| <https://tinyurl.com/y2qvx8rw> guancha.cn
|
| With the growth of world trade the international demand for reserve
| currency is also increasing, and the reserve currency provided by
| the United States for the world accounts for the majority. And the
| greater the trade reversal maintained by the United States, the
| greater the possibility that the dollar will eventually depreciate
| and the greater the possibility that the United States will fail to
| comply with its credit. This issue is essentially a dilemma ..
|
| The U.S. has a net foreign debt of $15 trillion by the end of 2021,
| and the dollar's ability to hold steady amid a rising U.S. foreign
| debt-to-GDP ratio is largely due to a variety of reasons. Other
| countries in the world, especially China, have a strong demand for
| the US dollar as a reserve currency .. If the rest of the world
| reduces their holdings or stops buying U.S. Treasuries, the dollar
| depreciates. At the same time, inflation caused by the U.S.'s
| extremely expansive monetary policy will further weaken the dollar's
| status. For quite a long time, the rising net foreign debt-to-GDP
| ratio, national debt-to-GDP ratio of the United States, as well as
| the extremely loose monetary policy implemented by the United States
| in the past ten years, have made foreign investors worry that the
| United States will suffer from the deterioration of the balance of
| payments situation, Inflation exacerbated the depreciation of the
| dollar ..
|
| .. I have a few comments on this phenomenon ..
|
| Read more <https://tinyurl.com/y2qvx8rw>

....

The main reason for holding reserves in foreign currency seems about
"financial liquidity". You may not know for sure what exactly you
will need to buy in the near or distant future, but if you have
enough liquid assets and you are sure these assets will keep their
value and remain liquid, then you can be confident that if you start
needing something then you'll be able to easily/quickly buy it. Such
foreign currencies (the ones recognized as "hard" ones) serve it.

It's up to professionals to decide how much strong exactly is the
China's demand for the USD, but even amateurs can somehow comprehend
relative trends. In the past, China was less industrialized, and the
demand for reserves in the form of assets linked with the USD was
higher. Nowadays, China's enterprises produce a lot of various goods
that are in good demand all over the world, so this production has
itself become sort of a liquid asset. I.e. there's a confidence that
even if China keeps less reserves in the USD, it still can easily
exchange the made in China goods for something foreign that might
become needed. The circumstance may likely be taken into account for
adjustments of the national financial policy.

However, when considering production of industrial goods, the issue
is *to maintain* it as a liquid asset, because industrial goods tend
to become obsolete and less in demand in the face of new innovative
designs and fashions. So, a producer of industrial goods may be sure
that its production is a liquid asset only if this producer is not
only a producer but also a trend-setter (or a timeous trend-follower
at least). As long as the Chinese goods are dependent on American,
other Western designs, the China's industrial capabilities cannot be
used to their full potential as a liquid asset.

So the contemporary challenge would be more investment into design
and science developments. But also, an important part of the
challenge is that when it comes to designs and fashions, things are
less material and technical but more cultural-psychological, or even
"spiritual": what fashion trends customers will likely follow, what
innovative designs are capable to become trendy, what kinds of new,
"unprecedented" goods or services will appeal to potential buyers.
It all requires certain "humanitarian" research/vision/understanding
combined with actual technical implementation.

And when it comes to the American national debt, of which China is
among the most significant holders, the future seems bleak. In the
US, those of them who are realists, point to the fact that in the
coming future even paying interest on the debt will become itself a
tangible burden on the national budget. Against that, feasibility
of repaying the national debt as such looks less and less feasible.
More likely scenario seems that America would try to undermine (or
somehow "reset") its unsustainable debt by some "tricky", not quite
decent means. Time will tell.