China is intentionally undermining the dollar in order to try to make the Yuan the world currency[1,2,3]. My current hypothesis is that the growth in the _price_ of the US Stock market (eg S&P 500) is actually devaluation of the dollar. Compared to real money (Gold) the S&P500 is down over the past 10 years. [4]
I don’t think that’s feasible because China’s capital markets aren’t secure for foreign investors and never will be unless China changes the very thing that they want to be. They’d have to open their markets, be open to direct foreign investment, no more China-only ownership of companies, and no more artificial devaluation of the Yuan.
Also the US capital market is huge. Surprisingly huge, even, and there is very little that can change that for the foreseeable future.
They already allow this somewhat. Tesla's Gigafactory in Shanghai is fully owned by Tesla, and is the first wholly foreign-owned car manufacturing plant in China, operating without a required local joint venture partner.
Does using the Renminbi require investing in securities?
It's a very different thing to trust that China will maintain the value of its currency, than to trust that investment in Chinese companies will remain liquid and not be arbitrarily cut to a price of zero.
I'm not saying you're wrong, but I also don't fully understand the need to have grander access to capital markets. Perhaps access to the equivalent of US Treasury auctions?
Yes, it would be a big change. But if Europe needs to bring out the Anti-Coercion Instrument against the US, an economic weapon it invented to be used against China, the world is in a very different place in belief of what could be safe.
If China signals that it is changing its attitude on its currency, that it wants to be the reserve currency and establish a consumer economy, it wouldn't take much for people to shift these days. Nobody needs to adopt the Renminbi 100% right away, they can transition to multiple currencies for a while as a hedge against the US, and the situation will evolve. Dedollarization won't happen in a month or a year, it will be a multi-year process once it kicks off. But once it kicks off, it will be because of such a loss of confidence in the US that it probably won't be possible to stop it.
> I'm not saying you're wrong, but I also don't fully understand the need to have grander access to capital markets.
Well if you use the renminbi or yuan as just a medium of exchange, well, why bother when you already have the dollar?
To answer your question better, what is the point of access to capital markets of a country and how does that stabilize or strengthen its currency, or make it more highly sought after?
That is an excellent point! My intuition is that the yuan could be viewed as more reliable than the dollar, when the dollar is propped up precisely on the good will that gets destroyed by threatening invasion of allies. China does threaten plenty of invasions, but not in Europe or most of the rest of the world yet.
Reliable how? How would you obtain the currency, and what would you do with it?
> when the dollar is propped up precisely on the good will
The dollar isn't valuable because of good will. Central banks in Europe, or Japan, or elsewhere don't hold dollars because they want to be nice to the United States. They hold them because the United States is incredibly wealthy, has incredibly deep capital markets, high liquidity, and because the dollar is a great medium of exchange.
Unless China wants it to happen, it won't have the reserve currency. It would require big changes in China's part to make it happen. I fully agree with you that they wouldn't open up things like equities markets in a way that could be trusted by outsiders. But I do think they could open up access to the currency.
Right, but what I'm arguing is that the currency isn't going to be that valuable without doing things like opening their markets to outside investors. You could just go with the Euro even if you didn't like the dollar.
That's the thing I keep coming back to. What are the specific features of the currency that make it more valuable than the other reserve currencies that exist today? I don't think China is willing to do what they would need to do add those features, because it requires CCP to loosen control and they can't do that.
If China "democratized" it would unlock a ton of potential and go on to dominate the globe. But doing that requires untenable changes for the CCP so it won't happen.
Plus everyone is going to be mad and distrustful once they invade Taiwan.
not even P/E ratios resetting back to historic norms? Or have we finally entered a new age where highly elevated P/E are a permanent feature of markets?
If this is the complaint the dollar is safe. And international holders of dollars aren't idiots. They hold Treasuries, which more or less preserve their purchasing power. (Nobody outside the poor, who have to, and nutters, who don't know better, hold cash as an asset. It's so thoroughly assumed that in finance, cash refers to cash and cash equivalents.)
I keep wondering what would happen if China and the EU came together and agreed to move all trade to the Euro as a pushback of all the current insanity. I don't think the Yuan can ever be the global trade currency given China's current structure.
It's down over the last 5, 10, 20, and 30 year windows; which I think is mostly a timing coincidence, but it's a "fun" observation. It took a big drop this last year.
In the UK we have a convenient way of observing this phenomenon.
The FTSE100 is mostly multinational companies valued in pounds. The FTSE250 is mostly British companies valued in pounds. If the FTSE100 goes up while the FTSE250 stays flat or falls then it means the currency got devalued and there's no real growth.
Makes it look like the US peaked at Sep 2000 and has been downhill ever since. Doesn't track at all with GDP which has almost doubled since 2000. I.e. it doesn't track with growth, but does track with dollar index somewhat, which makes sense because it's tracking a dollar value intermediate when considering "how much gold it takes to buy S&P 500", which means it really ends up tracking something else entirely.
> Compared to real money (Gold) the S&P500 is down over the past 10 years. [4]
Isn't this the real chart to look at for that? Completely different story when you select max on the timeline.
Personally I am about $10M USD poorer for listening to people on the internet. I wish people would not spread falsities about finance that can actually ruin lives. (Albeit to be fair, the trend is towards conservative advice...my life was uniquely affected in terms of limiting upside, so I am at least grateful that most online posts work very hard to limit downside.)
No, the perplexity chart is actually a really bad one to look at. It tracks a derivative of gold from 1975 onwards from which the S&P already accrued over 350% in returns. They also started the gold derivative off at a price of $178 while using the initial price of $17.57 to calculate S&P returns.
> Personally I am about $10M USD poorer for listening to people on the internet. I wish people would not spread falsities about finance that can actually ruin lives.
Ideally no one would blindly follow advice they don't understand or can't accept into their own mental model.
Any advice that you both understand and fits perfectly into your mental model is probably coming from whatever dogma you already follow and is therefore useless.
Any advice you don't understand is, of course, useless.
Any advice you do understand but doesn't fit into your mental model will just get rejected.
“I always pass on good advice. It is the only thing to do with it. It is never of any use to oneself.”
― Oscar Wilde
Although certain "advice" is actually SOP, in that case it is good to know (like stop, drop, and roll).
> Any advice that you both understand and fits perfectly into your mental model is probably coming from whatever dogma you already follow
I don't know what you mean by "fits perfectly" into one's mental model, but one can certainly accept new information validated against their own understanding of the world. People don't put an equal amount of weight in each of their beliefs and there are axiomatic ones that can be used in logical arguments to disprove the inconsistencies of others.
S&P gets you dividends though, so the interpretation of that chart is tricky.
Holding the S&P, you can still do better than holding gold, even when the GOLD/S&P ratio is positive.
The issue isn't it's usefulness in small transactions. The issue is who decides. In the case of gold a huge distributed system decides the valuation of Gold. Yes we usually use USD as the comparator. But there is a Gold:RealEstate ratio, Gold:Oil Ratio, Gold:Bread ratio. No single or small number of actors can change that in a meaningful/reliable way.[1] Whereas USD can, and has been, printed at an exponential rate.
[1] -(Let's exclude intentional market manipulations like if a world leader were to buy a bunch of gold and then saber rattle to drive up fear).
A goat or a sheep cost roughly the same in gold today as it cost 2000 years ago during the Roman Empire. Gold is the only “real money” in the sense that it is the only stable measure of the value of basic needs over centuries.
Unless there's something I'm missing, there isn't even a response at the link - just a question.
(And if that was how the user posed the question, I'd be concerned that priming the chat with "is it true that..." biased the response towards "yes, it's true".)
A goat costs exactly (not roughly) the same in goats today as it cost 2000 years ago. So by that measure a goat is the only stable measure of the value of basic needs over centuries.
Goat production is overall much cheaper now so wouldn't we expect the "real" price to be less? That it tracks the price of goats and sheep makes me think it's not a particularly stable unit of value since I don't expect goat or sheep to be valued in a stable way, especially across millenia.
1 - https://www.reddit.com/r/economy/comments/1o2s6qp/yuan_has_s...
2 - https://www.economist.com/china/2025/09/10/china-is-ditching... ( https://archive.is/aNRmm )
3 - https://www.amazon.com/dp/B006JAM3UU/ "Currency Wars" by James Rickards (2011)
[4] - https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart