this post was submitted on 11 Jul 2023
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United States | News & Politics
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https://www.wilsoncenter.org/blog-post/china-top-trading-partner-more-120-countries
I mean that countries buy products from China which means that they can always convert yuan into something they need. This was basically the premise behind petrodollar as well. When you could only buy oil in dollars, that made dollar valuable as an international currency.
Of course it's important, it's why Russia is currently trading with India in yuan instead of rupees. They can't spend rupees on anything they need, but they can spend yuan.
Both UK and Japan are in an incredibly precarious economic situation right now, and US has astronomic debt servicing of which is directly tied to global demand for dollars. If this demand starts shrinking then US will not be able to service the debt and will be forced to default.
If you have any reserve currency, you can convert it to something you need because many other countries accept it for trade. That's the whole point of being a reserve country.
If you hold dollars, you can use them to buy things from the EU, Mexico, etc because they accept dollars for trade. You aren't locked in to buying from the US, and the US honestly doesn't export that much anyway. The reason people like trading in dollars isn't because of the things you can buy from the US with it, but because it's an established currency that isn't likely to see surprising changes in valuation or monetary policy. It has nothing to do with the US producing a ton of physical goods.
The yuan will only "win" if they can prove that their currency is more stable than other currencies, and that will take decades to establish trust.
The Indian rupee isn't a reserve currency, the yuan is. So Russia can use yuan to trade with other countries easier than it can rupees, and both countries will have yuan on hand because it's a reserve currency.
That's the same way with pounds, yen, and euros. People use them not because they intend to buy things with them from the UK, Japan, or the EU, but because both parties in the transaction have them since they're established reserve currencies.
That's a bit hyperbolic.
Japan is seeing stagflation largely because their population is dropping, and that's due to cultural and policy choices. If you look at their domestic policy, they're actively trying to increase the birth rate to get things back on track. If they can't, they'll need to loosen up their immigration policies, which is culturally unattractive to them.
The UK is having issues because of "Brexit," yet the economy remains relatively strong despite half-committing to exiting the EU. It's a temporary thing.
Both countries have a clear reason for the economic situation they're in, and they're both reversible. Also, their respective currencies have remained relatively stable during that time as well. They're both still incredibly prosperous, they're just not growing as much as they'd like to.
The concern with dollars now is that if US has a beef with your country then they can just steal your reserve funds and cut you out of trade. This obviously isn't a concern for the vassals, but it's increasingly becoming a concern for countries that want to retain their sovereignty.
We're already seeing lots of trade happening in yuan, and the trend is only growing. It's a self reinforcing process because as more countries use yuan for trade the more it becomes legitimized and thus more attractive for other countries.
Yuan is not a reserve currency at the moment.
It's absolutely not, economic fundamentals are terrible in both countries, and standard of living is rapidly declining. UK issues go far beyond brexit which has become a popular reason to blame all the problems in UK on. Brexit simply accelerated many underlying trends that have been developing since at least Thatcher days.
While the problems may be reversible in theory, it's pretty clear that such reversals are not really possible given the political climate in these countries. The trends that are happening will continue accelerating going forward.