Comment by zaik

China maintains a soft peg on the yuan in order to keep their industrial output cheap.

Part of the way they do this is with heavy currency controls. Those currency controls make it difficult to do international trade with the yuan.

But worse from Chinas perspective you can’t maintain a peg if your currency is used to trade goods, particularly fungible commodities because the commodity itself becomes the medium of exchange and derails the currency peg.

That would be disastrous for their exporters and their economy is not in a position to sustain that currently.

It's likely not beneficial to them, for a couple reasons.

First of all, they can print Yuan. They want people to buy those pieces of paper for something of value. It doesn't do much good to have people send all that paper back in exchange for phones and tablets and stuff. Then they would've just got back some paper they printed in exchange for something that took time and resources to make.

No, they need something physical or at least valuable for that paper. Such as local labor. Then their own population can spend the paper internally, because it's in theory exchangeable for something external. When China buys stuff from the US, it spends dollars. Which it buys from the US not with Yuan, but with computer parts. It pays its own people Yuan to make the computer parts... but the Yuan is only valuable because the government holds dollars and euros to buy stuff that their citizens can then buy for Yuan.

This is why Trump's overall foreign policy and particulatly his tariffs scheme risks destroying America. If at some point enough countries decide that the USD is too unreliable, they may look for the next best paper to trade. That would be catastrophic for the US which may deserve it in any case, but it would be truly terrible if the alternative were a currency privately owned and manipulated by the leaders of a dictatorship. Perhaps the world isn't stupid enough to do that, but the size of China's economy compared to anything else would make it tempting.

I'll stipulate right now that if China were a democracy with civil rights and a fair legal system, I would have no problem with it taking over world trade from the US. But currently it's a repressive authoritarian state.

> I wonder can China use this to make Yuan a new world currency

I suspect a strong precondition for this is to switch world oil trade away from the dollar, and that is currently enforced by a combination of military power and "winner takes all" network effect mechanics of the trade.

China has 2 currencies - Yuan for foreign trade and RMB for internal exchange

I can definitely imagine Yuan being used more

don't get me wrong. I'm writing everything I'm saying because I desperately do not want America to go on a trajectory where it loses all credibility and becomes as bad as all the other human rights abusers.

I think most Americans have no idea how much power their country wields. And it's horrific that they're susceptible to the kind of small thinking jingoist nationalism that doesn't befit a country so large built on an idea of cohesion.

The fishermen will get paid in pesos but the company will be paid in dollars. And the company will probably put their dollars in a bank outside the Philippines, which only accepts dollars, euros or swiss francs.

If the fishermen could be paid in dollars, they would probably prefer that.

And the fact that they'd prefer that to being paid in Rubles or Renminbi is the underlying guarantor of American economic power... which, if it goes away and was replaced by Chinese power in the south china sea, would be catastrophic for the fishermen as well.

Where does the Russian company get its Philippine Peso from?

Russia overall may have exported some stuff to Philippines but it’s a huge country. The specific company would now need to find a way to acquire a highly illiquid currency available in tiny numbers which would be expensive.

Instead, they simply buy dollars which are highly liquid, available in huge numbers, until now absolutely reliable, and accepted by everyone.

Trading in dollars was at the end of the day cheap.

but it's not easy to come by large amounts of Philippine pesos in Russia, cause no-one wants to hold significant amount of foreign currency they can't use for anything else. In some cases it may even be legally problematic.

That's why international trade uses "strong" currencies, which are very liquid: you can generally get USD/EUR and then trade them for anything else with a limited spread. Good luck converting Hungarian forints to Lao kips.

Being cut off from USD is why news of Russia resorting to barter[0][1] have occurred in the news since they got cut off from the US trading system

[0] https://www.newsweek.com/russia-oranges-trade-barter-pakista... [1] https://www.reuters.com/markets/first-russia-china-barter-tr...

I think that is (used to be) higher risk: Internal events could make the peso lose its value, but the dollar was pretty stable?

(Probably it'd be a pretty big fishing company, exporting to a far away nation like that. Not a single person in a small boat)

Edit: I suppose riffraff's sibling answer is better

For this the Russian buyer would have to previously sell something to the Philippines and accept pesos. Why would they accept those pesos if they are not generally accepted elsewhere?

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The challenge is that for a lot of countries, the forex markets for their own currency aren’t deep enough to settle all of their international trade.

Consider a country that has a large trade imbalance—they import a lot of goods and have very few exports. When a business in that country tries to import goods, say from the Philippines in Pesos or from Germany in Euros, the business will have to go to a forex markets and sell their local currency to buy the foreign currency.

Who’s going to take the other side of that trade? Normally, if a country exports a lot of goods, then foreign businesses will need to buy the country’s local currency to pay for them, and that provides a market for exchanging Pesos and Euros for the local currency. But the country doesn’t export very much, so other businesses in the Philippines or the Eurozone don’t have much use for the business’ local currency, and that means that there isn’t a large market of people selling Pesos or Euros to buy the local currency.

This example is a bit of an edge case where this fictional country runs a trade deficit with all of its trading partners. In reality, you’ll likely have a trade deficit with some partners and a surplus with others. If you decide to denominate some of your international trade in US Dollars, then you’re able to use the excess dollars coming in to your country from your exports to finance your imports. It’s a lot easier than hoping that you can sell enough of your local currency or the currencies of the countries you’re exporting to to buy enough of the currencies of the countries you’re importing from.

In some ways it’s similar to the hub-and-spoke model of airlines. If you want to get from small town A to small town B, there might not be enough traffic in both directions to warrant a direct flight. But if there’s a hub X, then there might be enough traffic between A and all the other flights into X to make it worthwhile to fly from X to B and vice versa. There might not be enough balanced trade between two small countries for there to be a deep market in their currency pair, but if you have both imports and exports denominated in US Dollars then you can generate an internal market in your country for exchanging your local currency for USD.

Power abhors a vacuum. No such thing can exist without some state eventually dominating 51% of it. We've just tested this out since 2009 and it's already obvious that no crypto can escape state control, because the ingress and egress points are already under state control. Short of establishing your own colony on the moon or Mars, this ain't gonna happen.

Luckily, it's still possible to change governments. Sometimes, in some places. Maybe not for much longer. But the idea that crypto will free us is a fantasy that at this point is mostly being peddled by secret police agencies in name-your-country.

This is a gross misunderstanding of what a currency actually is.

A currency is a social construct. It has no inherent value beyond what people who trade in it place on the currency.

As a result people don’t want a currency whose rules of trade are defined once and it’s unable to respond to actual world events.

If you have a currency that is indeed responsive to changes in the world then there needs to be someone who you entrust with making those changes.

At that point it doesn’t matter whether that currency is digital or cash based. I mean, in actuality even the USD digital trade is order of magnitudes greater than its physical trade.

The U.S.’s monetary institutions and its role as a trade promoting superpower is what makes the dollar stronger. Now that those institutions are not as reliable anymore and the U.S. is clearly not a trade promoter anymore, the dollar is definitely at risk.

This is easy. We're sitting here texting on an American platform and both willing to say that the imprisonment rate in America is abysmal, that in its history America has supported awful dictatorships and racist regimes.

You can't do that in China or Cuba or Russia. You can't even mention it or you would be black holed and your family would be taken away in the night.

I'm in America and I have no fear of telling the authorities what I think.

As awful as some of the things America has done in the past 249 years are, you really can't compare them to the actions of non-democracies and authoritarian regimes. To do so is an insult to the people who struggle every day as prisoners under those regimes. You can hate America with all your heart, but you can't reasonably compare its foreign policy to that of Napoleon or Hitler or Stalin. You can't say that America ever attempted a Great Leap Forward leading to the starvation of 40 million people, or the Holodomor, or the Holocaust, or the Rwandan genocide or even the current genocide against Uighurs by China. Even the British empire looks incredibly cruel by modern American standards.

Is it still a big world power dominating other smaller countries? Definitely.

America has acted as if it were a global empire in its own self interest. But it's probably been the lesser of most evils, certainly throughout the 20th Century. What it is or may be now, it's harder to say, and we'll find out. But comparatively speaking, only a person who hadn't been to the countries you listed would make the claim that it was worse to have America running the world.

Someone's going to run the world, you know.

Definitely the worst human rights abuser in history followed by the British, French, Germans, etc.

When I was in my early 20s in Thailand I hated America under George W Bush. I had a conversation with a Tibetan guy who was on his way to sneak into China to help his village in Tibet which had been invaded back in the 50s, then colonized. He was going to help dig wells.

I said to him: "America is just as bad as China! We're becoming the same thing!" This was during the Iraq war.

He stopped me short. He said, "no you cannot compare them, at all, ever. You don't understand. I went to school at [ivy league college]. America is still a democracy. You have no idea how dangerous it is in China."

He was right. I didn't...I was a spoiled kid with good intentions, and no understanding of how much evil there was in the world. You don't have the reference point of experiencing pure evil either to say what you're saying.

they dont have to be its just more convenient.

That's the case for everything except for bartering or using commodities (gold, etc) as intermediate trading mediums.

I don't mean petro dollar.

And you are more than welcome to use the internet if there are terms you don't understand: https://en.wikipedia.org/wiki/Eurodollar (Edit: I see you found d the article, will leave the link for other who are in doubt :) )

They are different concepts.