, China would have to be willing to run trade deficits instead of seeking trade surpluses via subsidized exports.
  4. The US has the largest and most liquid bond market in the world. China has next to nothing.This is another requirement to having a currency widely held and used in trade.
  5. The US has property rights and human rights that are nonexistent in China. Even if yuan-based bonds existed, who wants to hold them with that backdrop?

Petroyuan Silliness

The twin sister of "Victory Plan" silliness is Petroyuan silliness.

I discussed many of the above ideas in Gold-Backed Petro-Yuan Silliness: Reserve Currency Curse?

also consider Petroyuan's Crash at Birth.

China is not remotely capable of what Schiff claims and I highly doubt it will be any closer 10 years from now. Chinese banks and SOE are in horrendous shape and the yuan would likely crash if China floated it now.

Mike 'Mish" Shedlock

Comments (14)
No. 1-8
Blacklisted
Blacklisted

Schiff is a gold bug / dollar hater, who has been wrong for over five years, and like a politician that can never admit a mistake, he continues to double-down and remain bitter.

China's 10-yr plan calls for financial reforms that includes developing the domestic economy and allowing market forces to increase the yuan. They also understand they need an unbiased rule of law. Since their leaders actually care about their economy more than being reelected, I have no reason to doubt that China will eventually overtake the US for one primary reason - capital is waiting to flee the corruption of the west. Armstrong's model forecast that China will take over the reigns of economic capital of the world sometime after 2032.

Greggg
Greggg

Maybe it's time for Peter Schiff to write another book...

Tengen
Tengen

Under the current economic paradigm, nobody supplants the US for the foreseeable future. The US wins this fight for multiple reasons, ranging from fundamentals to military to corrupt forces that want the existing system of graft to continue.

When people talk about countries like China or Russia "winning", what they should mean is in the event of global social and economic upheaval. Even then, it's not like they would be taking the reins of power as we know them, but rather suffering less than other societies. It would no longer be about winning the most, but losing the least.

One nice thing about China is that despite their huge population, they do have a basic trust in leadership and in each other. They aren't divided to anywhere near the extent we are in the US. A country that operates in relative harmony is much better for weathering the storm, but not necessarily for buying a McMansion, building up a killer retirement, taking lavish vacations, etc. As long as that game continues, the US remains king. If the system blows up, though, look out below.

SleemoG
SleemoG

I'm certain that Chinese leaders are not stupid enough to take Schiff's bait.

Stuki
Stuki

As long as the size of China's trade footprint with other countries keep growing, there will, slowly, be as shift towards Yuan as a trading currency. If your Indonesian company is almost entirely a supplier to a Chinese multinational building products for sale in Asia, and your employees use their salaries to buy Chinese products, Dollars aren't all that important anymore.

Many Asian companies already feel every move in the Yuan exchange rate at least as much as they feel moves in the Dollar one. Even in Germany, more and more companies are increasingly exposed to the Yuan, as this is where their customers are. Which isn't likely to change anytime soon, as at least the Chinese pays with something. Not just empty promises of Central Bank bailouts.