Every few months someone promotes complete silliness regarding China displacing the US. Here we go again.
Daniel Lacalle vs Peter Schiff
1. China owns just 6.8% of US Treasuries. Absorbed in days by market.— Daniel Lacalle (@dlacalle_IA) August 3, 2018
2. China’s entire gold holdings are less than 0.2% & would be less than 1% of money supply.
3. Yuan is used in less than 4% of global transactions. Impossible with capital controls
4. https://t.co/1AYlJbJIJw https://t.co/Etdkll4C2M
The winner by a mile is Lacalle. There is no victory for China.
Here are some reasons Lacalle did not mention, but I have mentioned on numerous occasions.
- As long as China runs a trade surplus with the US, it will accumulate US assets, primarily US treasuries. The recent instances in which China allegedly "dumped" treasures was, in fact, a move to stop capital flight.
- China does not even float the yuan. It is sheer idiocy to promote the yuan as a reserve currency or even a major global currency until it does.
- To hold the status of the world's reserve currency, China would have to be willing to run trade deficits instead of seeking trade surpluses via subsidized exports.
- The US has the largest and most liquid bond market in the world. China has next to nothing. This is another requirement to having a currency widely held and used in trade.
- The US has property rights and human rights that are nonexistent in China. Even if yuan-based bonds existed, who wants to hold them with that backdrop?
The twin sister of "Victory Plan" silliness is Petroyuan silliness.
I discuss many of the above ideas in Gold-Backed Petro-Yuan Silliness: Reserve Currency Curse?
Also consider Petroyuan's Crash at Birth.
China is not remotely capable of what Schiff claims and I highly doubt it will be any closer 10 years from now. Chinese banks and SOE are in horrendous shape and the yuan would likely crash if China floated it now.