China will pursue digital currency, would this break the dominance of USD?

[CrazyZ]

From what you said, China's currency needs 2 things to become world's reserve currency. It needs a large, open and sophisticated financial system. It also needs to be quite a bit bigger than other economies.

China is opening up it's financial system now (ironically, partially due to the trade war). So this part can be done in several years.

But to be quite a bit bigger than USA is troublesome. While I think it would probably be bigger than USA in GDP in a decade or more. But to be 1.5X, 2X, that of USA in GDP is very difficult. Khan_21 made a good point. China is aging quickly and is not an immigrant country. Hard to see China can reach the point of being so much bigger than USA so other smaller countries have to use Chinese currency over that of the current one.

---

Interestingly, coming in I thought for sure China is going to have the next global currency. Now, I am not so sure anymore.

It also needs the backing of other big exporters. OPEC+Russia being the most important.

 

[Pepsi Cola]

China never wanted to replace the USA or its currency. Only those with insecurity think that way.

 

[Beidou2020]

Its a complicated topic as I stated. When the USA went off the gold standard in the 1970's....The fiat dollar was backed the major exporting countries/blocs of the time....Japan, Germany and OPEC. The USA still had a big manufacturing base. Other smaller economy countries had no choice but to keep dollar as reserve or else they could not buy important goods like oil, cars, electronics, machinery etc... from the major exporting countries. With the collapse of Soviet Union....the newly opened countries stayed in the existing dollar order (including China) since their no other option and the system worked.

China can easily get the Yuan backing from OPEC+Russia in time. Germany now backs the Euro. Japan will diminish as its in demographic decline as well the importance of its backing of the dollar. Currently the USA produces nothing....it owns. It not hard for the dollar to lose its value to smaller economies.

The USA financial system is also large, open and sophisticated enough to perform this reserve currency duty. China will have to have similarly capable financial sector to compete with the dollar.

Lets look at Pakistan today.....we need dollars mostly to pay back our dollar denominated debt and buy oil and gas from OPEC. In reality we can import everything we physically need from the GCC (oil and gas) and China (defense products and any consumer item).

Times have changed.....the dollar is more vulnerable then you realize.

This is the only post on this thread that matters.

 

[Mista]

Do you know the reason why China won't let her currency float?

Volatility. Eg; a few years back China had to spend $1 trillion from her foreign reserves to defend her currency when there are concerns about China's slowing economy.

This is despite all the capital restrictions in place. They had to put in further restrictions to stem capital outflow.

China’s authorities have capped overseas withdrawals using Chinese bank cards at Rmb100,000 per year in a move designed to prevent money laundering and terrorist financing, the foreign exchange regulator said. China has sought to limit foreign exchange purchases by its citizens in an effort to conserve forex reserves. The new measure plugs one of the few remaining ways Chinese citizens get money out of the country by broadening the Rmb100,000 ($15,400) limit from a single account to a single individual.

https://www.ft.com/content/b69166fa-ee01-11e7-b220-857e26d1aca4

In a sign of Beijing’s growing wariness about capital outflows, China’s foreign exchange administration issued a notice on Friday requiring banks to report every cash withdrawal made outside its borders, and every overseas card transaction valued over 1,000 yuan (US$147).

https://www.scmp.com/news/china/eco...ks-told-report-overseas-cash-withdrawals-plus

A former Chinese central bank adviser has admitted that Beijing’s capital account controls may be too “extreme” after personally being blocked from sending US dollar funds abroad because he was too old.

Yu Yongding, a senior research fellow at the Chinese Academy of Social Sciences, a state-owned think tank, told a financial forum in Beijing on Wednesday that he recently tried to exchange yuan to the value of US$20,000 at a bank and transfer the money out of China to pay for a trip to visit relatives living abroad.

But the bank refused to provide the service even though Yu, like all citizens under Chinese law, is allowed to make foreign transfers of up to US$50,000 each year. According to Yu, the bank refused to provide the service because he is over 65.

https://www.scmp.com/news/china/eco...ks-told-report-overseas-cash-withdrawals-plus

Imagine if there were no capital controls. The rich in China would have liquidated their overpriced properties in Beijing and move their money abroad to seek better returns in the long-term. China's foreign reserves, though the largest in the world, won't be enough and there will be financial instability.

 

[Mista]

If what you said is true, why isn't Euros the world reserve currency? Clearly, something else is needed. What is it? (By the way, this question is not just for you, but also for anybody who is good in world finance).

Size, liquidity (capital controls), depth and breath of the financial markets. Only the US have all 3.

The US, with its strong technological edge and large economy, has the most profitable private companies in the world. This lures investors from all over the world to invest in these companies through the US financial market. It's a virtuous cycle which allocates capital to productive investments, sustaining innovation and productivity growth in the economy.

European companies aren't comparable.

In China the largest companies are state-owned. And most of their money go into the property market, which isn't sustainable because the investment doesn't provide productivity gains to the economy. The price appreciation of your 30 year old apartment in central Beijing doesn't provide any gain to the real economy. In other words, the property market is a zero-sum game and is all speculation.

 

[ohmrlobalobayeh]

Their behavior shows lack of confidence in their currency.
CCP operates very much like a dictator, with absolute control.
Reason for that is that they have too many things to hide.

Markets on other hand don't care about dictators. They only care about their returns,
CCP with all it's might can force media and govts to toe it's line.
BUT
it can't do zilch about the most basic human tendency to look for profit when they are investing their money.

CCP knows this & hence why their currency is controlled. Not just currency, even their markets are carefully controlled.

dude, i just started off investing in ETFs and UTs recently and atually wanted to ask u a genuine question about currency matters(cos u sounded expert-ly) until i came to this post that exposed yourself.

im better off directing my question to a monkey.


phew.

 

[8888888888888]

Yuan need to be link to gold in order to upstage the USD.

 

[pothead]

dude, i just started off investing in ETFs and UTs recently and atually wanted to ask u a genuine question about currency matters(cos u sounded expert-ly) until i came to this post that exposed yourself.

im better off directing my question to a monkey.


phew.

Then contact CCP, if possible winnie the pooh.

 

[ohmrlobalobayeh]

Then contact CCP, if possible winnie the pooh.

thx for admiting all those sounds-pro advices u gave r toilet paper fodder:

It's a govt controlled currency, will never replace Dollar.

Since market does not decide the value of Yuan, no major nation will ever bet on it.
It's a DOA analysis.

hence, your comments here r a total boosheet. grats tho, cos u almost succeeded in conning me

thx for admiting all those sounds-pro advices u gave r toilet paper fodder:



hence, your comments here r a total boosheet. grats tho, cos u almost succeeded in conning me

BTW, i should have known better with that self-depreciating nick of yours lol.

 

[Viet]

China will pursue digital Yuan. For posters who have a background in finance and business, would this help break the dominance of USD?

If the answer is yes, how long do you think it would take? and if there are other steps that China need to take to make it happen?

https://finance.yahoo.com/news/china-undoubtedly-pursue-digital-yuan-184024654.html

China Will ‘Undoubtedly’ Pursue Digital Yuan, Central Bank Says

David Pan
CoindeskApril 6, 2020

China’s central bank has sent one of its strongest signals yet of a commitment to creating a digital version of the yuan.


The notice is a summary of the 2020 National Currency Gold Silver and Security Work Video and Telephone Conference, convened on Friday by Yifei Fan, the central bank’s vice governor. One of the annual meeting’s goals was to lay out top priorities for the bank in this coming year.


While this was at least the third time a digitized yuan, or Digital Currency Electronic Payment (DCEP), was mentioned in the annual meeting, the unequivocal language used indicates a firmer stance on the project than before.


Along with the push for DCEP, the PBoC aims to reform the system to issue and withdraw cash and other issues to better manage cash circulation, according to the notice from the latest meeting,

Other priorities on the bank’s agenda include strengthening a crackdown on counterfeit money and testing programs to manage large quantities of cash.

Besides departments in the PBoC, officials from major state-owned commercial banks joined this meeting, according to the notice.

What is digital yuan?

the article offers zero explanation.

I seriously hope, in some distant future our chinese bro’s would state less propaganda more facts.

 

[Paul2]

Imagine if there were no capital controls. The rich in China would have liquidated their overpriced properties in Beijing and move their money abroad to seek better returns in the long-term.

Anybody wanting that, did so already. Do you think Jack Ma bought his $15M house on the Victoria peak in HK by shuttling cash across the border, 12000HKD at a time?

When I worked in Shanghai, right on the opposite side of the street of Putuo district procuratorate, there was a banner with something like "We take your money out of China"

In reality, such restrictions only stop the lowermost tier of capital holders. Somebody who wants to save more than the legal limit of $50k abroad, but not by much to pay to agents to provide the legal cover.

 

[Mista]

In reality, such restrictions only stop the lowermost tier of capital holders. Somebody who wants to save more than the legal limit of $50k abroad, but not by much to pay to agents to provide the legal cover.

Yeah true. I've heard of some Chinese holding a bag of hard cash to buy properties in Singapore many years ago. Not sure how true is that since the money laundering is too obvious.

 

[Paul2]

Yeah true. I've heard of some Chinese holding a bag of hard cash to buy properties in Singapore many years ago. Not sure how true is that since the money laundering is too obvious.

I think that if capital controls were to be repealed overnight one day, we wouldn't see much sag in CNY as people who will rush to banks aren't such big capital holders.

I believe that may even counterintuitively lead to strengthening of RMB long term, as this will make Chinese capital market way more attractive.

As of now, the need to go to SAFE to get a paper approval for every capital move, and the possibility of SAFE refusing is a giant turnoff.

 

[Mista]

I think that if capital controls were to be repealed overnight one day, we wouldn't see much sag in CNY as people who will rush to banks aren't such big capital holders.

I believe that may even counterintuitively lead to strengthening of RMB long term, as this will make Chinese capital market way more attractive.

As of now, the need to go to SAFE to get a paper approval for every capital move, and the possibility of SAFE refusing is a giant turnoff.

The problem in China is that there aren't much domestic investment opportunities. The stock market is a casino filled with uninformed investors and is dominated by inefficient SOEs with vested interests. The property market is a bubble and the returns aren't sustainable.

 

[Han Patriot]

What is digital yuan?

the article offers zero explanation.

I seriously hope, in some distant future our chinese bro’s would state less propaganda more facts.

Calm down hero, its a currency based on block chain controlled by the central bank. Basically its almost impossible to hide money laundering and corruption since credit history is now part of the money.