China had to make some concessions to get the yuan into the SDR basket.
Most notably they have committed to issue 3 month T-Bills every week and to allow foreign central banks to access their currency and bond markets.
Note also that this doesn't take place until October of 2016 so there should be no immediate impact on the markets. Also note the SDR has a very minor share of the global currency reserves so this is more symbolic at the moment.
Yeah, I didn't know the details, but China for sure had to make some concessions to get in.
It will be interesting to see how much they allow their currency to float and how much more (if any) they will allow their citizens to expatriate the yuan.
A big deal has been made about this, however it was inevitable and the only logical thing to do. With the substantial Yen debasement, Japan's economy is now less than half the size of China's. That will fall to 1/4th in the next ten years. Even if China were to need to devalue their currency substantially over the coming years, as is being regularly argued now, that would pale in comparison to what Japan will do to its currency in the next decade or two in order to manage their debt disaster. There's no sound argument for keeping the Yuan out of that IMF basket. The next decade economically will be about the US and China, with Japan and Russia fading further into the background, and the Eurozone continuing to struggle with Europe showing zero net growth (the UK will be a bright spot in Europe thanks to not being part of the Euro (see: the depression it has put Finland in)).
You are not saying anything original here that is not the complete median view on the Street. Eurozone 0%: check. UK bright spot: check. Japan a debt disaster: check. Russia suffering: check. China/US the future: check.
There is nothing here that if followed, will allow anybody to outperform because this is complete consensus, it's what's priced in almost exactly. Yet the real alpha-generation skill is to challenge the received wisdom which here, is light years from happening.
How about the view that the a 9% yield in Russia is actually hugely more interesting than a 2% yield in dollars. What about the idea that 40$ oil is cheap as chips and the bargain of a generation? Maybe China's debt situation is, if we dig a bit deeper than the surface, much worse than Japan's, short term? Perhaps the UK is a financial bubble far too long of Arab money and that the Eurozone's current travails represent the small potential for light at the end of the tunnel on the view of renewal?
Not saying these are true, just that they might be worth considering.
Still, thank you for paraphrasing in one short paragraph exactly what I hear in my inbox in PDF form 20x per hour from the analyst community.
Before today, I think the US dollar was about 60% of the SDR bucket of currencies.
For years I have read about probable problems if the US dollar was no longer the reserve currency, but it seems from what I have been reading that there is some sort of negotiated slow migration from the US dollar to using SDRs as the reserve currency.
I like slow and steady change, even is it means that eventually my country (USA) will lose a lot of economic advantage.
The USD has gone from 41.9 to 41.73% in the SDR basket. So, no change in the Dollar status. The Euro has gone down the most from 37.4% to 30.93%. The importance of SDR as a reserve currency is not accurate.
What problems have you read about the U.S. facing if it stopped being a reserve currency? My understanding is that we would lose seigniorage, and maybe see a small increase in borrowing costs.
But the upside is value of the dollar would drop, making U.S. exports more competitive.
They also have to allow more transparency and access into their financial markets. Being part of the club has costs too. They probably did it because they think they're ready for it.
China's debt today is over 200% of its GDP and may exceed 300% in five years. One hopes the IMF and China agreed on concessions will assist China in rebalancing its economy quickly, because as Petits' posting points out -- a disruptive end is near for the current model.
Internal debt is also internal asset, which net out to zero. China is a net international creditor. Its internal debt structure may have implications for its economoic future, but is not nearly as relevant as its current account balance for foreign holders of RMB.
Debt doesn't really matter when it's your own currency for your own country. For example, imagine you control a cult of 50 people and invent a currency (cultcoin). You can create a debt of 10 billion cultcoins and it won't affect the real wealth of the residents. What really matters more is the exports and imports to the outside world, and the value produced by the residents.
My country (USA) has benefitted hugely by being the reserve currency: effectively being able to generate money by fiat with lower chance of this causing inflation because other countries buy dollars and hold them in reserve to buy oil, etc.
I expect the economy in the USA will take a small gradual hit over the next decade as we lose (mostly exclusive) reserve currency status.
That guy is seriously confused. He seems to be referring to sectoral balances but doesn't realise that having the USD as the international reserve currency is what has allowed the US to consistently run trade deficits (where importing is a benefit to society and exporting is a cost), that the US government does entirely determine the ability of the US private sector to save USD and is able to pursue full employment because it is a sovereign currency issuing government, and that foreign central banks can only buy US treasury bonds in USD, and mostly do so with reserves earned by exporting to the US, with interest being paid in USD. The entire article is like economic sounding gibberish.
I'm more than a bit skeptical of anything pre-1750 in that graph, because the "world's" reserve currency means something very different in today's global economy than what that graph appears to be using to define them.
Those might pass for European reserve currencies in a pre-Industrial Era, but they certainly do not reflect the world economy of the time period by any means.
In addition to all of that, the USD is the only currency on that graph that was not on a gold standard at the time. That's a huge difference.
What advantages does the Yuan have over the USD? I think the next generation will value the transparency and predictability of issuance of a crypto currency similar to bitcoin has far greater advantages. Which doesn't mean that central bankers will be in favor of it. But it has a 'long shot' at getting on that graph.
That's a very big question. China has exchange controls, but only for residents of China. If you have access to Hong Kong, which the rest of the world does, you can exchange yuan for other currencies at market rates.
China's exchange controls are leaking at the rate of about $500bn a year.
It's worrisome that China's rich people want to get their money out of China. China is growing faster than the dollar or euro zones. Yet rich people in China are overpaying for US and UK real estate. What do they think is going to go wrong in China?
What implications could this have for oil? Isn't oil bought and sold using US Dollars? I've always heard the World "Does Business" in US Dollars. Is this the beginning of the end for the Dollar as an international norm?
Modest implications. No more than the Euro or Yen at their peaks did.
No, it's not even remotely close to the end of the dollar as the international norm. The dollar is stronger today than it has been in 20 years, and it's gaining strength as the Eurozone and Japan are a mess.
The most likely outcome to this, is that the Yen loses the position it has held on the global stage for the prior 30+ years or so. Japan is the nation that will suffer the most as China's currency rises. Right now Japan is depending on the Yen as their only remaining prop to use against their debt; the weaker the Yen's global position, the less they can spread that debt monetization cost around. China's currency will become the dominant Asian currency; the Euro will remain the dominant European currency (unless something unexpected - and worse than it has already absorbed - happens to rip the union apart (that could be Finland bailing, triggering other nations to leave as well)); the dollar will remain the global reserve currency (there needs to be one, and the West is far more comfortable with that scenario than becoming more reliant on China, as are Japan and numerous China competitors in Asia).
The only thing that could end the (petro-)dollar would be the intro of Bankor for international trade.
Meaning that if US wanted to buy something off china, it would have to convert USD into Bankor, then buy whatever from China, that would then turn those Bankor into Renminbi (or hold them for more imports).
This would mean that a import heavy nation would find their Bankor exchange rate plummeting etc, potentially balancing out trade.
As long as the USD is the international trade currency, USA can always print to cover needs. This in contrasts to various historical death spirals where a lack of exports and a constant printing to cover foreign expenses ran the currency into the ground.
While you present a compelling argument, I must respectfully disagree. I may catch some flack for saying it, and many people refuse to believe it, but the U.S. is insolvent. The value of the U.S. dollar is artificially propped-up. How long do you truly believe the Russias and Chinas of the world are going to keep using greenbacks? They will feign WWIII, Israel will expand to encompass 'Greater Israel' and U.N. will formally install global government, and USD will cease to be de-facto global currency.
Insolvent you say? The US owns 45% of all global wealth (per Allianz's global wealth studies, it was ~50% pre great recession, fell to about ~39% in 2010 as the US suffered heavy asset declines, and has rebounded back to around ~45% with the recovery in the US economy, that gap is mostly the arrival of China's wealth). The US is massively solvent in fact. Furthering this point, the US is now growing as fast as China in real terms (given pretty much every credible study indicates China is at least lying about half of their growth); the US is also gaining substantially against most of Europe, as its economy continues to grow faster than Europe even with a stronger dollar. South America and most emerging markets have been thrown into near-depression status, due to the stronger dollar. The US economy is likely to enjoy a very nice 10 or 20 year run in fact.
Russia's economy is now - as of the latest 2015 numbers - 1/12th the size of the US economy. It no longer matters as a global economic power (it still matters as a global commodity player). Its economy is smaller than Canada's now.
China will continue to use greenbacks because they will never have any other choice, the same as they'll continue using Euros. The US is back to being China's biggest trade customer (with the dollar having gained so much value): that trade is mostly done in dollars and that will continue.
[+] [-] chollida1|10 years ago|reply
Most notably they have committed to issue 3 month T-Bills every week and to allow foreign central banks to access their currency and bond markets.
Note also that this doesn't take place until October of 2016 so there should be no immediate impact on the markets. Also note the SDR has a very minor share of the global currency reserves so this is more symbolic at the moment.
[+] [-] tomp|10 years ago|reply
More (10.92%) than GBP (8.09%) and JPY (8.33%) actually.
[+] [-] socrates1998|10 years ago|reply
It will be interesting to see how much they allow their currency to float and how much more (if any) they will allow their citizens to expatriate the yuan.
[+] [-] adventured|10 years ago|reply
[+] [-] vegabook|10 years ago|reply
There is nothing here that if followed, will allow anybody to outperform because this is complete consensus, it's what's priced in almost exactly. Yet the real alpha-generation skill is to challenge the received wisdom which here, is light years from happening.
How about the view that the a 9% yield in Russia is actually hugely more interesting than a 2% yield in dollars. What about the idea that 40$ oil is cheap as chips and the bargain of a generation? Maybe China's debt situation is, if we dig a bit deeper than the surface, much worse than Japan's, short term? Perhaps the UK is a financial bubble far too long of Arab money and that the Eurozone's current travails represent the small potential for light at the end of the tunnel on the view of renewal?
Not saying these are true, just that they might be worth considering.
Still, thank you for paraphrasing in one short paragraph exactly what I hear in my inbox in PDF form 20x per hour from the analyst community.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] mark_l_watson|10 years ago|reply
For years I have read about probable problems if the US dollar was no longer the reserve currency, but it seems from what I have been reading that there is some sort of negotiated slow migration from the US dollar to using SDRs as the reserve currency.
I like slow and steady change, even is it means that eventually my country (USA) will lose a lot of economic advantage.
[+] [-] npalli|10 years ago|reply
http://www.imf.org/external/np/exr/facts/sdr.htm
[+] [-] JamesBarney|10 years ago|reply
But the upside is value of the dollar would drop, making U.S. exports more competitive.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] lambdasquirrel|10 years ago|reply
[+] [-] rrggrr|10 years ago|reply
http://blog.mpettis.com/2015/11/chinas-rebalancing-timetable...
China's debt today is over 200% of its GDP and may exceed 300% in five years. One hopes the IMF and China agreed on concessions will assist China in rebalancing its economy quickly, because as Petits' posting points out -- a disruptive end is near for the current model.
[+] [-] fspeech|10 years ago|reply
[+] [-] narrator|10 years ago|reply
https://news.ycombinator.com/item?id=10601219
TL;DR China's financial system is partially privatized central planning so it follow different patterns than the Western financial system.
[+] [-] AReallyGoodName|10 years ago|reply
It doesn't have one single link to any of the claimed figures and a quick Google shows the claimed figures to be at least an order of magnitude out.
[+] [-] throwaway4633|10 years ago|reply
[+] [-] mooreds|10 years ago|reply
[+] [-] mark_l_watson|10 years ago|reply
My country (USA) has benefitted hugely by being the reserve currency: effectively being able to generate money by fiat with lower chance of this causing inflation because other countries buy dollars and hold them in reserve to buy oil, etc.
I expect the economy in the USA will take a small gradual hit over the next decade as we lose (mostly exclusive) reserve currency status.
[+] [-] dools|10 years ago|reply
[+] [-] acd|10 years ago|reply
[+] [-] chimeracoder|10 years ago|reply
Those might pass for European reserve currencies in a pre-Industrial Era, but they certainly do not reflect the world economy of the time period by any means.
In addition to all of that, the USD is the only currency on that graph that was not on a gold standard at the time. That's a huge difference.
[+] [-] thescriptkiddie|10 years ago|reply
[+] [-] dear|10 years ago|reply
[+] [-] Rmilb|10 years ago|reply
[+] [-] beatpanda|10 years ago|reply
[+] [-] Animats|10 years ago|reply
China's exchange controls are leaking at the rate of about $500bn a year.
It's worrisome that China's rich people want to get their money out of China. China is growing faster than the dollar or euro zones. Yet rich people in China are overpaying for US and UK real estate. What do they think is going to go wrong in China?
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] vxxzy|10 years ago|reply
[+] [-] adventured|10 years ago|reply
No, it's not even remotely close to the end of the dollar as the international norm. The dollar is stronger today than it has been in 20 years, and it's gaining strength as the Eurozone and Japan are a mess.
The most likely outcome to this, is that the Yen loses the position it has held on the global stage for the prior 30+ years or so. Japan is the nation that will suffer the most as China's currency rises. Right now Japan is depending on the Yen as their only remaining prop to use against their debt; the weaker the Yen's global position, the less they can spread that debt monetization cost around. China's currency will become the dominant Asian currency; the Euro will remain the dominant European currency (unless something unexpected - and worse than it has already absorbed - happens to rip the union apart (that could be Finland bailing, triggering other nations to leave as well)); the dollar will remain the global reserve currency (there needs to be one, and the West is far more comfortable with that scenario than becoming more reliant on China, as are Japan and numerous China competitors in Asia).
[+] [-] digi_owl|10 years ago|reply
Meaning that if US wanted to buy something off china, it would have to convert USD into Bankor, then buy whatever from China, that would then turn those Bankor into Renminbi (or hold them for more imports).
This would mean that a import heavy nation would find their Bankor exchange rate plummeting etc, potentially balancing out trade.
As long as the USD is the international trade currency, USA can always print to cover needs. This in contrasts to various historical death spirals where a lack of exports and a constant printing to cover foreign expenses ran the currency into the ground.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] unknown|10 years ago|reply
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[+] [-] fredgrott|10 years ago|reply
[+] [-] unknown|10 years ago|reply
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[+] [-] zkhalique|10 years ago|reply
[+] [-] AC__|10 years ago|reply
[+] [-] dang|10 years ago|reply
[+] [-] adventured|10 years ago|reply
Russia's economy is now - as of the latest 2015 numbers - 1/12th the size of the US economy. It no longer matters as a global economic power (it still matters as a global commodity player). Its economy is smaller than Canada's now.
China will continue to use greenbacks because they will never have any other choice, the same as they'll continue using Euros. The US is back to being China's biggest trade customer (with the dollar having gained so much value): that trade is mostly done in dollars and that will continue.
[+] [-] dools|10 years ago|reply
[+] [-] tootie|10 years ago|reply
[+] [-] AC__|10 years ago|reply
[+] [-] AC__|10 years ago|reply
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