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

[Paul2]

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.

There are all kinds of SOE, whose bonds are traded at vastly different rates. There is not much for foreigners to buy other than that.

Ones who do infrastructure projects at home and abroad are in perfect health, yet 3.5-4.5% yields on their debt is quite huge by today's standards.

 

[TruthSeeker]

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).

See my post above:
The US dollar can only be an international currency as long as foreigners, non-US citizens, can both buy and SELL dollar-denominated investments, and dollars themselves, in a free market of willing buyers and sellers. And such non-US citizens will only want to do that if the USA legal institutions are predictable and the USA domestic economy is stable and has some potential for growth.

The Euro zone has not been established long enough for investors and banks to have faith in its legal institutions, how they behave in various crisis situations and how they might change, i. e., Brexits and rules changes. Secondly, foreign investors judge that the growth potential of the Euro zone is too risky to replace the USA as a haven of last resort.

Ones who do infrastructure projects at home and abroad are in perfect health, yet 3.5-4.5% yields on their debt is quite huge by today's standards.

See, I don't think you or I can know that. To say "perfect health" you have to trust the information you are being told. It is hard enough to trust the financial information available and enforced, sometimes, by law in the USA. Financial information from a Chinese entity? Good luck.

 

[Paul2]

See, I don't think you or I can know that. To say "perfect health" you have to trust the information you are being told. It is hard enough to trust the financial information available and enforced, sometimes, by law in the USA. Financial information from a Chinese entity? Good luck.

For once, this is something obvious enough to be undeniable. If anybody is making money in China, it's them.

Infrastructure contractors make great tons of money, I myself worked in companies subcontracting for them all across the globe from Dangote, Nigeria to Astana, Kazakhstan.

It's not a type of business like some funny bank, or investments company where you can puff up the balance sheet. All that concrete, steel, and contractors salaries is all cash. Most of their receivables are factored (debts sold to banks and such, in exchange for immediate cash)

And if it comes to disputing the quality of management, the best ran SOEs are all infrastructure, and construction contractors too, without any second though.

 

[TruthSeeker]

For once, this is something obvious enough to be undeniable. If anybody is making money in China, it's them.

Infrastructure contractors make great tons of money, I myself worked in companies subcontracting for them all across the globe from Dangote, Nigeria to Astana, Kazakhstan.

It's not a type of business like some funny bank, or investments company where you can puff up the balance sheet. All that concrete, steel, and contractors salaries is all cash. Most of their receivables are factored.

Yes, but how does a person, an investor, share in this happy fortune. True the local management teams can get good salaries, etc. But how can a person know, from afar, that the books aren't being cooked up to the point of bankruptcy and collapse? You would have to trust the financial documents they put out. Can you?

 

[Viet]

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.

Why you don’t call it by name: block chain money? But how you can hinder money laundering? You seriously believe a drug dealer will accept block chain money from an addict?

 

[Han Patriot]

Why you don’t call it by name: block chain money? But how you can hinder money laundering? You seriously believe a drug dealer will accept block chain money from an addict?

It is a digital currency because block chain is digital, genius. What if I tell you the only legal tender in China is now a digital rmb, what choice does thee drug dealer have? Gold? Silver? USD? Maybe but you think drug addicts gonna have their salary paid in gold?

 

[Viet]

It is a digital currency because block chain is digital, genius. What if I tell you the only legal tender in China is now a digital rmb, what choice does thee drug dealer have? Gold? Silver? USD? Maybe but you think drug addicts gonna have their salary paid in gold?

Every currency that is stored in computer is digital currency you genius.

 

[Han Patriot]

Every currency that is stored in computer is digital currency you genius.

A true digital currency does not use hard currency. If an online transaction account is considered as 'digital currency', what's the point in using block chain at all?

 

[Viva_Viet]

It is a digital currency because block chain is digital, genius. What if I tell you the only legal tender in China is now a digital rmb, what choice does thee drug dealer have? Gold? Silver? USD? Maybe but you think drug addicts gonna have their salary paid in gold?

Thats funny, but we dont sell rice, NZ dont sell milk in digital money and RMB.

So, if u dont have dollar or gold, then u guys will starve to death when Xi failed to grow enough rice and cant produce healthy milk

 

[925boy]

It's a govt controlled currency,

Arent all currencies govt controlled?? Also, i dont believe who controlsa curency determines if people will invest in it.

will never replace Dollar.

Never say never...if USD proves to be unreliable to the masses who use it, they will find alternatives. bitcoin is here too, so dollar cannot create fake market easily for us anymore.

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

Imo demand for currencies is mainly about stability, interechangability in the world markets and inherent value(purchasing power). Yuan WILL take market tshare from USD regardless. that is the common sense assumption.

 

[Viet]

A true digital currency does not use hard currency. If an online transaction account is considered as 'digital currency', what's the point in using block chain at all?

What’s the benefits for BoC if using blockchain? You should ask them!
I don’t see any benefits at all.
Blockchain is designed to circumvent the central bank. Why should a central bank shoot itself into the foot?

 

[tower9]

Nope. The US dollar is the reserve currency and although this will be damaged somewhat, by and large, its position will still be dominant.

 

[925boy]

You are not buying your shoes, clothes, laptops from USA. It is a matter of time China tell everyone not to show up with USD, but rather Yuan, in front of her doorstep.

Nuff said! Global trade is getting more and more liberated- entities can send all kinds of currencies across more and more different channels. Also, if countries dont buy treasuries, US bonds etc then the USD's value as the world's top currency becomes less valuable imo.

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

Not completely honest or true.

A true digital currency does not use hard currency.

But some use hard assets to back them up/collaterize them. I believe its called "tokenization", so i dont fully agree with this. hard currency = hard accepted assetts = equal back up power.

 

[Faith_Lock]

It is a great discussion. Thank you all.

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.

Can any of you poke any hole on what I write below?

According to Prime Minister Lee Hsien Loong, for China's RMB to be world's reserve currency, it needs 4 conditions:

1. Free capital movement. But history showed any hint of it would cause great capital outflow by money laundering. China had to spent 1T to stem it a few years back. Maybe digital currency will help. But even if digital currency becomes real and can stop money laundering completely (I don't think this is the case, but just for the sake of arguing), it still does not solve the underling cause. That is China does not have enough good assets (such as good stock market, etc.) for her own citizen.

2. Reliable political and legal system. I don't think you need democracy, Hong Kong is not a democracy. I don't think any of my American friends think Singapore is a democracy. But both of them have predictable legal system. I think as long as China can get to the level of Hong Kong or Singapore, both world and domestic investors will be very happy. They (the investors) might even prefer those system over those of western democracy (politician pandering to their base).

3. A complete financial market. Don't exactly understand what Prime Minister Lee is trying to say here. I am assuming he is just talking about actual organization. If that is the case, I am sure China is doing it.

4. Trillions of dollars of assets that oversea investors want and can invest. I think what the oversea investors want is also what the domestic investors want. Stocks and assets that investors want to buy and can be trusted to buy. China has to allow more private companies to list on their stock exchange. It will need to allow western auditors to audit Chinese companies books. It needs somehow to stop insider trading from company insiders and government officials.

This is all I have for now.

 

[pothead]

Arent all currencies govt controlled?? Also, i dont believe who controlsa curency determines if people will invest in it.

No, most currency are controlled by markets.

Never say never...if USD proves to be unreliable to the masses who use it, they will find alternatives. bitcoin is here too, so dollar cannot create fake market easily for us anymore.

It's NEVER.
reason is simple, markets and investors love information & transparency, which CCP controlled China will never have,
FYI, just look at the number of Chinese investing outside of China, including property markets.
Heck, even the Chinese themselves do not have faith in their markets.

Imo demand for currencies is mainly about stability, interechangability in the world markets and inherent value(purchasing power). Yuan WILL take market tshare from USD regardless. that is the common sense assumption.

Demand for Yuan is only because of Chinese pressure on nation states,
it's not a normal demand like USD has,
You made great point about why demand for currencies exist. Yuan is not stable simply because no one knows what it's real worth is.