Biden Lets China Threaten The Greenback's Status As The World's Reserve Currency

Fresh squeezed orange juice.

 

No one wants to build more refineries. They aren't very profitable, as far as ROI goes, but they are very expensive. No one wants them in their back yards (they do stink), and the U.S. environmental regulations are getting more and more strict. Chemical plants, for example, are no longer allowed to have brief periods of minor emissions during startups, shutdowns, and process upsets.

The U.S. population is growing, and while the number of EV's is also growing, I don't know if EV's are keeping up with the population growth.

 

I don’t think a major refinery has been built here in 30 years, they are very expensive to build and maintain, they are environmentally unfriendly, and they can explode and cause massive destruction and liabilities. Given the goal is to phase out fossil fuels, nobody wants to invest billions that may be obsolete in a decade or two.

 

Obsolete is a bit strong. A little over 1/4 of each barrel of crude oil is used to make products. I’m not sure what happens with the refining process if we don’t need gasoline or diesel in significant volume though.

 

My bad, it was an "exchange rate adjusted" figure, must be a crypto fanatic who came up with that.

With that said, I think you're missing the big picture. We have an unprecedented challenge to the USD mounting right now, and pointing to the current USD dominance is like Blockbuster looking at their thousands of stores in 2000's and laughing at Netflix. Let's put this all together.

First, it's no secret that the BRICS is trying to develop a new reserve currency. With Saudi's pivot, and it appears increasingly likely that Saudi is on track to join BRICS, the new currency will be backed by a powerful consortium of non-Western and mostly non-democratic nations between BRICSS and their allies. We have China/Russia/India's enormous stores of gold, the majority of the powers that control today's energy source (oil/gas from Russia/Saudi/Iran/Iraq/Venezuela/etc., coal from China), and the dominant power that controls the future of energy source (China's solar, wind, battery; China/Russia/India's nuclear; ores from Argentina/Brazil/African countries/etc.), as well as some of the dominant agricultural producers of the world (Russia, Brazil).

This is essentially a self-sufficient bloc, with excess in all the areas I listed to be the biggest exporters to the rest of the world. and if they demand that their goods be purchased with their own currencies or the new currency, it would absolutely be a tremendous challenge to the USD.

 

Right now China, the biggest piece of all that, pegs to the dollar.

I seriously doubt these countries can pull off creating an independent currency. You can’t have different countries with different economic policies on the same currency. Look at the struggles with the Euro, and they have outlined some fiscal requirements to stay in. You get instances like Greece, who have crappy fiscal policies, but their currency can’t depreciate, and you have a big mess. Brazil has a history of financial chaos and Russia is a disaster. Such an arrangement would require China and to an extent Saudi Arabia to constantly bail these countries out.

 

What could happen is that the U.S. may start to import oil products (and export oil) as the refineries close down. I assume we want to keep some refineries operational, however, because our national security depends on it until we get electric tanks and airplanes, if that ever happens.

 

Seems like a good assumption. That’s what the Keystone pipeline was going to do, export oil. I believe the Scandinavian countries do this as well and it works well to fund their social programs.

 

The Yuan isn't pegged to the dollar, only the amount the exchange rate allowed to float each day is limited. That is, the volatility is limited, but the magnitude of change is not.

Also, they won't be creating a new currency like the Euro, it'll be a special drawings right like the IMF's SDR. I believe they've stated as such, so that's not speculation. In any case, simply trading with each other and within their bloc with their own currency would significantly erode the dollar's dominance in international trade. I believe something like half of China's cross border transactions are already in Yuan, they'll be pushing others to start trading in Yuan or a SDR as well.

For example, right now Russia and India are having issues as Russia doesn't want to accept the Rupees for payment, since they can't really use it. That's a potential issue whenever you're trading with someone you have a big trade deficit with, since you can't use up all the currency you get by buying products in your partner's country. If the Rupees can be converted to the SDR which can then be converted to the Yuan or Riyal then the problem can be alleviated.

On a side note, I guess it'd be only natural to name this SDR R-something, since China has the Renminbi, Russia has the Ruble, India has the Rupee, Saudi has the Riyal, Brazil has the Real, and South Africa has the Rand! A Reupyead, maybe?