The US wields incredible negotiating power and hegemony because the dollar is the world’s reserve currency. Like the British pound and the Dutch guilder before it, if that loses reserve currency status it will be harder to borrow on favorable terms, which would affect the entire US economy. This is a big step in that perhaps starting to happen over the next few decades.
One consequence of the transition to renewable energy and electrified transport, is that oil imports will start to decline. And the dollar is of course the currency of choice for that.<p>The US economy and other countries that export fossil fuels will feel the impact over the next decade or so. The energy transition might go a lot quicker than people seem to expect. Currently about 20% of global car sales is electric. In some countries it's well over 50%. China of course being one of them. And they are making rapid progress with electrifying freight as well. This is already impacting their fossil fuel imports. They still import a lot.<p>One effect that I think people underestimate is that while it will take a long time for all the ICE vehicles to disappear, the new ones do most of the driving. So, new EVs have a relatively large impact on fuel consumption and imports pretty early on. E.g. Chinese diesel imports apparently already are being impacted by their rapid deployment of tens of thousands of electrical trucks. Soon hundreds of thousands. That's already a third of the market in China and will probably head for well over 50% in a few short years. The EU is not that far behind.<p>The ripple effect that's going to have on oil trading, refinery capacity, etc. is going to be substantial. Of course current geopolitics is speeding things up massively. LNG and oil scarcity is causing a lot of issues globally and countries are accelerating moves to reduce their dependence on that.
Demand destruction will collapse profits and accelerate the oil/dollar downfall. Saudi Arabia can profitably pump oil probably under $10/barrel. If demand drops, thats where oil should be.<p>China with [EVs|Solar|BESS|Turbines] will replace all of the fossil fuel countries (US, middle-east, Russia). This is probably the biggest transition in the history of mankind. This is energy production, storage and all the appliances that use electricity. After this, its incredibly hard for any other country to compete.
> China with [EVs|Solar|BESS|Turbines] will replace all of the fossil fuel countries (US, middle-east, Russia)<p>I dont agree with china having the same position as the FF exporters. Simply because with renewables, you export the means to produce energy rather than the energy itself. So in terms of monetary value, china will be selling alot less panels than the FF countries sell oil. And other countries can also manufactor renewables tech themselves, while with oil they couldnt materialize it under their feet<p>Basically i think the paradigm of the energy trade being cornered for politcal controll wont exost with renewables. Renewables are decentralized and so not controllable
ACtually no , even with the export of primary goods that go into the manufactue of renewables like solar the price differential still favours China. A recent example is the boom of local solar manufacture in India whil relies on solar modules imported from china.The assembled panes are still 2X the price of a similar fullly aseembled one from China.
And not due too subsidies of labour - a lot of the value chain is highly automated and densely colocated diffrerent from other industrail setups where complimentary industries are geographically separeted which increase final costt by adding unreliable transport and delays into the mix.
So at scale and with high volume will continue to be the dominated by China , wear and tear even with renewables will continue to favour the first mover as tech evolves over time.The solar modules/batteries of 10-15 years ago are not the same effficency as those of today.
China indeed makes very cheap solar panels, inverters and batteries, but that just means that they take up a smaller share of the cost of a complete installation, which also includes labor and additional hardware for the mounting system. So solar panels doubling in price won't double the cost of new solar capacity, let alone the cost of electricity from existing installations. That reduces the political leverage a lot compared to oil, where a supply disruption affects prices on fairly short time scales.
China is much more of a "fossil fuel country" than the US. They've got a ways to go to even catch up.<p><a href="https://ourworldindata.org/grapher/energy-mix?tab=stacked-discrete-bar&stackMode=relative&time=latest&country=CHN%7EUSA&source=total&metric=by_source" rel="nofollow">https://ourworldindata.org/grapher/energy-mix?tab=stacked-di...</a>
Saudi Arabia needs oil prices at ~$86.60/barrel to balance their budget, per Bloomberg. It is not the marginal cost to pump a barrel, but what a country needs to support their sticky spending from previously assured energy exports. Governments will collapse long before we approach low single digit oil prices on the global market.<p><i>The World Is Awash With Oil and Prices Are Poised to Keep Falling</i> - <a href="https://www.bloomberg.com/graphics/2025-global-oil-supply-prices/" rel="nofollow">https://www.bloomberg.com/graphics/2025-global-oil-supply-pr...</a> | <a href="https://archive.today/hkhtI" rel="nofollow">https://archive.today/hkhtI</a> - December 18th, 2025 (Control -F "Crude Price Forecasts Are Below Levels Needed for Budgets")<p>> China with [EVs|Solar|BESS|Turbines] will replace all of the fossil fuel countries (US, middle-east, Russia). This is probably the biggest transition in the history of mankind. This is energy production, storage and all the appliances that use electricity. After this, its incredibly hard for any other country to compete.<p>Strongly agree. China is replacing petrostate economic demand with demand for their clean tech products, which keeps their deflationary economy afloat, provides them soft power, and will transition the yuan to a global reserve currency. Today countries by dollars to by petroleum ("petrodollar"); tomorrow, countries will want yuan to buy "manufacturing fiat," to trade with the world's factory (China is 1/3rd of global manufacturing capacity, as of this comment). Stocks of assets vs flows of energy.
Indeed. Electricity will be the only abstraction layer of energy, all end uses (transportation, cooking, heating, cooling, appliances) will switch to electricity.<p>Electricity can be generated from any source (dirty + clean), but the abstraction layer of electricity will allow the grid to continuously increase the clean fuels. It helps that the cleanest is also the cheapest. Solar panels are cheap as dirt. In 1975, a solar PV module cost $128.27 per watt. In 2026 it costs $0.1 - $0.2 per watt, a thousand times cheaper. In 1975, only satellites could afford solar. Today, its the cheapest source of energy.<p>China will be an electrostate. Are there any other electrostates? Maybe Bhutan, Costa Rica, but they are too small.
> China will be an electrostate. Are there any other electrostates? Maybe Bhutan, Costa Rica, but they are too small.<p>China for sure. The rest will come as they replace the last of coal and fossil gas with anything low carbon, solar, wind hydro, as well as the necessary battery storage and transmission for energy orchestration and agility. Like Norway is already at 100% of EV sales and other countries are still close to 0%, we're simply observing a global energy transition horse race. Exciting time to be on the timeline imho.<p><i>Ember Energy: Global Electricity Review 2026: Solar surge halts fossil generation rise as clean power meets all demand growth and renewables overtake coal</i> - <a href="https://ember-energy.org/latest-insights/global-electricity-review-2026/" rel="nofollow">https://ember-energy.org/latest-insights/global-electricity-...</a> - April 21st, 2026<p><i>The ‘profound’ global impact of China’s rise as an electrostate</i> - <a href="https://www.ft.com/content/013e8a27-ade5-48ed-8f2e-ffbf70cc508c" rel="nofollow">https://www.ft.com/content/013e8a27-ade5-48ed-8f2e-ffbf70cc5...</a> | <a href="https://archive.today/J0bew" rel="nofollow">https://archive.today/J0bew</a> - October 10th, 2025
If you buy yuan just to turn around and spend them you aren't holding the yuan.
But China is already in decline before reaching this ascendancy.<p>I think new models will result in new structures, not just a switch from the US to China.
China's population is declining while building and operating the largest fleet of manufacturing robotics in the world. The US population is not declining as quickly while having limited capability to do anything. A recent example is $500M of taxpayer dollars spent on a munition manufacturing facility that did not build a single munition.<p>The US has coasted just about as far as it can go on it's exorbitant privilege while failing to invest in the future.<p>TLDR China builds, and will continue to build long into the future, the US prospers (for now) from financialization but cannot build, nor has the will to attempt to.<p><i>China Makes AI-powered Robots Core of National Strategy: China´s 15th Five-Year Plan (2026-2030) marks pivot to innovation</i> - <a href="https://ifr.org/ifr-press-releases/news/china-makes-ai-powered-robots-core-of-national-strategy" rel="nofollow">https://ifr.org/ifr-press-releases/news/china-makes-ai-power...</a><p>> Frankfurt, May 05, 2026 — China has launched its 15th Five-Year Plan by placing robotics at the heart of its modern industrial system. The aim is to pivot its AI research towards physical applications with robots as main drivers for economic growth. This is a next step in the country´s strong automation development: China´s manufacturing industry already has an operational stock of around 2 million units — approximately 4.5 times more than the global no. 2, Japan. 54% of annual industrial robots installed worldwide were deployed in China. This is according to the World Robotics 2025 Report, presented by the International Federation of Robotics (IFR).<p><i>General Dynamics Failed to Build Artillery Shells for the Army</i> - <a href="https://news.ycombinator.com/item?id=49281711">https://news.ycombinator.com/item?id=49281711</a> - August 2026
If the price were to drop all the way down to $10/barrel, demand would skyrocket.<p>The future where oil demand is so low and and will remain low even after low prices is much further ahead I'm afraid.
But, how much of the extracted oil becomes ICE fuel? Because other transports cannot be converted that quick (air, sea...) and most if not all petrochemical industries will still need to exist even if all cars drive electric. So how big will be the effect of crashing fuel demand?
25% of oil production is for cars<p>16% for trucks and buses<p>7% for aviation<p>4% for shipping<p>2% for rail and domestic waterways<p>25% + a chunk of the 16% (city buses, shorter distance or smaller trucks, etc) is a good amount.<p><a href="https://www.statista.com/statistics/307194/top-oil-consuming-sectors-worldwide/" rel="nofollow">https://www.statista.com/statistics/307194/top-oil-consuming...</a>
You mean a good amount of the 46% consumed by road transports. So my napkin says, when we all switch to driving EV the oil demand will drop by 15%. It's something for sure, but not overly dramatic (to me).
> In some countries it's well over 50%. China of course being one of them<p>As always with these stats, I like to check whether that includes plug in hybrids, and it does. Those are still mostly dependent on fossil fuels, although they use less. Pure BEV adoption seems to depend on your radius from Norway: <a href="https://www.autonergy.co/blog/global-ev-adoption-leaderboard-2025" rel="nofollow">https://www.autonergy.co/blog/global-ev-adoption-leaderboard...</a><p>(France should really be doing better, after all migration away from fossil fuels was a motive behind the Pompidou/Messmer nuclear buildout in the 70s!)
Thats personal vehicles. But if China is going full speed with electric trucks, that will be the fastest gamechanger. Diesel trucks run 300K miles, under 5mpg, consume a gazillion gallons. Electric truck fuel costs are probably 10%.<p>Its really sad that India is pro fossil fuel, it has an opportunity to follow China's strategy.
You will find Chinese electric trucks making inroads (heh) everywhere from UK and Europe (1) to Africa (2)<p>now that it's a proven business model in the centre of the things, of course.<p>1) <a href="https://octopus.energy/big-on-batteries-octopus-and-catl-team-up-to-unlock-electric-trucking-across-europe/" rel="nofollow">https://octopus.energy/big-on-batteries-octopus-and-catl-tea...</a><p>2) <a href="https://mybroadband.co.za/news/motoring/648661-electric-truck-battery-swapping-station-plan-in-south-africa.html" rel="nofollow">https://mybroadband.co.za/news/motoring/648661-electric-truc...</a>
I don’t know what you mean by India is pro fossil fuel. It’s aggressively building out solar and has multiple nuclear reactors being simultaneously constructed. It would love to be an electrostate but is doing everything it can to satisfy its populations energy needs in the meantime which means they can’t just stop using coal and oil.
Those numbers are from before Mr Trump decided to do his very best to convince the world to stop using oil. Which happened to coincide beautifully with VW group, Stellantis and Chinese firms having an all out price war on smaller EVs, which have until now been the underserved segment of the market. In Denmark it’s certainly not 36%, its probably closer to 90% of new cars being EVs, it’s simply financial suicide to buy a new ICE car here.
Wow. On mobile Firefox I have to use two fingers to scroll that site.
I had never considered the demand destruction effect of EVs on fuel like that. It makes sense though, because the biggest users will justify switching to electric faster because the payoff time is quicker.
I did a lazy ask google, and it thinks less than 3% of crude oil is used for energy. The vast bulk of oil being used: 'transportation (gasoline, diesel, jet fuel), heavy machinery, and non-energy uses like asphalt and plastics rather than power plants'.<p>That is of course, one of the big problems of 'going green' - electricity production is low hanging fruit and understood by the general public.<p>When that's 'solved' (solar, wind, geo, nuclear), how do we solve the other 97%?<p>Oil really isn't going anywhere. It will be a slow tail, perhaps too slow to stop emissions.<p><a href="https://www.iea.org/world/oil" rel="nofollow">https://www.iea.org/world/oil</a>
Around 50% is used for road transport, though, which is poised to be replaced and was one of the parent poster's main points.
We knew how to make synthetic hydrocarbon one hundred years ago. Nazi Germany used the Fischer Tropsch process to make synthetic fuel after the Royal Navy blockaded their oil import. The only reason we're still digging up fossil fuel is because it's cheap. According to some calculation, green hydrocarbon from atmospheric CO2 and electrolytic hydrogen could be commercially viable when fossil petroleum reaches $200/barrel , which is really not that far off.
I'll be surprised if renewables overtakes oil for energy production anytime soon. I could see nuclear doing that, but I never can get past the challenges of maintenance and replacement costs for solar panels, turbines, and especially for storage.<p>I will be very happy to be proven wrong here over time though. New battery technology could make a big improvement. And I keep hearing that AI will give us answers to all our technical challenges and lead to an age of abundance where we all make a high income, so there's that too.
Are we using that much oil for energy? The leading non renewable power source now is natural gas or similar, which I didn't think interacted much with the oil market. So even without nuclear, if the future is natural gas pipelines for baseload oil would still be mostly a manufacturing and vehicle fuel deal.
Ah yes, nuclear is known for having cheap replacement costs, especially Fukushima was known for being particularly cheap.<p>Solar power is the worst, it gets more expensive every year.<p>Regarding batteries... It's over for sodium based batteries (the ones promising us cheap battery storage) because dry coated Lithium ion batteries are coming onto the market which means sodium batteries are an economic dead end.
There's a lot of rosy or false assumptions here.<p>For example, if every road vehicle became an EV tomorrow, global oil demand would drop from 100M barrels per day ("Mbpd") to... ~60M. And that assumes EV replacements for things we don't have EV replacements for yet, like long haul trucking. We also have avgas, for which there's no replacement, and global shipping.<p>But beyond fuel there's a significant range of non-fuel usages (eg industrial, plastics, construction).<p>There's another factor here too and that is that the oil economy props up the weapons economy. <i>Nobody goes to war over a solar panel</i> [1]. That sounds like a good thing (and it is) but you have to realize there are forces who <i>like</i> that oil drives war became war is a huge profit opportunity.<p>[1]: <a href="https://www.theenergymix.com/no-one-goes-to-war-over-a-solar-panel/" rel="nofollow">https://www.theenergymix.com/no-one-goes-to-war-over-a-solar...</a>
> One consequence of the transition to renewable energy and electrified transport, is that oil imports will start to decline<p>Unless Jevons Paradox. Cheaper energy might mean <i>more</i> oil use. 1) Never underestimate the world's hunger for energy; renewables and electrification have huge disadvantages (you can't get close to the energy density of gas/diesel). 2) Oil is used for most products. 3) Even if its use declined, that would raise the price without making it less important.
EVs don’t need renewables. What makes them attractive despite the bad marketing in the West is that they can be powered by anything that can create electricity, like coal; which is something China has a lot of<p>The transition to EVs is key to the national security of many countries that currently do not have energy security like China and even most if not all member countries in the EU.
China doesn't have a lot of coal, at least not relevant to their energy requirements. They still have to import a huge amount and remain vulnerable from an energy security perspective.<p><a href="https://www.iea.org/countries/china/coal" rel="nofollow">https://www.iea.org/countries/china/coal</a>
All those EVs but demand is higher than ever.<p><a href="https://www.statista.com/statistics/271823/global-crude-oil-demand/" rel="nofollow">https://www.statista.com/statistics/271823/global-crude-oil-...</a>
<a href="https://ember-energy.org/data/china-cleantech-exports-data-explorer" rel="nofollow">https://ember-energy.org/data/china-cleantech-exports-data-e...</a><p>Meanwhile everyone is being confused with AI-slop.
What's good in electric cars? If a large power plant is destroyed how are you going to charge your electric car to escape?
There is no need of large powerplants. Thats the legacy grid, only to make Warren Buffet rich. New grid (that needs to be built) will have solar panels, BESS + EVs for storage, either off-grid or a small community grid. The new grid is distributed and indestructible.
I hope its strictly an American fantasy to think you're driving out of anywhere when something like that happens.<p>Buy a bicycle.
Following Hurricane Sandy, many were left without power and ultimately even gas was strictly rationed. So it's not out of the ordinary to imagine an event like that happening.<p><a href="https://www.nj.com/news/2012/11/sandy_gas_ration_12_counties.html" rel="nofollow">https://www.nj.com/news/2012/11/sandy_gas_ration_12_counties...</a>
In Phoenix we all live in the shadow of the Palo Verde nuclear generation plant. And once on the radio I heard some pundits discussing contingencies if PV should glitch out and have a life-threatening disaster. And they matter-of-factly said, "you're gonna be walking." And that would be the truth; in a full-scale evacuation of a city like Phoenix, the freeways are not built to accommodate traffic like that, and yours truly has no car anyway, so I would be packing light and walking in the opposite direction, and/or ignoring the orders, to meet whatever fate awaits.<p>But I bet there would be a lot of bicycle and vehicle theft going on, in such an event.
I know I have a problem with "suspension of disbelief" but I find it always weird in those dystopian movies where they all drive monster trucks on an apparently endless supply of scavenged fuel and spare parts. But I'm positive exactly this Hollywood spirit is what fuels (pun intended) most of those hyper-optimistic answers.
And your gasoline pump works perfectly fine without power? Or the refineries?
Gasoline is much easier to store (you can keep a reserve in your cellar) and much easier to carry and trade than electricity.
Do you keep gasoline in your cellar? my understanding is that it goes bad relatively fast, so be careful to keep cycling it yearly at least.
African continent is probably the last place in the world where this is relevant, and they are on track to fix it.
> And your gasoline pump works perfectly fine without power?<p>Most decent emergency / contingency plans will have the fire department, police or whatever local group show up at one or two designated gas stations to provide power, or require these stations to have on-site emergency power.
> Most decent emergency / contingency plans will have the fire department, police or whatever local group show up at one or two designated gas stations to provide power, or require these stations to have on-site emergency power.<p>this is just nonsense.<p><a href="https://en.wikipedia.org/wiki/2025_Iberian_Peninsula_blackout" rel="nofollow">https://en.wikipedia.org/wiki/2025_Iberian_Peninsula_blackou...</a><p>while traveling i got caught up in this. no restaurants, no credit cards working, no grocery stores, no cell connection, no navigation with phone, no gas station. the goddam list goes on. fortunately this was less than 16 hours.
As a local, it was actually rather fun. And my kid was amazed. For a traveler it must have sucked, though (and also for some people with special needs, and in places where it's actually common, etc.).
If you used cash as a reasonable person you would not even notice that cards aren't working.
The only place I've been where that might happen is rural mountainous Mexico where the "gas station" is a huachicolero funneling fuel into your car from a plastic water bottle next to a construction paper sign with "GAS" scribbled on it.<p>Everywhere else, gas stations aren't open if there's no power because nothing works, not even the cash register.<p>But I'm starting to see the uni freshman libertarian vibes here having been there once myself.
> If you used cash as a reasonable person you would not even notice that cards aren't working.<p>lol. i see. gas stations were closed since pumps were out. similar story with other facilities. luckily, gas station snack shops accepted cash, so buying some water/snacks was possible.<p>cash is of no use if facilities are not open. now that everything has been spelled out, i'm sure you are able to comprehend ;)
How many shops will be open without power? No till, no light, no refrigerator... not sure how much will help you having cash, beyond a couple of very basic needs - I can't even tell which, nor can you, it's gonna be an adventure either way.
If your refinery is taken out, it might take years to rebuild it.
If it was that easy, Ukraine would have already brought Russia to its knees.<p>Because the Russian government is still telling themselves they can win and don't even bother trying to negotiate with Ukraine but instead the USA, this must not be the case.
Not years.
As someone who has actually lived through multiple major catastrophes where fuel couldn't get delivered for days and electricity was out for days, when the pumps stop working there is no gas. Don't assume the gasoline the police and fire department have will be there <i>for you</i>. It's there for the first responders. They don't have infinite supply. Their supply is extra expensive to handle compared to when things were working. You've now got many thousands of families all trying to get to the two or three operating fuel stations...trust me they're not open to the public! When you're out of gas, you're out of gas.<p>Meanwhile, those with solar panels not reliant on grid-tie, they can continue to charge their vehicles.
What are you afraid of happening?<p>This is such a perverse and anxious fear imo
A reasonable scenario might be a cyberattack taking down large portions of the grid for a prolonged time. It's not impossible to achieve something like that, Stuxnet proved the concept of corrupting PLCs driving powerplants ages ago.<p>Alternatively, even outside a cyberwar scenario, bad weather has been shown to take down power grids for entire regions for days, sometimes weeks.
Meanwhile the oil supply system is immune to outside threats<p><a href="https://en.wikipedia.org/wiki/Colonial_Pipeline_ransomware_attack" rel="nofollow">https://en.wikipedia.org/wiki/Colonial_Pipeline_ransomware_a...</a><p><a href="https://shippingtelegraph.com/shipping-news/adnoc-reports-15-vessels-attacked-while-transiting-hormuz/" rel="nofollow">https://shippingtelegraph.com/shipping-news/adnoc-reports-15...</a><p><a href="https://news.un.org/en/story/2026/08/1168121" rel="nofollow">https://news.un.org/en/story/2026/08/1168121</a>
> <i>bad weather has been shown to take down power grids for entire regions for days, sometimes weeks</i><p>Where I live, we have typhoons which depending on the direction they arrive in can result in all the gas stations being out of gas for 2+ days. Meanwhile the grid keeps on ticking.
If they've taken down large portions of the grid for a prolonged period of time you're also not going to have much gasoline left.<p>> bad weather has been shown to take down power grids for entire regions for days, sometimes weeks<p>Once again, as someone who actually lived through those scenarios <i>multiple times</i>, when the gas pumps go down you're usually shit outta luck on getting gas.<p>When the grid goes down for days, the gas you have in your gas car + any random fuel tanks you have in your garage is what you have. Don't expect anything else unless you plan to take it at gunpoint.
You can have solar panels and batteries right at home. You can't have an oil rig at home.
Are u serious? If ur oil refinery is destroyed how are you going to pump oil to your house?
> If a large power plant is destroyed how are you going to charge your electric car to escape?<p>Solar panels and home battery storage. This is also going to seriously screw over electrical grid and especially powerplant operators... residential will, at least in suburban and rural areas, not need a grid any more except during prolonged phases of low solar yield.
The yuan will never become a reserve currency as long as China maintain tight currency controls around importing and exporting it. It's very difficult to (legally) send CNY out or China.<p>The euro is in a much better position to be adopted as an alternative, but its share of global reserves has been flat at around 20% for years.<p><a href="https://data.imf.org/en/news/imf%20data%20brief%20march%2027" rel="nofollow">https://data.imf.org/en/news/imf%20data%20brief%20march%2027</a>
Prior to Bretton Woods countries were well aware that no single country could be entrusted with the power granted in being the global reserve currency. It's too much power that's too tempting to abuse. But they also learned from the collapse of Bretton Woods that even orchestrated agreements with built-in penalties just don't work, because countries can simply ignore them when beneficial.<p>So I think we're headed to a future where no currency will dominate. This is probably also why the dollar's decline doesn't have any clear successor filling the vacuum. If anything, countries are accumulating far larger stores of gold. I expect this is also why BRICS is having difficulty creating their own trading currency. No countries can, or should, trust other ones which complicates matters greatly.
No, and I dont think China wants the Yuan to be the reserve currency. But this is a good step in allowing better currency trading/exchange. Which can make imports between the EU and China cheaper.
what’s stopping China from dropping currency controls in a ab afternoon? It’s not like this is some force of nature.
It's like 6-7 CNY to USD right now. If that goes to 1 or 2 (if the CNY rises dramatically in price wrt the USD), then everything imported from China to the US explodes in price. Explosion in price, the imports reduce dramatically. So Chinese exports, which comprise like a quarter of their GDP, implode.
Exactly. It's always been posturing.
The yuan doesn't need to become a reserve currency for it to impact the US dollar. 15%+ of global trade is Chinese import/export. China is the biggest buyer and seller to most countries.
>> The yuan will never become a reserve currency as long as China maintain tight currency controls around importing and exporting it. It's very difficult to (legally) send CNY out or China.<p>Did you read the article? It seems that may be changing.
> The euro is in a much better position to be adopted as an alternative, but its share of global reserves has been flat at around 20% for years.<p>The Euro is only 25 years old: it would be pure folly to make the "reserve currency" something that recent.<p>Then... One country of the eurozone already partially defaulted on its public debt (Greece, in 2015). And France is running an insane deficit: so bad that there are now talks of the International Monetary Fund taking control of France's public finances. France had to raise the yield on its debt to its highest level since nearly 20 years. France cannot reach the "only 5% of GDP" in yearly public deficit, on top of an already insane public debt: it is snowballing and the only outcomes are going to be miserable for the people (and for the EUR).<p>An economist, before the EUR began circulating, explained by which mechanisms the EUR would lead to Spain, Greece and then France default on their public debts. That economist explained how the EUR would lead to <i>"too many secondary houses in Spain"</i> and <i>"too many public servants in France"</i>. When Greece did default on its debt, that economist said: <i>"I was only wrong on the order on which these countries would default"</i>.<p>One would be <i>crazy</i> to make a reserve currency a currency that's a mix up of countries that have different productivity and different fiscal laws.<p>The EUR is one of the worst currency ever conceived and it could turn out to also be one of the shortest lived currency.
There is no serious talk on the IMF taking control of French public finances.<p>The spread between France OAT and German Bunds is less than 100bps.<p>The French annual budget deficit is lower than the projected US one.
> That economist explained how the EUR would lead to "too many secondary houses in Spain" and "too many public servants in France".<p>The part relating to France is the usual small-state BS that has <i>thoroughly</i> corrupted modern "economics". France's problem more is its power generation, they rely on nuclear power, a lot of their fleet is noticeably aged and desperately needs replacement, but such replacement is incredibly expensive. On top of that, French military expenditure is ridiculous, they still dream of being an empire, maintain nuclear weapons and aircraft carriers, that make sharing vessels or aircraft with other European countries a pain - as evidenced by FCAS collapsing, the French wanted to use us Germans as paypigs for their pet project suited to carrier deployments.
Does the world still require a reserve currency? Spreading risk across the Dollar, Yuan, and Euros seems more logical. While the hurdles and friction associated with foreign exchange (FX) and international transfers were significant when reserve currencies were crucial, they are not as big an issue today.
If you are trying to apply lessons from the gold standard era to lessons in the current era of non-convertible fiat currencies, then you are going to draw the exact opposite of the correct conclusions. There is a fundamental difference in how global capital flows work when the world uses specie flows versus when the world does not.<p>Here is one hint. The reason why currencies like the Spanish dollar or Dutch guilder became standards were primarily questions of prestige and minting quality as <i>you held those currencies in your own possession</i>. But everyone could recognize a guilder and so when dealing with a foreigner, it was easier to have them.<p>In that type of environment, being a global export power meant that you were a global gold <i>issuer</i> because you sold your goods to the rest of the world, got their gold (or silver), melted it down, and issued your own stamped gold or silver coins, that circulated all over the world.<p>If that is your mental model of foreign trade today, then please read a bit further in your history books, because we live in the world of non-convertible fiat money. This means that when China sells $100 of stuff to America, it doesn't get to take that money home, the money is kept in an American bank account, with the name of that chinese seller as the beneficiary of the account. It's a non-convertible currency. A dollar is always a dollar, China can't melt it down and convert it to a Yuan.<p>So now, to be the reserve currency doesn't mean that your specialized minting tech is being stored in central banks all over the world, it means that central banks all over the world have deposit accounts in your banking system. And that can only happen by being the world's largest <i>importer</i>, the exact <i>opposite</i> of the situation in the age of the Dutch trading empire. Your entire analysis is backwards.
This whole house of card is very modern, there was no such thing as "Reserve currency" not even the British pound, it was the most traded currency.
but holding a currency's (debt) as a foreign reserve instead of gold is very recent phenomena, even central banks reserves or their function is also rather modern phenomena.<p>while Yuan usage in trade will reduce the US influence, the amount of assets held in dollar nominated investments is so so much bigger, and this will very slowly change if it will at all.
The pound did act that way to some extent, but only within the Sterling Area and only between 1931 to 1972.<p>Prior to that, people might have <i>talked</i> about the pound as if it were a reserve currency in the same way the USD is today but, as you say, <i>actual</i> foreign reserves were based on gold.
I think this has the causality reversed. The dollar is the world's reserve currency <i>because</i> the US wields incredible negotiating power and has been the de facto military hegemony in the past few decades.<p>It seems likely that the dominance the US has enjoyed in the recent past will diminish somewhat as other blocks with larger population bases catch up on the technology and industrialization fronts, and eventually start flexing their industrial might to create peer-level militaries.
> I think this has the causality reversed.<p>Originally, yes. The US dollar did become a reserve currency because because of the circumstantially huge negotiating power of the USofA, however, as it stands now, the negotiating power is dependent on the dollar being reserve currency. The US is running on a consistent trade deficit, which is supported by the dollars covering economic growth outside of US.<p>When self-supporting systems are thrown off-balance, the sign in the feedback loop tends to reverse.
The US is the reserve currency because of Bretton Woods. [1] Under the Bretton Woods agreements participating countries were to peg their currency to the dollar and the dollar, in turn, would be directly convertible to gold. The idea was to make it impossible for countries to artificially manipulate the value of their currency, and thus ease international trade standards.<p>The US' barrier to exploitation was on the gold clause. If we printed too many dollars, then other countries could do a gold call with the increasingly worthless dollars, get valuable gold in exchange, take the currency out of play, and the issue would be fixed. So punishment and self interest in a quite well designed system, kind of. The problem is we just printed a bunch of money anyhow and then when France decided to make a gold call with their reserves, we shrugged, defaulted, and just broke the agreement.<p>So this started the modern economic era in 1971 where currencies became completely detached and free floating. At that point about 85% of global reserves were USD. Countries began rapidly dumping the dollar and USD inflation began skyrocketing. In 1980 inflation in the US was at 13.5%! This era continued til around around 1990 with the USD falling to 47% of reserves, but then in 1991 the USSR collapsed leaving the US not only as the sole 'king' of the world, but also to former Soviet nations dollarizing once the dust had settled. This continued up til 2001 (USD at 72%) when there was both the dotcom bubble and the clear rise of China and Russia as global powers. We've now been on a steady decline since, with the USD currently down to about 56% of reserves.<p>[1] - <a href="https://en.wikipedia.org/wiki/Bretton_Woods_system" rel="nofollow">https://en.wikipedia.org/wiki/Bretton_Woods_system</a>
US Military has been a paper tiger in reality for quite some time. The problem is that Trump decided to demonstrate this in practice.<p>It is becoming obvious for gulf countries that US military protection is worth nothing.
The US military may be ossifying into a paper tiger, but I'd say Iran mainly shows Trump is a coward and an idiot.<p>From what I hear, what Trump did with Iran was burn through the US stockpile of certain fancy special-purpose wepons you're really only meant to use to punch a hole for your conventional forces to enter by. Trump is not willing to send in those conventional forces, because many of those personel will die. Trump may not care about the lives of the US personel per se, but with the mid-terms coming up he will care about the impact of those deaths on the election result.<p>Also: Gulf Wars I and II had a lot of build-up and prep, moving forces into the area; this was diving straight in because someone (my Israeli namesake) flattered Trump's ego.<p>Now I also think it's not even controversial to say that drone warfare is radically changing the nature of engagements. I don't believe the US could take on present-day Iran, owing to Iran's production of militarily relevant quantities of cheap and good-enough drones; a saturation attack can drain the defensive capabilities of warships, and while the exact performance is classified, a slow upgrade cycle would probably allow a saturation attack to overwhelm the *sensor* capabilities from not too long ago.<p>Laser defence systems may change that, but those aren't all-weather solutions, and the sea is the exact worse case for this. And I don't know if anyone's thinking about saturation attacks with submersible drones.
It’s very unlikely that the USD will lose its status particularly to the Yuan. You can do that mental calculation yourself. Would you convert all of your lifesavings from USD to Yuans today or in the next 10 years? The answer is probably “not a chance”. The reason is simple, liquidity and trust. China has no comparable open and independent financial institutions international central banks can trust, nor can they have them without surrendering control over their monetary policy. So as long as there’s no alternative to the USD (BRICS will likely fail), it will continue being the default global currency for reserves, debt and trade.
Losing the reserve currency doesn't happen in a vacuum. It happened to the British and Dutch because their empires were dismantled.<p>So, yeah, it could happen to the US, slowly, over time (it already is). But nobody wakes up tomorrow and says they no longer want USD. Where are you parking the money, yuan?
It seems that people forecasting the collapse of the dollar are mostly doing it from a social perspective i.e. "America is collapsing under the weight of private healthcare, anti-immigration, tariffs, and the erosion of our allies; the dollar is done for"<p>But the reality is that financial markets don't really have a soul, and just care about economics. By all accounts, the American economy is doing excellent right now and dollars are still in heavy demand.
> nobody wakes up tomorrow and says they no longer want USD<p>Depends what happens tomorrow
This is why people, organizations, and nations really should be holding multiple currencies.<p>Holding only Yuan isn't necessarily going to save you from what's coming.<p>I completely understand the growing need to reduce the US dollar dependency. But these drawdowns should happen in an orderly fashion, with due consideration to addressing issues inherent in the old global financial order.<p>Clearly, in hindsight, being completely dependent on a single currency was one of those issues. It would be folly to replicate that environment with a different currency.
Deutche Bank I imagine is doing this because a significant fraction of their customers literally want to park their money in yuan?<p>If it was some rounding error they wouldn’t have bothered spending money to set it up and get all the clearances.
It seems worth mentioning that this allows DB to allow Yuan transactions to happen, bypassing any US sanctions. Since DB is not doing this without agreement from the German government and the ECB, this can be taken as an indication that they intend to do business with China the US does not approve of. At least, they want the option.<p>(and yes, it does not mean that the US is entirely without options to hinder China trade, just makes things harder. In this case, a lot harder)
> this can be taken as an indication that they intend to do business with China the US does not approve of. At least, they want the option.<p>Indeed, it also acts as a counter balance/hedge against the US's demands in the future.<p>The problem for Europe is simply that we need to trade with both sides fairly openly or our entire economic model collapses - We are massively dependent on US technology <i>and</i> Chinese industrial capacity - too dependent frankly.
I'm less familiar with Dutch history - but that happened to the British Empire because its situation went from being the world's obvious #1, to barely avoiding national bankruptcy, due to the staggering costs of WWI and WWII.<p>The bailout, July '46 - <a href="https://en.wikipedia.org/wiki/Anglo-American_loan" rel="nofollow">https://en.wikipedia.org/wiki/Anglo-American_loan</a><p>Loss of India (the empire's real money tree), August '47 - <a href="https://en.wikipedia.org/wiki/Partition_of_India" rel="nofollow">https://en.wikipedia.org/wiki/Partition_of_India</a><p>FWIW, "dismantled" generally implies a personal outside actor, with the intention and power to take things apart. Vs. the British Empire crumbled mostly because Britain's & Europe's relative power / prestige / image, post-WWII, were just smouldering ashes of what they'd been before WWI. That had obvious feedback loops with ambitious "native" leaders, nationalistic memes, and the just-won "moral crusade" to liberate Europe from evil Fascist occupation.<p>EDIT: The post-WWII revelations & condemnations of Nazi atrocities, plus how well the "yellow" Japanese had done against European/"white" powers, were pretty much fatal to (then prevalent) meme of white people enjoying "natural" moral and military superiority over non-whites. Which meme was an important foundation stone of most of the Empires which crumbled in the decades after WWII.
USD exorbitant privilege is mostly just exorbitant now that sanction evasion solved problem due to US going ham. Central banks pulling out of treasuries, rates increase selling to institutional vs marginal buyers, USD just terminal debt serving sink hole now. Ironically PRC can now lend out USD from their reserves and trade surplus at better rates than FED... the answer to USD in meantime for PRC is PRC USD, every dollar PRC recycles their USD is a dollar not buying treasuries that makes USD reserve more onerous to maintain.<p>LBH PRC not dumb enough to dig itself into Triffin deindustrialization hole US has. IMO Yuan positioning itself to be better than a reserve currency, it'll be premium currency for PRC tech stack (everything do be primogem) once PRC overtake west in critical strategic goods - ultimately, whoever controls discounted society sustaining tech / commodities stack long term controls payment preference. In meantime, PRC more than fine USD continue it's decline into debt serviced casino where somehow now house net loses until US inevitably have to debase/inflate away leaving others holding bag. There's really no alternative scenario (i.e. default) for USD at this point. Downstream of that is FX re reevaluations etc, i.e. PRC nominal > US nominal is not going to take years, is not dependant on PRC vs US growth, in the end it will take a few months of FX swing outside of either party's controls.
The US is also has very large investment markets that are attractive to investors worldwide. Countries that export to the US can build up large US investments, and not just bonds either. (Flip side of trade deficit.)<p>It seems hard to say when that would change.
As other people on this thread will point out the Yuan is not close to replacing the dollar, nor is any other aspect of the Chinese financial system highly competitive, even with the staggering rise of corruption in the US.<p>But this is yet another indicator of the loss of soft power, which is much farther gone than, I'd say, 90% of Americans realize.<p>The supposedly smart people in the tech industry should be alarmed by the loss of soft power. A lot of tech revenue comes from overseas, but if US technology is seen to be the tool of an unreliable, belligerent, corrupt, authoritarian government, that revenue will evaporate, and it will happen faster than, for example, fundamental international finance changes. And yet these supposedly smart people have lined up behind our government.
It's a variation of the maxim "Don't make the customer think", what you want them to do should be the default action and you want them to do without thinking.<p>For some people in Europe now, they think about whether the thing they are buying/subscribing to is in the US or owned by a US company in a way that simply didn't happen in the recent past.
Aren’t there reasons though?<p>Example: China holds the most foreign reserves. They are a <i>natural world bank</i> whether you want to call them that or not.<p>The US has oil and trade dominance, the USD is tied to petrodollar, aircraft sales, weapons, etc. and SWIFT - so that makes the US a kind of world bank in practical terms.<p>But what does Germany bring to the table? Energy? It seems to me that Russia, Iran, or even Mexico would be next in line considering the reality of trade and international finance. Why Germany?
How come Deutsche Bank, a German bank, is the first bank doing this? And why now? Is it because the less friendly political stance towards Europe from the US side that the tables have turned a bit?<p>I also wonder how much political backing a bank needs to offer a service with the implications towards the status of an allied currency as reserve currency status - small as it may be for now.
Being the reserve currency means the rest of the world accumulates your liabilities as their savings, i.e. it means you are the world's largest debtor, and the world's largest net importer. That is how the rest of the world accumulates your currency - because they sell more to you than they buy from you, allowing them to accumulate your fiat.<p>So this "reserve currency" status is a great burden to US industry, which is why China has created a web of laws that effectively make it illegal to be a reserve currency. The entire east asian bloc has industrialized based on an export led growth model -- that is, exporting more than they import, and thus being accumulators of other nation's currencies. It's not that they need to accumulate dollars, they just need to accumulate some other country's currency, otherwise it's mathematically impossible to run a trade surplus.<p>A lot of people don't understand this distinction between positive and negative -- e.g. accumulating the currency of other nations and other nations accumulating your currency. These people hold to what I call the fallacy of "the equality of all good things". These are the same people that argue for a "strong dollar" and also "strong exports", when actually these are opposites. I think of this as a form of tribalism, where the analysis is limited to "our guy good, their guy bad. X good, Y bad".<p>Such people are resistant to trade offs, e.g. you get the advantage of cheap consumer goods by being a net importer, but you have the disadvantage of losing jobs and industries to those nations that are willing to have expensive consumer goods for their populations in order to export more and import less.<p>In any case, continuing with lists of fallacies, we can say that America having a "strong economy" has little to do with its reserve currency status. Rather, it needs
1) a <i>large bond market</i>
2) investor rights protections
3) a legal framework allowing foreign capital inflows and outflows, with little friction.
4) A relatively stable currency.<p>To see how important this is, take the example of Russia, which decided that it will sell its oil to India by accumulating rupees. That's great, there was much celebrating "multipolarity" but the fact of the matter is the Rupee has lost over 20% of its value (in dollar terms) since Russia started accumulating it, and India has laws blocking Russia from selling its rupee holdings for other currencies, it can only use those Rupees to purchase Indian goods and take them back to Russia. So now Russia has tons of rupees it can't use except to buy Indian goods, and has started requiring India to pay with Quatari Riyal, as Quatar as more investor friendly laws. Also, there is not that much you can buy with Riyal, when you have two hundred billion dollars of value a year you want to park in some foreign jurisdiction, Quatar just can't absorb that. China isn't willing to accept it. India will accept it but not let you take it out. Where are you gonna put it?<p>So we see, we have already left the world of "America declining! The Dollar is collapsing!", because like it or not, even though America has tarnished its reputation of respecting investor rights, it's still miles ahead of any alternative when you need to park overseas earnings.<p>China blocks foreign capital inflows. Europe suffers from all the problems that the US does and even moreso as they are now openly seizing foreign ships and the bank accounts of private citizens - for example freezing bank accounts of people with Russian sounding last names - and Europe has even more barriers to moving money in and out.<p>So in which jurisdiction will you park your overseas earnings if not the US?<p>There is no alternative. No alternative is even beginning to appear over the horizon.<p>While I am holding forth on all these fallacies, another one is what I call the "balloon theory" of trust. This is the assumption that because the US, which used to be a high trust, investor-rights respecting nation, but has begun losing those investor rights credentials after seizing the sovereign assets of Afghanistan, Iran, Venezuela, Syria, as well as other official enemies - that because of this, some other nation must magically arise that <i>will</i> have that reputation for respecting foreign investor rights. E.g. that trust is a balloon, and if you squeeze one part of it, another must by necessity expand. This also comes from tribalism, e.g. the view that if your enemies suffer that you must benefit. But trust isn't like that, it could just be that as the US begins to look less attractive, then no other nation will take its place, and this will create real problems for the export-led growth economies in Asia, as they need some nation whose currency they can accumulate in order to run the trade surpluses needed for them to maintain domestic employment.
That horse has already bolted and bought a whole new stable with blackjack and hookers in a foreign country.<p>The US is in for a hard couple decades ahead given they aren't leading innovation, manufacturing, finance, geopolitics, and even their military power is now in question.<p>At least they owned the libs.
it wields power with missiles, with the dollar as a consequence
I really hope this is one step into a more multipolar world, maybe without a single hegemon the world is easier to change for the better
The current admin has destroyed much of the government backing. Its to he seen if the global business fail to uphold its value.
And its going to be incredible to watch how many of our own country will be gleefully cheering this on as if the replacement will be better for them.