The US wields incredible negotiating power and hegemony because the dollar is the world’s reserve currency. Like the British pound and the Dutch guilder before it, if that loses reserve currency status it will be harder to borrow on favorable terms, which would affect the entire US economy. This is a big step in that perhaps starting to happen over the next few decades.
One consequence of the transition to renewable energy and electrified transport, is that oil imports will start to decline. And the dollar is of course the currency of choice for that.
The US economy and other countries that export fossil fuels will feel the impact over the next decade or so. The energy transition might go a lot quicker than people seem to expect. Currently about 20% of global car sales is electric. In some countries it's well over 50%. China of course being one of them. And they are making rapid progress with electrifying freight as well. This is already impacting their fossil fuel imports. They still import a lot.
One effect that I think people underestimate is that while it will take a long time for all the ICE vehicles to disappear, the new ones do most of the driving. So, new EVs have a relatively large impact on fuel consumption and imports pretty early on. E.g. Chinese diesel imports apparently already are being impacted by their rapid deployment of tens of thousands of electrical trucks. Soon hundreds of thousands. That's already a third of the market in China and will probably head for well over 50% in a few short years. The EU is not that far behind.
The ripple effect that's going to have on oil trading, refinery capacity, etc. is going to be substantial. Of course current geopolitics is speeding things up massively. LNG and oil scarcity is causing a lot of issues globally and countries are accelerating moves to reduce their dependence on that.
Demand destruction will collapse profits and accelerate the oil/dollar downfall. Saudi Arabia can profitably pump oil probably under $10/barrel. If demand drops, thats where oil should be.
China with [EVs|Solar|BESS|Turbines] will replace all of the fossil fuel countries (US, middle-east, Russia). This is probably the biggest transition in the history of mankind. This is energy production, storage and all the appliances that use electricity. After this, its incredibly hard for any other country to compete.
I had never considered the demand destruction effect of EVs on fuel like that. It makes sense though, because the biggest users will justify switching to electric faster because the payoff time is quicker.
> In some countries it's well over 50%. China of course being one of them
As always with these stats, I like to check whether that includes plug in hybrids, and it does. Those are still mostly dependent on fossil fuels, although they use less. Pure BEV adoption seems to depend on your radius from Norway: https://www.autonergy.co/blog/global-ev-adoption-leaderboard...
(France should really be doing better, after all migration away from fossil fuels was a motive behind the Pompidou/Messmer nuclear buildout in the 70s!)
The yuan will never become a reserve currency as long as China maintain tight currency controls around importing and exporting it. It's very difficult to (legally) send CNY out or China.
The euro is in a much better position to be adopted as an alternative, but its share of global reserves has been flat at around 20% for years.
No, and I dont think China wants the Yuan to be the reserve currency. But this is a good step in allowing better currency trading/exchange. Which can make imports between the EU and China cheaper.
> The euro is in a much better position to be adopted as an alternative, but its share of global reserves has been flat at around 20% for years.
The Euro is only 25 years old: it would be pure folly to make the "reserve currency" something that recent.
Then... One country of the eurozone already partially defaulted on its public debt (Greece, in 2015). And France is running an insane deficit: so bad that there are now talks of the International Monetary Fund taking control of France's public finances. France had to raise the yield on its debt to its highest level since nearly 20 years. France cannot reach the "only 5% of GDP" in yearly public deficit, on top of an already insane public debt: it is snowballing and the only outcomes are going to be miserable for the people (and for the EUR).
An economist, before the EUR began circulating, explained by which mechanisms the EUR would lead to Spain, Greece and then France default on their public debts. When Greece did default on its debt, that economist said: "I was only wrong on the order on which these countries would default".
One would be crazy to make a reserve currency a currency that's a mix up of countries that have different productivity and different fiscal laws.
The EUR is one of the worst currency ever conceived and it could turn out to also be one of the shortest lived currency.
>> The yuan will never become a reserve currency as long as China maintain tight currency controls around importing and exporting it. It's very difficult to (legally) send CNY out or China.
Did you read the article? It seems that may be changing.
Does the world still require a reserve currency? Spreading risk across the Dollar, Yuan, and Euros seems more logical. While the hurdles and friction associated with foreign exchange (FX) and international transfers were significant when reserve currencies were crucial, they are not as big an issue today.
This whole house of card is very modern, there was no such thing as "Reserve currency" not even the British pound, it was the most traded currency.
but holding a currency's (debt) as a foreign reserve instead of gold is very recent phenomena, even central banks reserves or their function is also rather modern phenomena.
while Yuan usage in trade will reduce the US influence, the amount of assets held in dollar nominated investments is so so much bigger, and this will very slowly change if it will at all.
Losing the reserve currency doesn't happen in a vacuum. It happened to the British and Dutch because their empires were dismantled.
So, yeah, it could happen to the US, slowly, over time (it already is). But nobody wakes up tomorrow and says they no longer want USD. Where are you parking the money, yuan?
This is why people, organizations, and nations really should be holding multiple currencies.
Holding only Yuan isn't necessarily going to save you from what's coming.
I completely understand the growing need to reduce the US dollar dependency. But these drawdowns should happen in an orderly fashion with due consideration to addressing issues inherent in the old global financial order.
Clearly, in hindsight, being completely dependent on a single currency was one of those issues.
It seems worth mentioning that this allows DB to allow Yuan transactions to happen, bypassing any US sanctions. Since DB is not doing this without agreement from the German government and the ECB, this can be taken as an indication that they intend to do business with China the US does not approve of. At least, they want the option.
(and yes, it does not mean that the US is entirely without options to hinder China trade, just makes things harder. In this case, a lot harder)
I think this has the causality reversed. The dollar is the world's reserve currency because the US wields incredible negotiating power and has been the de facto military hegemony in the past few decades.
It seems likely that the dominance the US has enjoyed in the recent past will diminish somewhat as other blocks with larger population bases catch up on the technology and industrialization fronts, and eventually start flexing their industrial might to create peer-level militaries.
As other people on this thread will point out the Yuan is not close to replacing the dollar, nor is any other aspect of the Chinese financial system highly competitive, even with the staggering rise of corruption in the US.
But this is yet another indicator of the loss of soft power, which is much farther gone than, I'd say, 90% of Americans realize.
The supposedly smart people in the tech industry should be alarmed by the loss of soft power. A lot of tech revenue comes from overseas, but if US technology is seen to be the tool of an unreliable, belligerent, corrupt, authoritarian government, that revenue will evaporate, and it will happen faster than, for example, fundamental international finance changes. And yet these supposedly smart people have lined up behind our government.
It's a variation of the maxim "Don't make the customer think", what you want them to do should be the default action and you want them to do without thinking.
For some people in Europe now, they think about whether the thing they are buying/subscribing to is in the US or owned by a US company in a way that simply didn't happen in the recent past.
Please, for the love of God, speak to someone who is actually from a war torn country and understand how privileged all of us have been to live in the west. Even the wars we have been part of in the middle east have been minor disruptions to the Pax Americana: we really don't feel the effect of the wars we are in.(another problem in of itself).
99% of us got to grow up without the fear of military violence, and go about our lives.
I wonder if it has anything to do with the currency apparently being backed by an immense reserve of oil (proven to the world by this year's geopolitical events), then coal, and then a massive amount of renewable solar, hydro, wind kWh's and infrastructure to deliver it to homes and shops.
More and more it feels like a nation's kWh throughput is the new metric to track its global influence in manufacturing, industry, and financial services. In other words electric power now equates to global power.
Is there any of the large-large banks that haven't at one point been involved in all sorts of money laundering? Feels like it's almost a rite of passage for the banks.
The latest public CIA World Factbook numbers estimated that the percentage linked to crime was 3% to 5% of the world's entire GDP. BTW the CIA should know something about it...
In other words, whether they know it or not, every single bank in the world is involved in money laundering.
P.S: I don't know if that's true or not but some people have made the case that there are, percentage-wise, less transactions linked to crime on the public, transparent, ledgers that are the blockchains than in the real banking system.
It will be interesting to see how much of Thucydides Trap plays out in currency and trade as opposed to military conflict. I am hopeful that economic and financial warfare absorbs the brunt of the power struggle.
Essentially its the idea that the interaction between an incumbent power and rising "challenger" power inevitably leads to war between the two. I was expressing my hope that if this does happen, the war can play out in less destructive arenas - one of which is in the competition for reserve currency status which the US has held for the whole of the modern era. This article possibly points at China's first shots in this conflict.
Edit: credit LarsDu88 for correcting me on its age. I originally stated the idea was very old (2.5k years) but actually its a recent idea based on an ancient conflict between Athens and Sparta
The obvious counterexample would be the previous most powerful empire in the world (ie the UK) ceding that title to the USA after collapsing after WW2? No war between the UK and the US was needed.
The precious powerful empire (before Britain) was undoubtedly the Spanish Empire.
The Spanish-American war was closer to the USA opportunistically feasting upon the remains of the fallen empire (The British already overtook the Spanish in terms of power).
It's hard to pinpoint the fall of the Spanish Empire. But it's even harder to point out military action between Spain and Britain (undoubtedly the rising star in the next centuries). There is the big war of Spanish Succession but that's more opportunistic and more like a major civil war that spilled out of Spain and across Europe.
Lots of war between Spain, HRR, France and other parties. But strangely not so much with Britain....
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In both Spanish and British cases, the real enemy the whole time was just a boatload of debt.
The UK was a declining power that had been absolutely gutted by war and owed huge debts to the US that it had accrued to fund the war. I believe Thucydides Trap is more about the situation we have now with the US and China where both are moving from strength to strength.
I'm not really seeing the USA moving from strength to strength lately TBH. Iran is a disaster, the Navy now has 3 (or 4, depending how you count) failed warship projects in a row, economic growth outside the AI/datacenter boom has dropped to near zero and the internal political climate is polarized to the point of inactivity. Most of its traditional allies have been moving to distance themselves from the USA and worldwide trust in the USA as "leader of the free world" is at the lowest point in decades.
But quite beyond that, I'm just saying that the Thucydides trap is not an iron rule. The first place I looked was a counterexample and I'm sure there have been many more over the centuries.
Its not an old idea at all. Its from a 2012 article by Graham Alison followed by a 2017 book on the rise of China specifically that Xi Jinping read and referenced.
Its claimed to be an old idea, but its actually only recently become popular
> Essentially its a very old (~2.5k year) idea that the interaction between an incumbent power and rising "challenger" power inevitably leads to war between the two.
It sounds plausible, but if it is this old there must be a long list of examples. What are some of them?
As LarsDu88 mentioned above, its actually not this old. The idea is recent but is based on an ancient conflict. That is my mistake. The wiki article has interesting info on the examples that the originator saw:
CNY displacing USD would entail allowing people outside China to buy really significant quantities of CNY-denominated financial products. This would entail CNY/USD changing so CNY is more expensive, because the default currency for financial products currently existing is USD. Which would slap a corresponding huge price increase with 0 increase in quality to all Chinese export. Which would murder Chinese manufacturing export. Which would entail laying off some grand proportion of an industry that employs 5% of the _human_ race. Which is why they're not gonna do that.
I don't think China wants to make the CNY the reserve currency because it would decimate China as a manufacturing hub. They prefer China to be Jakob to the U.S. being Esau. The red lentil soup can be quite bitter.
by my experience visiting country after almost 10 years last year just by looking at salaries, restaurant prices, real estate prices/rent their economy seems to be stagnating in last 10 years, restaurant meal cost pretty much same as 10 years ago, same goes for entry level salaries like waitress, cook and other you can see in street
they are getting stronger overall, though doesn't seem like middle class is benefiting from it, my CN family bought apartment many years ago and they would have problem to sell it for same price, let alone make any profit on it
China has a massive demographic problem in the near future (after 2040ish), and it is extremely unlikely (IMO) that it is going to catch up/surpass the US in GDP per capita within the next decades.
But its relative GDP growth has been higher than the US for decades, is higher stil and is probably going to stay higher for years:
I’ll believe it when I see it, there’s a spread between onshore and offshore yuan exchange rates due to currency manipulation. It becomes harder to manipulate a currency as more of it is created, and AFAIK countries are not loading up on Chinese govt debt, but I may just be unaware?
The USD hegemony isn’t because of oil, it’s because everyone wants dollar-denominated assets. Treasury bonds, US real estate, US equities, etc. Possibly Chinese exports could soak up some of the yuan demand?
Conflict between humans is much much more nature than slavery was. Just look at animals. Flock animals often have conflicts which others. But none of them have ”slaves” (at least no how humans understand it)
There is a different between a conflict and a war. Humans are uniquely violent and cruel to each other, there is nothing even close in the animal world
I have this pet theory that is fueled with ignorance but kind of make sense to me: The correct value of the USD would be adjusted to match the tech company valuations sans AI(Apple can be a good guide IMHO) when they serve 350M people instead of 8B people as AI makes software obsolete and the geopolitics and the US government behavior dismantles any network or lock in effects.
This compute is made in China and Taiwan with European tooling, it’s not really a natural reserve that US holds a grip on. What US has is some of the IP but with the invasion of Greenland and later Taiwan patents and IP becomes unenforceable in this hypothetical scenario.
It means that nations are beginning to abandon (or at least hedge against) the dollar as the world's currency, due to the host nation's instability and global political situation. "Great Again", indeed.
Layman here, from what I understand this is a major news : it means China is allowing a foreign corporation (european commercial bank) to offer Yuan currency services to clients. Given how tight of a currency control policy the CCP has, it’s quite surprising that they would let a foreign based company into their currency dealings.
It means you can settle an international transaction in CNY with Deutsche Bank. Imagine a European lender financing a project in Nigeria that involves purchasing a lot of infrastructure from China.
People have been saying the dollar is dying since the 19th century. They said it again during the Great Depression, the end of Bretton Woods and the 2008 Financial crisis..
US dollar value was held by several pillars, among which- pax americana, petro dollar/assets and innovation sector. Pax americana is dismantled by US itself. Petro chemicals are threatened by ren transition and China. Tech sector still ensures having a lead in innovations. Guess what'll happen when/if pax americana will be fully dead, most important economies like EU/China/India will be able to supply own needs with less petrol products since the rest will com from ren and when/if tech AI pops/turns into a fiasco. Nothing lasts forever and US dollar is no exception
Would this also mean we can get a EuroDollar systems for the Yuan? As in, Deutsche Bank can create loans denominated in Yuan without Chinese central bank control?
It's a little confusing, but technically RMB (renminbi) is the official name of the currency and CNY (yuan) is the base unit of the currency. Think of it like the difference between USD ("US Dollar") vs "dollar and cents", except there is no fractional yuan equivalent of cents, so it's all just yuan.
Oh yeah, you're right, I forgot about that. It doesn't really get used much except occasionally for very small transactions, usually ones less than 10yuan.
nobody really use jiao (1/10th RMB/CNY), same as nobody really use yuan (CNY/RMB)
they are called mao (1/10th RMB/CNY) and kuai (CNY/RMB) in China
but mao pretty much dont exist anymore now with electronic QR payments everywhere even in food stalls, heck even beggars have QR codes and fen is for many many years more like some monopoly money papers
Yeah, you're right, you just literally never see any transaction using the 0.01 unit (fen) and only very rarely see any transaction use the 0.1 unit (jiao).
The currency code is CNY or Chinese Yuan. Yuan itself is like “dollar,” with many different countries calling their currency “dollars.” Renminbi refers to the Chinese currency as a whole rather than any particular unit.
it's actually "kuai" (pronounced same way as popular incorrect name of famous The Bridge on the River Kwai (the correct name is K(h)waE)) in Chinese streets, if you use yuan or renmimbi you will sound like you pretend to be some snobbish TV news host
I don't think I've ever used anywhere in street, shop or restaurant yuan/renmimbi, at least not in Beijing and around, some people may use yuan, hardly anyone renmimbi
here you have AI answer based on Reddit thread, which I can confirm:
"In everyday spoken Chinese, kuai (块) is overwhelmingly the most common term used to state prices. Yuan (元) is used in formal writing and official contexts, while renminbi (人民币) names the overall currency system like "Sterling" or "USD" rather than a daily price unit."
The trouble is that a billion people speak Mandarin already and many of them speak very good English as well, so your own skillset as a second language learner isn't very likely to be valuable. Unfortunately learning any language is rarely a valuable market skill on its own.
Right now Mandarin speakers in Europe are in high demand for contract support, it's different when you have a translator on a site with culture matching yours then having it in contractor's country.
Ah, yes, the best way to react to increased authoritarianism in the US is to checks notes begin doing more business with a country that is the final word in authoritarianism.
Not that they wouldn't bomb Taiwan if they thought they could get away with it. The reason they can't, of course, is that doing so carries the risk of starting a thermonuclear war with the United States.
> causing chaos to it's [sic] allies...
Well, there's two ways to think about this.
1) China doesn't really have allies. They've a long history of pissing off their neighborhood extending back centuries.
2) They very much are causing chaos to allies, given that the Vietnamese went so far as to buy American military goods to help defend their portion of the South China Sea, which China sees as theirs.
> Not that they wouldn't bomb Taiwan if they thought they could get away with it.
There is zero evidence of this. The last time China even engaged in a direct military conflict was the 1970s. Where as even before Trump America could have invaded almost any country on the planet. and it wouldnt have been to shocking.
The best way to handle it is indeed equidistance between the two other poles, positioning oneself as the weight that could tip dominance either way and having the other two trying to woo you.
Basically Yugoslavia's foreign policy during the Cold War, but on a much bigger scale.
There won't be a petro-anything. In 30 years the oil industry will no longer be the resource upon which the whole world turns, and will instead be just another industrial input.
Deutsche banks slogan should be "If you need to do something shady call Deutsche".
At some point china will loose the ability to keep its global currency (Yuan, should be inflating) decoupled from the domestic one (Renminbi is deflating). They have been keeping long running issues in Banking, and Relestate at bay but a global recession (and were on the cusp it seems) is going to be brutal to china.
I suspect that if (when?) that hits this will turn into another Deutsche scandal.
Blood money isn't red in color. USA has more war crimes in the past 5 decades than almost all other major countries combined. But that doesn't matter when you're profiting. Same goes here.
We also need to reduce our depency on USA which is currently signaling it is a hostile nation that consider and invasion of Europe in the form of an occupation of Greenland. It is possible USA:a admin is just lying about their hostile intentions but that in itself is a reason to reduce dependence on America
China is more authoritarian but the US under republican presidential administrations has been more more militarily aggressive. Every single Republican administration has initiated invasions of other countries and every Democratic administration has at the very least engaged with overseas bombing.
The question is whether this makes folks more or less likely to hold dollars vs yuan as reserve currency
The US wields incredible negotiating power and hegemony because the dollar is the world’s reserve currency. Like the British pound and the Dutch guilder before it, if that loses reserve currency status it will be harder to borrow on favorable terms, which would affect the entire US economy. This is a big step in that perhaps starting to happen over the next few decades.
One consequence of the transition to renewable energy and electrified transport, is that oil imports will start to decline. And the dollar is of course the currency of choice for that.
The US economy and other countries that export fossil fuels will feel the impact over the next decade or so. The energy transition might go a lot quicker than people seem to expect. Currently about 20% of global car sales is electric. In some countries it's well over 50%. China of course being one of them. And they are making rapid progress with electrifying freight as well. This is already impacting their fossil fuel imports. They still import a lot.
One effect that I think people underestimate is that while it will take a long time for all the ICE vehicles to disappear, the new ones do most of the driving. So, new EVs have a relatively large impact on fuel consumption and imports pretty early on. E.g. Chinese diesel imports apparently already are being impacted by their rapid deployment of tens of thousands of electrical trucks. Soon hundreds of thousands. That's already a third of the market in China and will probably head for well over 50% in a few short years. The EU is not that far behind.
The ripple effect that's going to have on oil trading, refinery capacity, etc. is going to be substantial. Of course current geopolitics is speeding things up massively. LNG and oil scarcity is causing a lot of issues globally and countries are accelerating moves to reduce their dependence on that.
Demand destruction will collapse profits and accelerate the oil/dollar downfall. Saudi Arabia can profitably pump oil probably under $10/barrel. If demand drops, thats where oil should be.
China with [EVs|Solar|BESS|Turbines] will replace all of the fossil fuel countries (US, middle-east, Russia). This is probably the biggest transition in the history of mankind. This is energy production, storage and all the appliances that use electricity. After this, its incredibly hard for any other country to compete.
I had never considered the demand destruction effect of EVs on fuel like that. It makes sense though, because the biggest users will justify switching to electric faster because the payoff time is quicker.
> In some countries it's well over 50%. China of course being one of them
As always with these stats, I like to check whether that includes plug in hybrids, and it does. Those are still mostly dependent on fossil fuels, although they use less. Pure BEV adoption seems to depend on your radius from Norway: https://www.autonergy.co/blog/global-ev-adoption-leaderboard...
(France should really be doing better, after all migration away from fossil fuels was a motive behind the Pompidou/Messmer nuclear buildout in the 70s!)
What's good in electric cars? If a large power plant is destroyed how are you going to charge your electric car to escape?
And your gasoline pump works perfectly fine without power? Or the refineries?
You can have solar panels and batteries right at home. You can't have an oil rig at home.
What are you afraid of happening?
This is such a perverse and anxious fear imo
The yuan will never become a reserve currency as long as China maintain tight currency controls around importing and exporting it. It's very difficult to (legally) send CNY out or China.
The euro is in a much better position to be adopted as an alternative, but its share of global reserves has been flat at around 20% for years.
https://data.imf.org/en/news/imf%20data%20brief%20march%2027
No, and I dont think China wants the Yuan to be the reserve currency. But this is a good step in allowing better currency trading/exchange. Which can make imports between the EU and China cheaper.
For a moment, after that EU will come up with a new regulation / taxation causing everything to become more expensive again.
> The euro is in a much better position to be adopted as an alternative, but its share of global reserves has been flat at around 20% for years.
The Euro is only 25 years old: it would be pure folly to make the "reserve currency" something that recent.
Then... One country of the eurozone already partially defaulted on its public debt (Greece, in 2015). And France is running an insane deficit: so bad that there are now talks of the International Monetary Fund taking control of France's public finances. France had to raise the yield on its debt to its highest level since nearly 20 years. France cannot reach the "only 5% of GDP" in yearly public deficit, on top of an already insane public debt: it is snowballing and the only outcomes are going to be miserable for the people (and for the EUR).
An economist, before the EUR began circulating, explained by which mechanisms the EUR would lead to Spain, Greece and then France default on their public debts. When Greece did default on its debt, that economist said: "I was only wrong on the order on which these countries would default".
One would be crazy to make a reserve currency a currency that's a mix up of countries that have different productivity and different fiscal laws.
The EUR is one of the worst currency ever conceived and it could turn out to also be one of the shortest lived currency.
>> The yuan will never become a reserve currency as long as China maintain tight currency controls around importing and exporting it. It's very difficult to (legally) send CNY out or China.
Did you read the article? It seems that may be changing.
Exactly. It's always been posturing.
Does the world still require a reserve currency? Spreading risk across the Dollar, Yuan, and Euros seems more logical. While the hurdles and friction associated with foreign exchange (FX) and international transfers were significant when reserve currencies were crucial, they are not as big an issue today.
This whole house of card is very modern, there was no such thing as "Reserve currency" not even the British pound, it was the most traded currency. but holding a currency's (debt) as a foreign reserve instead of gold is very recent phenomena, even central banks reserves or their function is also rather modern phenomena.
while Yuan usage in trade will reduce the US influence, the amount of assets held in dollar nominated investments is so so much bigger, and this will very slowly change if it will at all.
Losing the reserve currency doesn't happen in a vacuum. It happened to the British and Dutch because their empires were dismantled.
So, yeah, it could happen to the US, slowly, over time (it already is). But nobody wakes up tomorrow and says they no longer want USD. Where are you parking the money, yuan?
> nobody wakes up tomorrow and says they no longer want USD
Depends what happens tomorrow
This is why people, organizations, and nations really should be holding multiple currencies.
Holding only Yuan isn't necessarily going to save you from what's coming.
I completely understand the growing need to reduce the US dollar dependency. But these drawdowns should happen in an orderly fashion with due consideration to addressing issues inherent in the old global financial order.
Clearly, in hindsight, being completely dependent on a single currency was one of those issues.
Deutche Bank I imagine is doing this because a significant fraction of their customers literally want to park their money in yuan?
If it was some rounding error they wouldn’t have bothered spending money to set it up and get all the clearances.
It seems worth mentioning that this allows DB to allow Yuan transactions to happen, bypassing any US sanctions. Since DB is not doing this without agreement from the German government and the ECB, this can be taken as an indication that they intend to do business with China the US does not approve of. At least, they want the option.
(and yes, it does not mean that the US is entirely without options to hinder China trade, just makes things harder. In this case, a lot harder)
I think this has the causality reversed. The dollar is the world's reserve currency because the US wields incredible negotiating power and has been the de facto military hegemony in the past few decades.
It seems likely that the dominance the US has enjoyed in the recent past will diminish somewhat as other blocks with larger population bases catch up on the technology and industrialization fronts, and eventually start flexing their industrial might to create peer-level militaries.
As other people on this thread will point out the Yuan is not close to replacing the dollar, nor is any other aspect of the Chinese financial system highly competitive, even with the staggering rise of corruption in the US.
But this is yet another indicator of the loss of soft power, which is much farther gone than, I'd say, 90% of Americans realize.
The supposedly smart people in the tech industry should be alarmed by the loss of soft power. A lot of tech revenue comes from overseas, but if US technology is seen to be the tool of an unreliable, belligerent, corrupt, authoritarian government, that revenue will evaporate, and it will happen faster than, for example, fundamental international finance changes. And yet these supposedly smart people have lined up behind our government.
It's a variation of the maxim "Don't make the customer think", what you want them to do should be the default action and you want them to do without thinking.
For some people in Europe now, they think about whether the thing they are buying/subscribing to is in the US or owned by a US company in a way that simply didn't happen in the recent past.
And its going to be incredible to watch how many of our own country will be gleefully cheering this on as if the replacement will be better for them.
I really hope this is one step into a more multipolar world, maybe without a single hegemon the world is easier to change for the better
Historically a more multipolar world has been a more violent and chaotic world, but maybe this time will be better.
Well I wouldn't say it's peaceful now, or has been in the past... Actually there's few years that the US wasn't at war.
Compared to the time of great powers before WW1 and during, this has been by far the most peaceful the globe has been for a very long time
The entire Iran "war" will probably have less casualties than a single day of World War I.
Please, for the love of God, speak to someone who is actually from a war torn country and understand how privileged all of us have been to live in the west. Even the wars we have been part of in the middle east have been minor disruptions to the Pax Americana: we really don't feel the effect of the wars we are in.(another problem in of itself).
99% of us got to grow up without the fear of military violence, and go about our lives.
The current admin has destroyed much of the government backing. Its to he seen if the global business fail to uphold its value.
I wonder if it has anything to do with the currency apparently being backed by an immense reserve of oil (proven to the world by this year's geopolitical events), then coal, and then a massive amount of renewable solar, hydro, wind kWh's and infrastructure to deliver it to homes and shops.
More and more it feels like a nation's kWh throughput is the new metric to track its global influence in manufacturing, industry, and financial services. In other words electric power now equates to global power.
Coincidently, Deutsche Bank is notorious for having been involved in all sorts of money laundering
Is there any of the large-large banks that haven't at one point been involved in all sorts of money laundering? Feels like it's almost a rite of passage for the banks.
Which high street bank wasn't? Seriously...
The latest public CIA World Factbook numbers estimated that the percentage linked to crime was 3% to 5% of the world's entire GDP. BTW the CIA should know something about it...
In other words, whether they know it or not, every single bank in the world is involved in money laundering.
P.S: I don't know if that's true or not but some people have made the case that there are, percentage-wise, less transactions linked to crime on the public, transparent, ledgers that are the blockchains than in the real banking system.
It will be interesting to see how much of Thucydides Trap plays out in currency and trade as opposed to military conflict. I am hopeful that economic and financial warfare absorbs the brunt of the power struggle.
Can you elaborate a little? I suspect it is a well known concept, but its the first time I heard of it in this context.
Essentially its the idea that the interaction between an incumbent power and rising "challenger" power inevitably leads to war between the two. I was expressing my hope that if this does happen, the war can play out in less destructive arenas - one of which is in the competition for reserve currency status which the US has held for the whole of the modern era. This article possibly points at China's first shots in this conflict.
Edit: credit LarsDu88 for correcting me on its age. I originally stated the idea was very old (2.5k years) but actually its a recent idea based on an ancient conflict between Athens and Sparta
The obvious counterexample would be the previous most powerful empire in the world (ie the UK) ceding that title to the USA after collapsing after WW2? No war between the UK and the US was needed.
The precious powerful empire (before Britain) was undoubtedly the Spanish Empire.
The Spanish-American war was closer to the USA opportunistically feasting upon the remains of the fallen empire (The British already overtook the Spanish in terms of power).
It's hard to pinpoint the fall of the Spanish Empire. But it's even harder to point out military action between Spain and Britain (undoubtedly the rising star in the next centuries). There is the big war of Spanish Succession but that's more opportunistic and more like a major civil war that spilled out of Spain and across Europe.
Lots of war between Spain, HRR, France and other parties. But strangely not so much with Britain....
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In both Spanish and British cases, the real enemy the whole time was just a boatload of debt.
The UK was a declining power that had been absolutely gutted by war and owed huge debts to the US that it had accrued to fund the war. I believe Thucydides Trap is more about the situation we have now with the US and China where both are moving from strength to strength.
I'm not really seeing the USA moving from strength to strength lately TBH. Iran is a disaster, the Navy now has 3 (or 4, depending how you count) failed warship projects in a row, economic growth outside the AI/datacenter boom has dropped to near zero and the internal political climate is polarized to the point of inactivity. Most of its traditional allies have been moving to distance themselves from the USA and worldwide trust in the USA as "leader of the free world" is at the lowest point in decades.
But quite beyond that, I'm just saying that the Thucydides trap is not an iron rule. The first place I looked was a counterexample and I'm sure there have been many more over the centuries.
Its not an old idea at all. Its from a 2012 article by Graham Alison followed by a 2017 book on the rise of China specifically that Xi Jinping read and referenced.
Its claimed to be an old idea, but its actually only recently become popular
If you want to be pedantic, it actually dates back to 1980, in a talk at the Naval War College https://en.wikipedia.org/wiki/Thucydides_Trap
You are right. Thank you for correcting me. It never ceases to amaze me just how much I can be confidently mistaken about.
> Essentially its a very old (~2.5k year) idea that the interaction between an incumbent power and rising "challenger" power inevitably leads to war between the two.
It sounds plausible, but if it is this old there must be a long list of examples. What are some of them?
As LarsDu88 mentioned above, its actually not this old. The idea is recent but is based on an ancient conflict. That is my mistake. The wiki article has interesting info on the examples that the originator saw:
https://en.wikipedia.org/wiki/Thucydides_Trap
President Xi of China mentioned it when the US President visited him in May.
https://www.hks.harvard.edu/faculty-research/policy-topics/i...
utterly repulsive ai slop
Yes, but I liked that the article mentioned how Xi has been saying this for a long time.
I switched the link to Harvard.
Rising power challenges the fading imperial hegemony. In this case, CNY displacing USD.
CNY displacing USD would entail allowing people outside China to buy really significant quantities of CNY-denominated financial products. This would entail CNY/USD changing so CNY is more expensive, because the default currency for financial products currently existing is USD. Which would slap a corresponding huge price increase with 0 increase in quality to all Chinese export. Which would murder Chinese manufacturing export. Which would entail laying off some grand proportion of an industry that employs 5% of the _human_ race. Which is why they're not gonna do that.
I don't think China wants to make the CNY the reserve currency because it would decimate China as a manufacturing hub. They prefer China to be Jakob to the U.S. being Esau. The red lentil soup can be quite bitter.
Is China still rising or already in decline?
their yough unemployment rate sure is rising, it sure ain't great to be young Chinese looking for job now
https://www.nytimes.com/2023/08/15/business/china-youth-unem...
https://www.nippon.com/en/in-depth/d01203/
https://www.reddit.com/r/dataisbeautiful/comments/1pedov5/oc...
also there are salary paycuts
by my experience visiting country after almost 10 years last year just by looking at salaries, restaurant prices, real estate prices/rent their economy seems to be stagnating in last 10 years, restaurant meal cost pretty much same as 10 years ago, same goes for entry level salaries like waitress, cook and other you can see in street
they are getting stronger overall, though doesn't seem like middle class is benefiting from it, my CN family bought apartment many years ago and they would have problem to sell it for same price, let alone make any profit on it
Relative to the US or Europe? I think you know the answer to that.
Relative to the US it’s not a straightforward answer but China is definitely not rising in the way it was a decade ago and has been outpaced by the us
China has a massive demographic problem in the near future (after 2040ish), and it is extremely unlikely (IMO) that it is going to catch up/surpass the US in GDP per capita within the next decades.
But its relative GDP growth has been higher than the US for decades, is higher stil and is probably going to stay higher for years:
https://ourworldindata.org/grapher/real-gdp-growth?country=U...
The answer is really not a clear cut as you assume any longer.
I’ll believe it when I see it, there’s a spread between onshore and offshore yuan exchange rates due to currency manipulation. It becomes harder to manipulate a currency as more of it is created, and AFAIK countries are not loading up on Chinese govt debt, but I may just be unaware?
The USD hegemony isn’t because of oil, it’s because everyone wants dollar-denominated assets. Treasury bonds, US real estate, US equities, etc. Possibly Chinese exports could soak up some of the yuan demand?
China has some internal documents that address the Thucydides Trap with a Chinese idiom, "There are no just wars in the Spring and Autumn Period."
> China has some internal documents
how did you get to see them? that must be a very interesting story.
I, for one, would appreciate if we could just move on past these incessantly destructive power struggles as humanity.
Humans can not “move on” from human nature no matter how much people try to will it
It's as much "human nature" as being a slave was once the nature of some (chosen) peoples.
Conflict between humans is much much more nature than slavery was. Just look at animals. Flock animals often have conflicts which others. But none of them have ”slaves” (at least no how humans understand it)
There is a different between a conflict and a war. Humans are uniquely violent and cruel to each other, there is nothing even close in the animal world
I have this pet theory that is fueled with ignorance but kind of make sense to me: The correct value of the USD would be adjusted to match the tech company valuations sans AI(Apple can be a good guide IMHO) when they serve 350M people instead of 8B people as AI makes software obsolete and the geopolitics and the US government behavior dismantles any network or lock in effects.
I'm interested to understand your theory better but right now the way you've expressed it is hard to make sense of for me.
> US government behavior dismantles any network or lock in effects
You should look at where most of the compute of the world is physically located. You might have a shock.
This compute is made in China and Taiwan with European tooling, it’s not really a natural reserve that US holds a grip on. What US has is some of the IP but with the invasion of Greenland and later Taiwan patents and IP becomes unenforceable in this hypothetical scenario.
Change happens gradually, and then suddenly.
In the immortal words of Milhouse, "First it started falling over, and then it fell over."
it also stops, reverses, is interpreted incorrectly, has unforeseen second order effects, etc.
I wonder if this might be a reaction to the "blindsided" ECB, following a US decision to prop up the Japanese yen. This would be an interesting fracture. https://www.ft.com/content/d9922d0b-51a0-48be-811b-42e08f909...
What does that mean?
It means that nations are beginning to abandon (or at least hedge against) the dollar as the world's currency, due to the host nation's instability and global political situation. "Great Again", indeed.
Layman here, from what I understand this is a major news : it means China is allowing a foreign corporation (european commercial bank) to offer Yuan currency services to clients. Given how tight of a currency control policy the CCP has, it’s quite surprising that they would let a foreign based company into their currency dealings.
It means you can settle an international transaction in CNY with Deutsche Bank. Imagine a European lender financing a project in Nigeria that involves purchasing a lot of infrastructure from China.
It means the dollar is dying.
People have been saying the dollar is dying since the 19th century. They said it again during the Great Depression, the end of Bretton Woods and the 2008 Financial crisis..
US dollar value was held by several pillars, among which- pax americana, petro dollar/assets and innovation sector. Pax americana is dismantled by US itself. Petro chemicals are threatened by ren transition and China. Tech sector still ensures having a lead in innovations. Guess what'll happen when/if pax americana will be fully dead, most important economies like EU/China/India will be able to supply own needs with less petrol products since the rest will com from ren and when/if tech AI pops/turns into a fiasco. Nothing lasts forever and US dollar is no exception
The difference is now the US has a leader that is actively encouraging its downfall.
Those people were right, it’s just that it will take more time that what they though.
Would this also mean we can get a EuroDollar systems for the Yuan? As in, Deutsche Bank can create loans denominated in Yuan without Chinese central bank control?
Bank who did some dark stuff with Trump and Russia is working with China? I'm shocked!
Is it a yuan or is it a Renminbi?
It's a little confusing, but technically RMB (renminbi) is the official name of the currency and CNY (yuan) is the base unit of the currency. Think of it like the difference between USD ("US Dollar") vs "dollar and cents", except there is no fractional yuan equivalent of cents, so it's all just yuan.
Pretty sure the jiao (角) (1/10th of a yuan) is still in use?
Oh yeah, you're right, I forgot about that. It doesn't really get used much except occasionally for very small transactions, usually ones less than 10yuan.
nobody really use jiao (1/10th RMB/CNY), same as nobody really use yuan (CNY/RMB)
they are called mao (1/10th RMB/CNY) and kuai (CNY/RMB) in China
but mao pretty much dont exist anymore now with electronic QR payments everywhere even in food stalls, heck even beggars have QR codes and fen is for many many years more like some monopoly money papers
No there are cents, they are called fen (分).
It's in Japan that it's all just Yen.
Yeah, you're right, you just literally never see any transaction using the 0.01 unit (fen) and only very rarely see any transaction use the 0.1 unit (jiao).
The currency code is CNY or Chinese Yuan. Yuan itself is like “dollar,” with many different countries calling their currency “dollars.” Renminbi refers to the Chinese currency as a whole rather than any particular unit.
Fun fact: the Japanese yen and Korean won are both cognates of "yuan". The character 圆 simply means "round" as in circular.
Both. Renminbi is the currency name, while the yuan is the base unit.
it's actually "kuai" (pronounced same way as popular incorrect name of famous The Bridge on the River Kwai (the correct name is K(h)waE)) in Chinese streets, if you use yuan or renmimbi you will sound like you pretend to be some snobbish TV news host
I don't think I've ever used anywhere in street, shop or restaurant yuan/renmimbi, at least not in Beijing and around, some people may use yuan, hardly anyone renmimbi
here you have AI answer based on Reddit thread, which I can confirm: "In everyday spoken Chinese, kuai (块) is overwhelmingly the most common term used to state prices. Yuan (元) is used in formal writing and official contexts, while renminbi (人民币) names the overall currency system like "Sterling" or "USD" rather than a daily price unit."
If there's one thing you can do now that will set you up for the next 20–30 years: it’s learning Mandarin.
The trouble is that a billion people speak Mandarin already and many of them speak very good English as well, so your own skillset as a second language learner isn't very likely to be valuable. Unfortunately learning any language is rarely a valuable market skill on its own.
Right now Mandarin speakers in Europe are in high demand for contract support, it's different when you have a translator on a site with culture matching yours then having it in contractor's country.
With advanced AI real time translation I don't see any need for that.
[delayed]
Ah, yes, the best way to react to increased authoritarianism in the US is to checks notes begin doing more business with a country that is the final word in authoritarianism.
the big difference is that China is not bombing anyone, and causing chaos to it's allies..
They are supporting countries doing the bombing…
> not bombing anyone
Not that they wouldn't bomb Taiwan if they thought they could get away with it. The reason they can't, of course, is that doing so carries the risk of starting a thermonuclear war with the United States.
> causing chaos to it's [sic] allies...
Well, there's two ways to think about this.
1) China doesn't really have allies. They've a long history of pissing off their neighborhood extending back centuries.
2) They very much are causing chaos to allies, given that the Vietnamese went so far as to buy American military goods to help defend their portion of the South China Sea, which China sees as theirs.
> Not that they wouldn't bomb Taiwan if they thought they could get away with it.
There is zero evidence of this. The last time China even engaged in a direct military conflict was the 1970s. Where as even before Trump America could have invaded almost any country on the planet. and it wouldnt have been to shocking.
The best way to handle it is indeed equidistance between the two other poles, positioning oneself as the weight that could tip dominance either way and having the other two trying to woo you.
Basically Yugoslavia's foreign policy during the Cold War, but on a much bigger scale.
The end of the Petro Dollar?
Soviet-China-Iran - Petro Yuan?
Russia and Iran are irrelevant in the global economy.
> Russia and Iran are irrelevant in the global economy.
They're modest by raw economic size, but outsized in relevance due to energy resources and geopolitical leverage.
Iran is irrelevant?
You probably haven't turned on the news in a little while.
Don't think that China stands that close with Russia and Iran. Or needs them, for that matter.
There won't be a petro-anything. In 30 years the oil industry will no longer be the resource upon which the whole world turns, and will instead be just another industrial input.
One can only hope.
This current crises has been a boon for alternative energy sources.
Really has driven home the point to even the most 'head-in-sand-right-winger' that Solar is a National Defense issue, not a woke agenda.
There was never a petro-anything. It's always been and is the Eurodollar global reserve currency. https://en.wikipedia.org/wiki/Eurodollar
Soviet?
Trump is making China great again.
Pity about the USA....
"but at what cost" ?
I'll pay.
https://genius.com/Jc-chandor-margin-call-boardroom-scene-an...
Deutsche banks slogan should be "If you need to do something shady call Deutsche".
At some point china will loose the ability to keep its global currency (Yuan, should be inflating) decoupled from the domestic one (Renminbi is deflating). They have been keeping long running issues in Banking, and Relestate at bay but a global recession (and were on the cusp it seems) is going to be brutal to china.
I suspect that if (when?) that hits this will turn into another Deutsche scandal.
I don't like, trust or trade with China.
But america xD
Not a good thing. China is an authoritarian regime, which we need to reduce dependency on, not increase it.
Blood money isn't red in color. USA has more war crimes in the past 5 decades than almost all other major countries combined. But that doesn't matter when you're profiting. Same goes here.
I’m impressed. I had to scroll down ten top level comments in order to find a contentless but-China-regime comment. Good work HN.
We also need to reduce our depency on USA which is currently signaling it is a hostile nation that consider and invasion of Europe in the form of an occupation of Greenland. It is possible USA:a admin is just lying about their hostile intentions but that in itself is a reason to reduce dependence on America
The USA is also currently signalling hostilities towards Brazil. They're hostile to all.
The US is not that different.
China is more authoritarian but the US under republican presidential administrations has been more more militarily aggressive. Every single Republican administration has initiated invasions of other countries and every Democratic administration has at the very least engaged with overseas bombing.
The question is whether this makes folks more or less likely to hold dollars vs yuan as reserve currency
The US is infinitely worse, at least China is predictable.
Yeah, can't say I disagree. I expected Trump to be authoritarian but I thought he'd actually at least try to be smart about it.