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)
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FlyOver_Country
FlyOver_Country

In the long run, there are more downsides to being a reserve currency than upsides.

Escierto
Escierto

The thing I don't understand is everyone acts like China must hold US Treasuries but why is this necessary? Russia unloaded all its Treasuries so why can't China do the same and accumulate precious metals in the future instead of US paper? Why does anyone buy Treasuries? It's toilet paper!

ML1
ML1

Yuan rocketing upward would destroy China's economy which is dependent on huge exports to US and Europe (since the tie up to dollar and Euro through a currency basket where dollar has the highest weighing and Euro the 2nd highest). Schiff is a loony. China also can not lower the yuan much because food that China imports a lot becomes too expensive to peasants leading to Chinese spring where communists are overthrown if yuan drops too much. Arab spring started because of large food price increases worldwide and especially in the Arab world and the catalyst was a market seller who set himself on fire after authorities had fined him and confiscated his products.