The dollar is free floating, and the renminmbi/yuan is pegged. I wouldn't worry about the dollar losing its status any time soon.

https://en.wikipedia.org/wiki/Renminbi#Managed_float

https://en.wikipedia.org/wiki/Renminbi_currency_value#Intern...

https://en.wikipedia.org/wiki/European_Exchange_Rate_Mechani...

Are you serious? Dollar is free floating as there is no central bank deciding monetary policy? Who's printing all the money, and buying in the stock market, and have us witness the 7% inflation? Chinese Yuan is only different in a sense they consider USD's relative value in their monetary policy, while the Feds mostly cared about other factors.

The peg is only to keep it from strengthening (unlike some countries that try to keep their currency from sinking). Depending on which country is trying to use yuan as a reserve currency (export based economies vs import based ones), they might actually find this feature useful to stay competitive.

Bigger than the peg are the problems with moving the yuan out of your bank accounts once it’s in China. Their currency controls are some of the tightest in the world and getting more so since COVID.

There are ways around it: https://en.wikipedia.org/wiki/Panda_bonds

There are. They are still denominated in yuan though so you have to fx them through an illiquid fx market that suffers from currency controls.

Further the rules for whether you can or how much you can repatriate the proceeds from this bonds changes ~yearly at the whim of an opaque bureaucracy and they are very new instruments comparatively.

All that’s to say the yuan needs to be liberalized or companies have to invent new finance operations before China takes over the finance sphere. That doesn’t happen fast.

We'll just see a repeat of the Deutsche Bank laundromat:

https://www.theguardian.com/business/2019/apr/17/deutsche-ba...

The peg is a subsidy for the world. I.e. those working under that currency regime should be making more money and have higher purchasing power.

If the population was educated enough to know they were being stolen from, ‘Office Space’-style, they would throw their leaders out.

This is one reason the great firewall of China is so important, and I expect Russia to embrace that umbrella soon.

May be but what additional things are chinese going to buy from outside their country even if the yuan is higher. Almost every single thing is manufactured/produced inside their own country. The only things they need from outside are raw materials, energy and food (I'm ignoring semiconductor industry for a moment which they already consider as their own little island)

Maybe if the peg was not set, then those working under that currency regime would be "not working".

I don't think the Chinese are subsidizing the world for no reason; and I don't think they are the smartest person in the room either.

That's only going to matter if they are buying outside stuff (like Oil). It does not matter to domestic market.

> If the population was educated enough to know they were being stolen from...

This is basically the same argument used by cryptobros and libertarians to criticize inflation.

I think there are pretty obvious tradeoffs with letting your currency amass purchasing power: probably it would shrink the amount of exports (which means that a lot of people might find themselves without a job) and it would make it harder to get a mortgage.

How do you propose that these negative effects would be mitigated?

I think the dollar has never looked better actually.

Who from "the West" is going to consider major investments in China now? If by some miracle you manage to keep your IP secure, you risk losing your entire investment if/when the world gets tired of their support for the facists in Russia.

[edit] since I wrote this comment....

https://twitter.com/jakluge/status/1499373653372420099

Tesla sold almost as many cars in China as it did in US in 2021. Meanwhile Gigafactory Shanghai produced almost half of all Teslas globally.

Who? Those who want to make money.

We'll see. I myself was sceptical of anti-china propoganda I'd seen until a few days ago and understood why business might think they can work within that environment.

But everyone is showing their hands now.

And at the moment, it sure looks like China is supporting a dictator on the march to a major war. Trillion dollar funds are writing off their Russian investments at the moment. How long before China is seen in the same way?

Ah yes Tesla, the largest car manufacturer in the world...

*by market cap

>Who from "the West" is going to consider major investments in China now?

People have been saying this for more than 10 years. As long as interest rates remain low and China continues to grow, there will be plenty of western money flowing in.

> People have been saying this for more than 10 years.

double-digit growth is great until it ends in zero.

Inflation is 7%, and interest for money market fund is 0.01%.

Meanwhile in China, inflation is less than 1.5%, interest for money market fund is 2.4%.

You earn risk-free 0.9% if you hold them in CNY. You lose 7% if you hold them in USD.

Your choice now?

> You earn risk-free 0.9% if you hold them in CNY. You lose 7% if you hold them in USD.

This is false, you are exposed to risk in changes in foreign exchange rates.

The yuan is pegged to the dollar, so it has the same exposure to fluctuations in fx that the dollar has. (Not to mention the fact that the Chinese government periodically adjusts its exchange rates)

This is false. Anyone's prediction for long term exchange rate is CNY's relative value to USD is getting higher, do note the PPP rate of CNY is around 3 for one compare to exchange rate roughly 6 for one. So unless you are doing super short term, these are fluctuations, not risk.

Define “super short term”?

1 year? 5 years? 10?

Your comment amounts to “yuan appreciation against the dollar is a sure thing”. Which in finance seems like a suspect statement.

If you set USD as the base currency then there is going to be exchange, as such there will be fluctuations, so yes. Yet there is risk just holding on to USD as well, perhaps it wasn't so evident because you consider USD as the default.

> Where does this lead? Strengthening CIPS with this move surely weakens the dollar's reserve status globally

This was an unstated policy goal. Russia as a regional power is provably dangerous. As a Chinese vassal, at least it’s contained.

Add to that the significant costs to the American economy dollar hegemony has brought [1], and this is broadly a win-win-win.

[1] https://www.wsj.com/amp/articles/how-the-reserve-dollar-harm...

Which system would you trust? SWIFT or something controlled by China? I have a feeling the China based system would be used far more often politically than SWIFT ever would, especially against those that China deemed to be problematic to them.

>especially against those that China deemed to be problematic to them.

I don’t see how this is any different than what the US has already done. The US has now cut off Iran and Russia from SWIFT in political moves. Any nation state is likely already doing the calculus.

The difference is China would likely cut off banks and countries who “hurt the feelings of the Chinese people”, i.e., refer to Taiwan as a country, or refuse to recognize the 9-dash line, or comment on their human rights abuses.

it won't be a matter of trusting one over the other; smart thing banks will do is register accounts with as many payments systems as are available, in order to mitigate unforeseen future risk.

Right, people here seem to think it's putting money into SWIFT or some alternative system. SWIFT doesn't hold or keep money, it just process them.

that's right, its a bank to bank messaging service. Significant mainly because its a monopoly but totally replicable, just no one has really had much reason to. Though US sanctioning targeted states has made more countries aware of the vulnerability. This episode will see a mushrooming of alts as each significant economy builds at least a failsafe - failure to do is would be gross dereliction of duty at this point

The world is quickly moving back to a bipolar arrangement. Having a unipolar world was nice while it lasted but was unlikely to last forever.

Mostly it just accelerates Russia’s slide into becoming North Mongolia.

Chinese banks still need SWIFT, and if we find any Chinese banks using CIPS to do business with sanctioned Russian entities, they will get cut off too and now both Chinese and Russian banks will be screwed.

Wouldn't this just be done with an intermediary?

Russian bank -> disposable temporary bank -> permanent chinese bank

That way the disposable temporary bank is the one that's blacklisted, while the permanent one never did business with the sanctioned entity (directly).

You can’t just add a temporary bank to the SWIFT network, and in any event any new bank that is added to the network or starts engaging in the sorts of transactions they have never engaged in before is going to attract a lot of scrutiny in this period

> Strengthening CIPS with this move surely weakens the dollar's reserve status globally.

No it doesn't. That's a fantasy held primarily by people that dislike the US, the present world order, and want it all rearranged to their bias. You can instantly spot a person's bias by how quickly they whip out the premise that the USD global reserve is going to be damaged by xyz (it seems to practically be a fetish for some people). Typically there's no actual argument presented, just a statement that of course xyz will happen now, finally. You'll see that throughout the Russia war threads (here or elsewhere). Throughout my lifetime I've seen it repeatedly claimed: well of course, now the USD global reserve standard will begin to decline (the Euro was supposed to severely damage it; whoops).

The vast majority of the world isn't going to have a strong interest in holding Yuan and that'll define the global reserve status. There are no other major competitors to the USD other than potentially the Yuan, and it's not a serious competitor because of the nature of the CCP. As it is, the Yuan has a smaller presence globally than the Yen and that says a lot given the size of China's economy (ie there's no trust in China and they haven't made much progress in that respect over the past decade).

Dedollarization in global settlements is empirically a historic trend though. At least until 2020.

> says a lot given the size of China's economy (ie there's no trust in China and they haven't made much progress in that respect over the past decade).

Yeah. I really wonder about this: The Chinese are doing everything possible to undermine their Yuan as a reserve currency. You can't freely move money. You can't open a Yuan denominated bank account easily. Their cards are hard to get/use (although some places are opening up). They didn't make a Stripe/Processing equivalent and open it to the rest of the world. You can't incorporate a Chinese company online and opening a Chinese company is a ridiculous process. English is still not widely used.

And has anybody checked the ICBC online-banking solution? These guys are still living in the 90s?

Most people think China is advanced in payments because they have wepay. But they seem to have just that and everything else (under State control) is still in the Soviet Era.

> Chinese are doing everything possible to undermine their Yuan as a reserve currency

There is a decent argument for dollar hegemony hurting America [1]. China has no need to pursue reserve status for the yuan.

[1] https://www.wsj.com/amp/articles/how-the-reserve-dollar-harm...

>No it doesn't. That's a fantasy held primarily by people that dislike the US, the present world order, and want it all rearranged to their bias. You can instantly spot a person's bias by how quickly they whip out the premise that the USD global reserve is going to be damaged by xyz (it seems to practically be a fetish for some people).

My personal tipoff is how quickly someone mentions "petrodollar".

No, idiot, countries don't use the US dollar to buy and sell oil because the US military points a gun at them. They use the dollar because they, their trading partners, and everyone else prefer having dollars to rubles, renminbi, or bolivars.