
Europe’s central banks are starting to replace dollar reserves with the yuan - tosh
https://qz.com/1180434/europes-central-banks-are-starting-to-replace-us-dollar-reserves-with-the-chinese-yuan/
======
sremani
>>In June, the European Central Bank announced that it had exchanged €500
million ($611 million) worth of US dollar reserves into yuan securities. This
was a small shift—the ECB has €44 billion in foreign exchange reserves

Before declaring fall of USA, blaming Trump for apocalypse and anointing Xi as
the new Emperor, lets take step and really see the numbers.

$611 million is a marginal amount when we are talking about foreign reserves,
its sure not nothing, the Germans are basically telling Americans hey look
what we can do here. Its a passive aggressive move but mostly symbolic.

If they buy more Yuan, and Yuan to Dollar exchange rate gets effected. Walmart
needs to shop somewhere else because Chinese goods are not cheap any more.

~~~
dogma1138
Europe can buy all the yuan in the world and it won’t have any effect.

The exchange rate between the dollar and the yuan is set by the rate at which
China is buying US debt not by the global markets.

China prints money to buy US debt it allows China to devalue its own currency
without devaluing its assets and this deal allowed the US to pretty much
generate as much currency as they want through cheap debt without devaluing
it.

The only thing that would affect Walmart is a tariff war with China, Europe
can huff and puff all it wants but it isn’t a relevant player in this specific
scenario.

~~~
dmichulke
> Europe can buy all the yuan in the world and it won’t have any effect.

That is entirely wrong.

There is only a limited amount of Yuan, so by definition the supply of Yuan is
affected, no matter in which currency it is bought. Therefore, the price is
affected as well.

Will wheat in USD get more expensive if I buy all your wheat with Ruble? You
bet it will.

~~~
Symmetry
The amount of Yuan isn't literally infinite but China can print new Yuan a lot
faster than Europe can buy it up and, in practice, would absolutely need to in
response to extra European demand so as to not suffer from a deflation induced
depression.

~~~
gcb0
the amount EU can buy increases as they print more Yaun. not the other way
around as you suggested on the first sentence.

------
xir78
A few years ago I couldn’t tell you the name of a Chinese company off the top
of my head, now I can not only rattle of a list, they’re companies I’ve worked
with or have significant investments in companies in the US. I also have a
roster of WeChat contacts.

I also work with multiple ex-pats that fled fearing for their life due to
persecution based on their religion (Falung Gong), and laugh at how freaked
people are about an insignificant Trump compared to a truly vicious
government.

~~~
ksec
>about an insignificant Trump compared to a truly vicious government

Which is true. But most US citizen doesn't realize how their system, while
extremely bureaucratic in nature, protect real bad things from happening.

There both have upside and downside. Only History will tell.

~~~
agumonkey
I dearly thought he bureaucratic system would have ejected current president
though. It didn't protect much IMO.

------
e3b0c
I think people have to understand the origin of the dollar reserves before
imagining the implication. In the cases of Chinese and Japan (and most other
export-oriented economies), the accumulations of dollar reserves are the by-
product of the exchange rate manipulations, which are to make their currencies
undervalued to maintain the export competitiveness.

The US dollar has been the 'target' of such exchange rate manipulation is
mostly because of its role as the largest import economy. As a result, if
China becomes the next big importer, other export-oriented countries will
probably do the same trick like it has been doing to the US.

~~~
simonh
It’s not really a trick. If you’re an exporting country and you sell a lot to
the US, you’re going to end up with a lot of Dollars. Either that or you’re
doing something very wrong.

In any case, China hasn’t been significantly manipulating its currency at
least for the last decade. Such charges had some validity in the early 2000s,
but that’s old news. Since then China has largely diversified its currency
holdings and it’s not really an issue, see link below, but there are stil
votes in China bashing.

[https://www.economist.com/news/finance-and-
economics/2171799...](https://www.economist.com/news/finance-and-
economics/21717997-government-has-been-pushing-price-yuan-up-not-down-china-
and)

The article below from 2 years ago on this also sheds some useful light. At
the time the dollar had recently rapidly appreciated against most other
currencies, but the Yuan was at that point fairly strong and then stayed
stable rejecting an opportunity to depreciate along with everyone else. In
hindsight the articles analysis has proved to be remarkably prescient. The
European banks accumulation of Yuan is testament to the increasing credibility
of the Yuan, as it predicted.

[https://www.economist.com/news/finance-and-
economics/2164420...](https://www.economist.com/news/finance-and-
economics/21644205-devaluing-yuan-would-do-china-more-harm-good-currency-
peace)

------
mc32
I like Japan --I think for a mid-sized country they have done well for
themselves... but their representation in foreign reserves is a bit outsized.

The Yuan, given China's economic strength, has nowhere to go but up. We'll
have to see how European Central banks like that in 10-20 years when they
exert more influence on policy.

~~~
seanmcdirmid
The yuan is not convertible, like the yen, dollar, and euro are. It doesn’t
float, it’s exchange rate is set by fiat.

When the yuan is actually traded in the wild, then it will move a few steps
closer. I don’t think the government will ever let it get stronger than 6
rmb/usd, it would absolutely ruin their exports.

~~~
leemailll
>it’s exchange rate is set by fiat.

Trade might be controlled, but definitely not flat
[http://www.xe.com/currencycharts/?from=USD&to=CNY&view=10Y](http://www.xe.com/currencycharts/?from=USD&to=CNY&view=10Y)

~~~
seanmcdirmid
They directly adjust the exchange rate each day, it is not set by the market.
There is a market based rate in Hong Kong for RMB (referred to as CNH), but it
necessarily closely follows the government rate.

------
tim333
Well China's now the world's largest economy by PPP GDP [1] so it makes some
kind of sense. I'm not sure how freely convertible the Yuan is though.

[1]
[https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)](https://en.wikipedia.org/wiki/List_of_countries_by_GDP_\(PPP\))

~~~
indubitable
This is not based on GDP. A big part of the USD's stability has been based on
an indirect oil backing. Going back to the 70s the US in which we offered
substantial benefits to oil producing nations in exchange for little more than
them only selling their oil in USD, and then investing excess revenues in US
securities. The petrodollar in another word. This has numerous positive
effects other than what I'm mentioning here, but I want to keep this brief.

Haven't you ever wondered how it is that the US is going deeper and deeper
into debt, how we increased the US Monetary Base 400% since 2008 [1] with no
economic consequences, how we 'printed' (not really) trillions of dollars in
quantitative easing, or more generally how now we're only paying off old debts
by taking on even greater levels of new debt with no reversal anywhere in
sight? If a private organization was doing that, it'd be called a Ponzi
Scheme. Yet we engage in all of this with minimal to no economic consequences.

But none of this matters because the USD represents access to oil. Oil is the
most in demand resource in the world. And when the price of oil is pegged to
the dollar, it makes USD the most in demand currency in the world. But China
recently has been making huge strides in getting nations to swap to the yuan
for oil. Rather than give any links go search for 'china oil yuan' and you'll
get countless articles all within the past couple of months about what China
has been doing. In particular China is attempting to even get Saudi Arabia to
start pegging their oil to the Yuan, which would be an enormous blow to the
US. If they succeed here, it may mean that the USD will need to stand on its
own weight. And at that point, we may have to answer for our own economic
decisions.

[1] -
[https://fred.stlouisfed.org/series/BASE](https://fred.stlouisfed.org/series/BASE)

~~~
tim333
I not convinced oil is that big a deal these days. The US kind of owns huge
swathes of the world economy - tech - facebook, google apple etc, fast food
and drink - coke, pepsi, McD, places to stay - Hilton, Sheraton, airbnb and so
on. Typed in Bangkok on an Apple while drinking coffee paid for on MasterCard
while waiting to fly on a Boeing.

So people will lend to the US as it had a lot of income, assets and a
reputation for paying. Compare that to the country with the world largest oil
reserves, Venezuela.

~~~
indubitable
Oddly enough in society the relevance of a resource and its cost are often
quite detached. Imagine Facebook/Google/Apple/Coke/etc all shut their doors,
never to open again, tomorrow. There'd be no particularly dramatic change in
society.

By contrast, imagine all oil producing nations suddenly stopped exporting any
oil tomorrow. Once domestic reserves of countries ran out the entire world
would grind to an incredibly rapid halt. Electricity, transportation,
shipping, and everything would stutter and then come to a near complete stop.
And society itself would likely break down in very short order. It's not about
the dollar value of oil, but about its relevance to society. You'd think those
two would be strongly correlated, but they're not.

This is why oil and the petro-dollar have so much inherent value. Without oil
society collapses, and USD is the gateway to oil. That 'is' may be changing to
'was.'

------
kylell
this is also an effect of US isolationism and America first rhetoric which
also means abandoning other states, eg. Ukraine, when the US loses its
influence/importance so does the dollar, meaning you can't print like crazy
and export your inflation in the world.

~~~
mtgx
It's only a shame that it has to be a country like China that rises up at US'
expense, rather than say Switzerland, Germany, Sweden, etc. What happens to
global human rights when it's China that has an oversized influence on world
politics and when countries start easily accepting extraditions to China (say
for criticizing the Chinese leader, which could be a crime there), and many
other outcomes like that?

US' track record isn't stellar, especially over the past 2 decades, and in the
past decade the US has also taken a backseat in terms of actually protecting
humans rights, even during Obama's time, but at least if you discount US'
human rights violations in the Middle East, the US has been rather neutral on
human rights (read: not positive) elsewhere. China may actually turn things to
a negative trend for human rights everywhere else.

The UK under David Cameron had already started to use China as a role model
for domestic censorship and surveillance. If China's influence grows, I
imagine many other countries will follow UK's lead.

~~~
kuschku
We only have ourselves to blame for that. Had we actually created a federal
Europe, we would have been the ones profiting off of this.

Now, instead, it's China, and we're still not getting anywhere.

~~~
foepys
You cannot just "create" a federal Europe. This naive view is why the Middle
East is in a constant state of looming (civil) war. British and French
colonists drew state lines without considering tribes and cultures and now
those tribes are fighting over control in countries they don't even want to be
a part of.

~~~
kuschku
The alternative is China controlling everything, and us being delegated to the
back benches.

I'd rather fight with the other european countries over such small details
than live in a world ruled by an autocratic China.

~~~
jacobush
The Balkan wars were fought over such small details. It could easiliy go badly
in Europe at large (again...) and then China would gain from that situation
too. Do you think they would be too shy to help some warring faction or other?
They tried in Yugoslavia and that was back in the 90s!

------
Animats
China's exchange controls limit the external use of yuan. China's leadership
and the PBOC go back and forth on this. If the yuan is to be used widely
outside China, China will have to relax their exchange controls. But that
means more exposure to external financial events like recessions. A few years
ago, reduced exchange controls seemed likely, but now, things seem to be
tightening up.

------
rotoava
>I also work with multiple ex-pats that fled fearing for their life due to
persecution based on their religion (Falung Gong)
\-----------------------------

Hi，I don`t think so.

I come from China, when "Falung Gong" come out I am at college, after so many
years I still believe what the GOV define the movement right, it is "cults and
religious extremists".

Why I believe that?

1\. The "Falung Gong" is alt kind of "qi gong", I did have seen some people
practice "qi gong" to keep healthy, basically, it is unscientific and
ignorant.

2\. "qi gong", "gong fu", "tai ji" has no leader, but "Falung Gong" has a
leader. And the leader can't sacrifice himself but lead some other kind people
sacrificed.

3.Now I am a more fan of the old lead "Jiang Ze Min".(Like many others in
Chinese social networks, lol). I think He may make the right decision.

At last I don't think the GOV have the ability to stop and kill any movement
is a good phenomenon， But there is still a line which clearly divides the cult
movement from ordinary movement.

Scientific, liberal and democracy may be the most valuable thing to pursue by
China people in the future. But the "Falung Gong" like cult which fool good
people did not worth any remembering.

------
Rexxar
To avoid confusion, those reserves are used for technical forex operations and
are not a way to guarantee the value of euro. Relevant ecb web page :
[https://www.ecb.europa.eu/ecb/tasks/reserves/html/index.en.h...](https://www.ecb.europa.eu/ecb/tasks/reserves/html/index.en.html)

------
mjpuser
I need HN’s help... What benefits do countries/governments/politicians get
when their currency becomes internationally accepted?

~~~
ar0
Some points (probably not complete):

a) You can ask your trading partners to trade with you in your own currency,
which eliminates currency risk for your companies. E.g. an American company
can just sell their stuff for a fixed USD price, and their trading partners
will have to take (or hedge) the risk of their currencies fluctuating against
the USD.

b) You will have lower borrowing costs for your government debt. If your
currency is a reserve currency, that means that many foreign central banks
will hold your currency as currency reserves. And they won't stash cash in
their cellars, they will buy your government debt (e.g. Treasuries). More
people buying your debt means lower borrowing costs (and thus interest
payments) for your government.

c) If you control a currency that is used for international transactions, this
gives you extra-terrestial legal leverage over the parties of these
transactions. The U.S., for example, uses its "ownership" of the USD to
enforce their sanctions regime and other laws: many banks e.g. in Europe will
not process your payments to Cuba (particularly not in USD!), even though
there are no European sanctions against Cuba, just because they can't afford
to lose access to USD clearing in the US and thus don't want to risk
antagonizing the US.

d) You can borrow internationally in your own currency. This is not an
important thing for China, which has huge reserves, but it will be for other
countries. If people don't trust your currency, you will have to borrow in USD
or another foreign currency. This means your country can go bankrupt: If you
are running out of USD / EUR / etc. you can't service your debt anymore. If
you borrow in your own currency, you cannot really go bankrupt: you can always
just print more money to service your debt (this will have negative effects
such as inflation, of course, but it might be less catastrophic than a
default).

------
jv22222
Is this shift in any way related to Trump, or would it be happening right
about now anyways?

~~~
NicoJuicy
I think that how we perceive/admire? America has greatly declined since Trump.

America has been unable to even talk with America's business, internally in
the white house, within Republicans, others (eg. who has the biggest button,
NATO, Paris Climate, ...), ... I'm pretty sure he's guilty to everything that
is said ( Eg. Russians, money-laundering, paying zero taxes, ...) How do you
think such idiocracy is perceived throughout "more serious grown-up" world?
There is only one word for it: incompetence.

Worst of all, he really believes he's a genius.

~~~
emodendroket
The continuity with Trump is a lot more significant than a lot of takes would
have us believe, though. He's just a symbol of deeper systemic issues which
aren't even confined to the US.

------
ApolloFortyNine
Doesn't China still artificially control the exchange rate of the Yuan?

------
eksemplar
We really should up the place of Chinese in our school systems as well.
Especially with Brexit in mind. There is really no reason for it to be native
> English > German/French > Chinese anymore.

~~~
learc83
Chinese is many times harder to learn than the other languages you mentioned
for Native English speakers.

It takes about 4 times as long as French and Spanish to become proficient.

Given the amount of time kids spend on foreign languages in school, there's no
way they're learning enough Mandarin to be useful.

I took Mandarin as an undergrad, and I can understand more Spanish despite
having never studied it.

~~~
eksemplar
We’re not native English speakers, English is our second/third language.

Chinese is also already available in our schools. It’s just not a high
priority. It’s on par with Spanish, Greek, Russian, Japanese and some such.
This doesn’t correlate to the importance Chinese has on our society these days
though.

English used to be the most important language, these days it’s German and
Chinese and I see nothing on the horizon to change that outlook, so it’s kind
of silly to weigh it’s importance in our school system as low as Korean or
Greek.

I realize it’s harder to learn, but that’s what schools are for. I mean, when
I was young we didn’t teach English until the 4th grade, these days we start
teaching English by age 6 and everyone learns 3-4 languages.

~~~
learc83
You've not mentioned where you're from.

You're on an American site, and you talked about Brexit, so I assumed British
or American.

>English used to be the most important language, these days it’s German and
Chinese

I'm having a _very_ hard time thinking of a country where both German and
Chinese are more important than English. Where is this?

~~~
eksemplar
I’m Danish. I did specify “native > English > ..,” though, so I figured that
gave the non-English native thing away.

Our most utilized languages in business and tourism used to be English, German
and French.

It’s now German, Chinese and English, in that order.

In everyday usage English is still important and will remain so for years to
come. But if you’re looking for languages with professional application
Chinese is at the top.

~~~
learc83
>It’s now German, Chinese and English, in that order.

>business and tourism

A search of the number of tourists from different countries visiting Denmark
shows that the number of tourists from the UK and America still dwarf the
number of visitors from China. So I'm not sure why you'd say that Chinese is
more important than English for tourism.

It also looks like Germans have always been the largest group visiting Denmark
--that hasn't changed.

As for business in general, China makes up about 4% of exports and 7% of
Danish imports. So I'm not really sure by what metric you're putting Chinese
above English.

> But if you’re looking for languages with professional application Chinese is
> at the top.

If that's true, it's more likely because 86% of Danes speak English so it's
not really much of an advantage within Denmark.

China is a growing economy, but English is still the language of world
commerce, science, and entertainment.

I think that you're mistaking growth rates with absolute values.

~~~
eksemplar
We’ve had 300.000 Chinese tourists since August. I’m not sure how many
Americans have been by in the same period, but in a typical year we get maybe
10.000.

~~~
learc83
Where are you getting these numbers from? The CIA factbook says over 300k
Americans visit Denmark every year, and the information I can find on Chinese
tourists says Denmark was estimated to get less than 300k Chinese tourists in
all of 2017 (it was updated in Nov 2017).

Also Denmark gets close to a million British visitors per year. And then add
to that the number of visitors from countries who are very likely to speak
English as a second language, and the people from countries like Ireland,
Canada, and Australia.

I think the problem here is that you don't notice all of the English speakers
because they just don't stick out as much as Chinese tourists do. Sure you can
notice the obvious tourists, but there are plenty of them that you wouldn't
know were tourists unless you talked them. Chinese culture is also much
different, so they are even more likely to stick out.

In addition, I'm going to guess that Chinese tourists are a common topic of
conversation and news coverage, at least more so than English speaking
tourists are because it's a change from the norm--you have to change if you
want to accommodate them. This can lead to you over-representing Chinese
tourists in your mental model.

------
mdekkers
Dear USA, can we please have our gold back? Sincerely, Europe

~~~
devnonymous
Dear Europe, It wasn't your gold to begin with. Sincerely, the erstwhile
colonies.

------
jhoechtl
Do yourself a favour and call it by it's name: the curreny is called Renminbi

~~~
kuba77
Do you also get annoyed at people calling pound sterling pound?

~~~
iagooar
Yes, I'm sure he or she is exactly that kind of person.

------
acd
A lot of the Dollars value are due to trade of oil being conducted with US
dollars. Thus the Federal reserve has had a special privilege of being to able
to print new US dollars through debt which a large commodity oil are being
traded in.

However with the rise of electric cars in the future there may be less demand
for the Petro dollar. How will a new world currency be formed, will it be a
Petro Yuan or will it be a global crypto currency like Bitcoin? Doesnt a new
global crypto currency need to have around 2% inflation new coins per year to
stop hoarding from occurring?

US produces a lot of IT-services for example Amazon, Google, Microsoft, Uber,
Netflix, Arbbnb Dropbox but nowadays less physical goods.

[https://en.wikipedia.org/wiki/Monetary_hegemony](https://en.wikipedia.org/wiki/Monetary_hegemony)

Rise of the Petro Yuan [https://dailyreckoning.com/rise-petro-yuan-slow-
erosion-doll...](https://dailyreckoning.com/rise-petro-yuan-slow-erosion-
dollar-hegemony/)

Historically reserve currencies has lasted around 100 hundred years.
[https://philosophyofmetrics.com/history-of-world-reserve-
cur...](https://philosophyofmetrics.com/history-of-world-reserve-
currencies/http://www.pragcap.com/wp-content/uploads/2014/06/gundlach1.png)

