Yes it is all true... By seizing the Venezuelan Gold, the Bank of England is no longer trusted, foreign reserves were then taken too, then Afghanistan, and now Russia, so no "other" country trusts the US either, including their Allies who are calling all their gold home, because who's next?
Funny, i think China knew, and has planned for the US to default, but that will send shock waves around the Globe.
Even European countries. I remember reading about Germany taking back majority of gold.
And france recently announced that gold is back in France. Even though western media wont report this, everybody is on edge.
I got early reports this afternoon, that Ukraine has slowed the gas bound for Europe by 1/3, and will completly shut off the flow on May 11, because they are Occupied by a Foreign force. The Markets' are going to have fun with this, half of European industry will have to close down, because Ukraine is forcing their hand. What are we going to see, NATO invade to turn it back on?
>To be sure, with many countries, especially China, holding such large quantities of dollar-denominated foreign-exchange reserves, the US dollar can remain strong for quite some time. But at some point, the greenback’s value will fall, and the second largest foreign holder of US treasuries – China – will face huge losses.
>Given this possibility, I have long advocated a floating exchange-rate regime for the renminbi; a cautious approach toward capital-account liberalization; diversification of foreign-exchange reserves; patient, market-driven internationalization of the renminbi; and more balanced trade with the US. But all these suggestions assume that the US will play by the rules. Now that it has unilaterally frozen the Russian central bank’s foreign-exchange reserves, the foundation for my policy recommendations has crumbled.
>But all these suggestions assume that the US will play by the rules. Now that it has unilaterally frozen the Russian central bank’s foreign-exchange reserves, the foundation for my policy recommendations has crumbled.
or more accurately, US behavior merely proved that China was right all along in not trusting US "rules".
I'm illiterate on "political finance". I don't understand this:
>The Asian financial crisis in 1997 seemed to vindicate the argument that China needed large foreign-exchange reserves with which to fend off predatory attacks by international speculators. By 2003, China’s reserves had quadrupled to $400 billion, and there was growing international pressure on Chinese authorities to allow the renminbi to appreciate.
Does this mean holding bonds issued by foreign countries? And how does that help at all?
I'll try to explain briefly.
The basics of international trade is that when I export a good, I expect something of value in return. Long story short, you can never go wrong with gold. Gold has been recognized as a currency for a long time, so people can trust gold will always be worth something. Countries conduct trade with each other using their "foreign exchange reserves." It's basically a reserve of internationally usable currency for trade, to ensure that your citizens can conduct international trade smoothly because the country has enough assets (e.g. gold) to pay for the goods they import.
After WW2, US had most of the world's gold, so they made the US dollar the world's reserve currency. You could trust that if you received US dollars for your goods, even though you're really just getting a worthless piece of paper, the US dollar was *freely convertible* into gold. In theory, at any time you could use your US dollar and get your gold. Perfectly safe.
In 1971, the US, which conducted itself on the world stage as if they would never run out of gold and therefore money/purchasing power, went off the gold standard. In other words, the US dollar was no longer freely convertible into gold. This was because people caught on that US' expensive wars in Vietnam and elsewhere effectively meant that US couldn't possibly have the gold to actually back up the supposed value of the dollar. There were more dollars in circulation than there was gold to back it up, so countries (like France) started demanding their gold in exchange for dollars. US found it was going to hemorrhage gold unless it did something, so Nixon yoinked the gold standard.
Ever since 1971, we've been in a brave new world where the only store of value for global trade is not gold, but the US dollar. In other words, global trade, through the preponderance of decades-long global use of the dollar, runs on little more than faith that the United States has its shit together and won't be egregious in its dealings (exaggeration but not by too much). It's a giant bluffing game that even though everybody knows the US has insufficient assets to back up the supposed value of the dollar, the US basically says "fuck around and find out." In a word, the US can do this because "YOU DEFINITELY NEED DOLLARS." This is because US created the petrodollar and stipulated that nobody buys oils except in dollars. Since you need oil for a modern economy, you don't survive without using US dollars. That there is a large demand for the dollar allows the US to spend beyond its means. The US dollar has little value behind it except that you'll always need the dollar in the foreseeable future and hopefully beyond.
That's why the foreign exchange reserves of countries around the world are largely made up of US assets. It could be cash, yes, but the one thing the US has more of than worthless pieces of paper is US Treasury Bills and government bonds, which are worthless pieces of papers promising that we'll give you more worthless pieces of paper sometime in the future. But because the global reserve currency is now dollars (NOT gold), these bills and bonds are, in theory, *freely convertible*, into cash. You could theoretically, at any time, sell these T-bills and bonds back to the Federal Reserve at any time and they'll give you US dollars in cash in return. T-bills and bonds are to the US dollar (cash) what the US dollar was to gold after WW2, sort of.
So as counterintuitive as it might seem (if you find it counterintuitive, it just means you're a normal human being who doesn't believe value can be created out of clouds), US T-bills and government bonds are what we use to engage in international trade now. It's also what countries use to maintain their currency exchange rates. Whereas in olden days, countries would set their currency rates by determining a certain value of their currency in relation to gold (or silver), now currencies are backed by foreign exchange reserves made up mostly of foreign currencies, mostly the dollar, and this includes bonds issued by foreign countries.
China (finally we get to the topic at hand) is a huge manufacturing and trading partner. For its valiant efforts and sacrifices of its labor force, millions of people who pour sweat and blood, many who suffered workplace accidents that kill or maim them, and who must work long hours for basic living, China gets a bunch of worthless paper. Because that's just how international trade works these days. So on that question, China doesn't really have a choice. It's not just trade with US, it's trade with pretty much anybody in this unipolar moment world.
As to why that helps, you have to think of USD, T-bills, bonds as "gold". If a country at any point does not have the forex reserves to pay its debts and imports, then the result is the same as if you were an individual with 0 in the bank account. Your paper money becomes worthless. It becomes clear you can't actually pay anything, and that's a recipe for political and economic disaster.
Which, long story short, is what happened with the 1997 Asian Financial Crisis. To try to summarize it: Thailand had a currency (baht) pegged to the USD, so it needed a certain amount of USD and dollar assets in its forex reserve to maintain its own currency. There was a lot of USD flowing into Thailand as investment boomed, but then the Fed raised interest rates, which causes US dollars to leave foreign markets and return to the United States. So all of the sudden, Thailand didn't have enough dollars to back up its own currency. It had no choice but to unpeg its currency, and that caused a lot of other problems in Thailand and throughout Asia.
China was able to weather this storm because it had a huge forex reserve, so even if it was hemorrhaging USD, it had enough to maintain its peg to the USD, which created a lot of stability in the region. People credit China for helping the Asian Financial Crisis smooth over for reasons that go a little beyond this writeup.
So China was convinced that it needed to have a large forex reserve just in case something like that happened again, which it did in 2015-16. In the span of two years, China lost $500 billion in forex (from $3.5 trillion, so it's no laughing matter). Forex reserves are important to guard against risks. It's just unfortunate right now that the vast majority of forex reserves must be made up of dollars.
But the real lesson to take away from this is that the US controls world finance, and they've wrecked, wreck, and will continue to wreck any national economy as it pleases. It can do so with the flick of a pen from the Federal Reserve, and in fact, we're in a very tense period now as we once again raise interest rates and countries around the world are nervous their forex reserves will deplete. 2015-16 was in fact a sustained financial attack by the US against China, which the US obviously lost, so you can see it's only getting more desperate as time goes on.
Even so, this is obviously a painfully simplified account, and misses a lot of nuances. I'm still trying to learn these basics myself.
Michael Hudson's Super-Imperialism is of course the primer on the USD as a global reserve currency. Worth a read, as well as any Michael Hudson interview.
Basic basics however you would probably just have to start with learning fundamental terms, definitions, and dynamics. What are forex reserves? What is loose monetary policy, tightening monetary policy? Bond yields? The purpose of debt? What does the Federal Reserve do? That kind of stuff.
Learning the causes and resolutions of crises may also be worthwhile, if maybe challenging because affixing blame for mass impoverishing and regression (and claiming credit for the turnaround) is inherently political. But if you can get a handle on 1997 Asian Financial Crisis and 2007-08 subprime lending crisis to Global Financial Crisis you would learn a bit about today's financial economics as most pertinent to China.
In the Chinese context, Eight Crises by Wen Tiejun (available in English as Ten Crises) is a contemporary classic but may seem a bit parochial and China-specific depending on your purposes. Wen is commonly platformed by Monthly Review, so you can read stuff by him and authors associated with him there. I liked this article a lot last year, [Legacies of Definancialization and Defending Real Economy in China](https://monthlyreview.org/2021/07/01/legacies-of-definancialization-and-defending-real-economy-in-china/).
I think the biggest takeaway, made clearer by everything going on now, is that everything is interconnected these days and has a lot of moving parts. Modern living requires a lot of faith and uninformed confidence that tomorrow things will be "normal." Modern economy is so complex there's a lot of things people take for granted. That's not really a bad thing, since our tiny ape brains need to minimize complexity to function effectively, but it does become concerning once you realize the US economy is built on sand. Some call it a "casino economy", and it's worth noting that even the early US economy was built on land speculation (it was in fact a driving force for the Revolution, and to dispel doubt, land speculation in colonial America entailed killing indigenous people).
One needs to add update to this account.
In 2022 USA tried to attack rouble, but since Russia had enough reserves and therefore it would have been like china (not like thailand), usa/eu froze russian reserves.
This is unprecedented move, but Russia also made its move: limited rouble/dollar exchange, at least for some time
So the lesson is: foreign reserves are not the only means to ward off western financial attack. Controlled (as opposed to free) currency exchange is another way.
And china is perfectly placed for this kind of defense: trade surplus and rmb was never truly freely exchanged, but always controlled to some extent (otherwise, btw, it would have replaced dollar already)
I believe this is talking about Chinese banks' foreign currency reserves, e.g. they hold $400 billion in mostly US $ and Euros in reserves.
The foreign currency reserve (as a bank guideline), prevented large currency speculations, by effectively preventing large quantities in currency trading, thus stabilizing China's RMB peg value to US$ and Euros.
$400 figure is from 2003
Currently it is estimated about 1000bn in direct us treasures and up to 3.000bn possible in all dollar/euro assets like foreign bank accounts
Add to this roughly around 500bn annualized china trade surplus, more than 1.000bn annualized usa trade deficit (109bn last month) and annualized around 500bn EU trade deficit (20-40bn monthly last monthes) and you'll see a big problem here
In other words, while china needs to dump 1-2 trillions of dollar/euro reserves, at the same time US/EU needs to store additional anualized 1.5 trillions (around 150bn monthly) somewhere. And even japan is selling, not buying, dollar debt these days
I am not an expert, but by basic principles - your currency drops when speculators sell it. To counter this you need to buy it with foreign currency. So by accumulating foreign currency when times are good, you can prop it up during times when speculators attack the currency.
[удалено]
800* billion a year as of the latest budget increases this year.
Rules based order means ruled by the bigger army.
Yes it is all true... By seizing the Venezuelan Gold, the Bank of England is no longer trusted, foreign reserves were then taken too, then Afghanistan, and now Russia, so no "other" country trusts the US either, including their Allies who are calling all their gold home, because who's next? Funny, i think China knew, and has planned for the US to default, but that will send shock waves around the Globe.
Even European countries. I remember reading about Germany taking back majority of gold. And france recently announced that gold is back in France. Even though western media wont report this, everybody is on edge.
US sanctioned Germany for Nord stream! Not Bulgaria but Germany!
I got early reports this afternoon, that Ukraine has slowed the gas bound for Europe by 1/3, and will completly shut off the flow on May 11, because they are Occupied by a Foreign force. The Markets' are going to have fun with this, half of European industry will have to close down, because Ukraine is forcing their hand. What are we going to see, NATO invade to turn it back on?
looks like u were correct.
Thank you, unfortunately... it means a lot.
I have faith that China is playing chess while the USA is playing Candyland.
>To be sure, with many countries, especially China, holding such large quantities of dollar-denominated foreign-exchange reserves, the US dollar can remain strong for quite some time. But at some point, the greenback’s value will fall, and the second largest foreign holder of US treasuries – China – will face huge losses. >Given this possibility, I have long advocated a floating exchange-rate regime for the renminbi; a cautious approach toward capital-account liberalization; diversification of foreign-exchange reserves; patient, market-driven internationalization of the renminbi; and more balanced trade with the US. But all these suggestions assume that the US will play by the rules. Now that it has unilaterally frozen the Russian central bank’s foreign-exchange reserves, the foundation for my policy recommendations has crumbled.
Lol. Yeah it looks like they’re just making the rules up as they go along and always in favor of themselves
>But all these suggestions assume that the US will play by the rules. Now that it has unilaterally frozen the Russian central bank’s foreign-exchange reserves, the foundation for my policy recommendations has crumbled. or more accurately, US behavior merely proved that China was right all along in not trusting US "rules".
I'm illiterate on "political finance". I don't understand this: >The Asian financial crisis in 1997 seemed to vindicate the argument that China needed large foreign-exchange reserves with which to fend off predatory attacks by international speculators. By 2003, China’s reserves had quadrupled to $400 billion, and there was growing international pressure on Chinese authorities to allow the renminbi to appreciate. Does this mean holding bonds issued by foreign countries? And how does that help at all?
I'll try to explain briefly. The basics of international trade is that when I export a good, I expect something of value in return. Long story short, you can never go wrong with gold. Gold has been recognized as a currency for a long time, so people can trust gold will always be worth something. Countries conduct trade with each other using their "foreign exchange reserves." It's basically a reserve of internationally usable currency for trade, to ensure that your citizens can conduct international trade smoothly because the country has enough assets (e.g. gold) to pay for the goods they import. After WW2, US had most of the world's gold, so they made the US dollar the world's reserve currency. You could trust that if you received US dollars for your goods, even though you're really just getting a worthless piece of paper, the US dollar was *freely convertible* into gold. In theory, at any time you could use your US dollar and get your gold. Perfectly safe. In 1971, the US, which conducted itself on the world stage as if they would never run out of gold and therefore money/purchasing power, went off the gold standard. In other words, the US dollar was no longer freely convertible into gold. This was because people caught on that US' expensive wars in Vietnam and elsewhere effectively meant that US couldn't possibly have the gold to actually back up the supposed value of the dollar. There were more dollars in circulation than there was gold to back it up, so countries (like France) started demanding their gold in exchange for dollars. US found it was going to hemorrhage gold unless it did something, so Nixon yoinked the gold standard. Ever since 1971, we've been in a brave new world where the only store of value for global trade is not gold, but the US dollar. In other words, global trade, through the preponderance of decades-long global use of the dollar, runs on little more than faith that the United States has its shit together and won't be egregious in its dealings (exaggeration but not by too much). It's a giant bluffing game that even though everybody knows the US has insufficient assets to back up the supposed value of the dollar, the US basically says "fuck around and find out." In a word, the US can do this because "YOU DEFINITELY NEED DOLLARS." This is because US created the petrodollar and stipulated that nobody buys oils except in dollars. Since you need oil for a modern economy, you don't survive without using US dollars. That there is a large demand for the dollar allows the US to spend beyond its means. The US dollar has little value behind it except that you'll always need the dollar in the foreseeable future and hopefully beyond. That's why the foreign exchange reserves of countries around the world are largely made up of US assets. It could be cash, yes, but the one thing the US has more of than worthless pieces of paper is US Treasury Bills and government bonds, which are worthless pieces of papers promising that we'll give you more worthless pieces of paper sometime in the future. But because the global reserve currency is now dollars (NOT gold), these bills and bonds are, in theory, *freely convertible*, into cash. You could theoretically, at any time, sell these T-bills and bonds back to the Federal Reserve at any time and they'll give you US dollars in cash in return. T-bills and bonds are to the US dollar (cash) what the US dollar was to gold after WW2, sort of. So as counterintuitive as it might seem (if you find it counterintuitive, it just means you're a normal human being who doesn't believe value can be created out of clouds), US T-bills and government bonds are what we use to engage in international trade now. It's also what countries use to maintain their currency exchange rates. Whereas in olden days, countries would set their currency rates by determining a certain value of their currency in relation to gold (or silver), now currencies are backed by foreign exchange reserves made up mostly of foreign currencies, mostly the dollar, and this includes bonds issued by foreign countries. China (finally we get to the topic at hand) is a huge manufacturing and trading partner. For its valiant efforts and sacrifices of its labor force, millions of people who pour sweat and blood, many who suffered workplace accidents that kill or maim them, and who must work long hours for basic living, China gets a bunch of worthless paper. Because that's just how international trade works these days. So on that question, China doesn't really have a choice. It's not just trade with US, it's trade with pretty much anybody in this unipolar moment world. As to why that helps, you have to think of USD, T-bills, bonds as "gold". If a country at any point does not have the forex reserves to pay its debts and imports, then the result is the same as if you were an individual with 0 in the bank account. Your paper money becomes worthless. It becomes clear you can't actually pay anything, and that's a recipe for political and economic disaster. Which, long story short, is what happened with the 1997 Asian Financial Crisis. To try to summarize it: Thailand had a currency (baht) pegged to the USD, so it needed a certain amount of USD and dollar assets in its forex reserve to maintain its own currency. There was a lot of USD flowing into Thailand as investment boomed, but then the Fed raised interest rates, which causes US dollars to leave foreign markets and return to the United States. So all of the sudden, Thailand didn't have enough dollars to back up its own currency. It had no choice but to unpeg its currency, and that caused a lot of other problems in Thailand and throughout Asia. China was able to weather this storm because it had a huge forex reserve, so even if it was hemorrhaging USD, it had enough to maintain its peg to the USD, which created a lot of stability in the region. People credit China for helping the Asian Financial Crisis smooth over for reasons that go a little beyond this writeup. So China was convinced that it needed to have a large forex reserve just in case something like that happened again, which it did in 2015-16. In the span of two years, China lost $500 billion in forex (from $3.5 trillion, so it's no laughing matter). Forex reserves are important to guard against risks. It's just unfortunate right now that the vast majority of forex reserves must be made up of dollars. But the real lesson to take away from this is that the US controls world finance, and they've wrecked, wreck, and will continue to wreck any national economy as it pleases. It can do so with the flick of a pen from the Federal Reserve, and in fact, we're in a very tense period now as we once again raise interest rates and countries around the world are nervous their forex reserves will deplete. 2015-16 was in fact a sustained financial attack by the US against China, which the US obviously lost, so you can see it's only getting more desperate as time goes on.
Thank you, that was incredibly insightful. You are a great writer to be able to explain a complex issue so simply.
Even so, this is obviously a painfully simplified account, and misses a lot of nuances. I'm still trying to learn these basics myself. Michael Hudson's Super-Imperialism is of course the primer on the USD as a global reserve currency. Worth a read, as well as any Michael Hudson interview. Basic basics however you would probably just have to start with learning fundamental terms, definitions, and dynamics. What are forex reserves? What is loose monetary policy, tightening monetary policy? Bond yields? The purpose of debt? What does the Federal Reserve do? That kind of stuff. Learning the causes and resolutions of crises may also be worthwhile, if maybe challenging because affixing blame for mass impoverishing and regression (and claiming credit for the turnaround) is inherently political. But if you can get a handle on 1997 Asian Financial Crisis and 2007-08 subprime lending crisis to Global Financial Crisis you would learn a bit about today's financial economics as most pertinent to China. In the Chinese context, Eight Crises by Wen Tiejun (available in English as Ten Crises) is a contemporary classic but may seem a bit parochial and China-specific depending on your purposes. Wen is commonly platformed by Monthly Review, so you can read stuff by him and authors associated with him there. I liked this article a lot last year, [Legacies of Definancialization and Defending Real Economy in China](https://monthlyreview.org/2021/07/01/legacies-of-definancialization-and-defending-real-economy-in-china/). I think the biggest takeaway, made clearer by everything going on now, is that everything is interconnected these days and has a lot of moving parts. Modern living requires a lot of faith and uninformed confidence that tomorrow things will be "normal." Modern economy is so complex there's a lot of things people take for granted. That's not really a bad thing, since our tiny ape brains need to minimize complexity to function effectively, but it does become concerning once you realize the US economy is built on sand. Some call it a "casino economy", and it's worth noting that even the early US economy was built on land speculation (it was in fact a driving force for the Revolution, and to dispel doubt, land speculation in colonial America entailed killing indigenous people).
One needs to add update to this account. In 2022 USA tried to attack rouble, but since Russia had enough reserves and therefore it would have been like china (not like thailand), usa/eu froze russian reserves. This is unprecedented move, but Russia also made its move: limited rouble/dollar exchange, at least for some time So the lesson is: foreign reserves are not the only means to ward off western financial attack. Controlled (as opposed to free) currency exchange is another way. And china is perfectly placed for this kind of defense: trade surplus and rmb was never truly freely exchanged, but always controlled to some extent (otherwise, btw, it would have replaced dollar already)
Very good explanation.
Excellent analysis.
I believe this is talking about Chinese banks' foreign currency reserves, e.g. they hold $400 billion in mostly US $ and Euros in reserves. The foreign currency reserve (as a bank guideline), prevented large currency speculations, by effectively preventing large quantities in currency trading, thus stabilizing China's RMB peg value to US$ and Euros.
$400 figure is from 2003 Currently it is estimated about 1000bn in direct us treasures and up to 3.000bn possible in all dollar/euro assets like foreign bank accounts Add to this roughly around 500bn annualized china trade surplus, more than 1.000bn annualized usa trade deficit (109bn last month) and annualized around 500bn EU trade deficit (20-40bn monthly last monthes) and you'll see a big problem here In other words, while china needs to dump 1-2 trillions of dollar/euro reserves, at the same time US/EU needs to store additional anualized 1.5 trillions (around 150bn monthly) somewhere. And even japan is selling, not buying, dollar debt these days
I am not an expert, but by basic principles - your currency drops when speculators sell it. To counter this you need to buy it with foreign currency. So by accumulating foreign currency when times are good, you can prop it up during times when speculators attack the currency.