Comments on: How does China get the currency to pay for oil? http://www.myylt.com/2008/12/31/how-does-china-get-the-currency-to-pay-for-oil/ Discussion of Forex Trading and Currency Trading Tue, 22 May 2012 05:38:52 +0000 http://wordpress.org/?v=2.3.3 By: SDD http://www.myylt.com/2008/12/31/how-does-china-get-the-currency-to-pay-for-oil/#comment-10710 SDD Tue, 30 Nov 1999 00:00:00 +0000 http://www.myylt.com/2008/12/31/how-does-china-get-the-currency-to-pay-for-oil/#comment-10710 You are very misinformed. There is a very active market for the RMB. You are very misinformed. There is a very active market for the RMB.

]]> By: Justin http://www.myylt.com/2008/12/31/how-does-china-get-the-currency-to-pay-for-oil/#comment-10711 Justin Tue, 30 Nov 1999 00:00:00 +0000 http://www.myylt.com/2008/12/31/how-does-china-get-the-currency-to-pay-for-oil/#comment-10711 On the global market, all business is done in dollars because as of the Bretton Woods Agreement in 1944, the dollar is the world reserve currency. So when doing buisiness countries don't want any other currency besides the dollar. And the reason why Chinese products are cheap relates to the purchasing power of the currency you're using to buy the product with. So buying goods with the Dollar or the Euro from China would reduce the price according to the exchange rate. - Edited - Perhaps I should collaborate on the term "World Reserve Currency" because apparently my integrity is being tried by a Top Contributor of Woman Gender study and I wouldn't want that after having your thanks. It would be navie to think that whenever foreign business men gather to exchange they use phyisical dollars or a separate bank account pertaining only to dollars and I'm sorry if my text book friendly answer described an affair of so. The real importance of being the anchor currency is actually that that all products on the global market are peg to the dollar. True that I've heard of people trading with bullion, and it isn't unusual for France to do business in Euros, but I, like everyone else in the world, have never invested or exchanged in an asset that didn't have its value first detrimine by the dollar. In short, you can buy whatever object you like with whatever currency you like, but the value of the good and currency comes from how much it's worth in dollars. That's the reality. On the global market, all business is done in dollars because as of the Bretton Woods Agreement in 1944, the dollar is the world reserve currency. So when doing buisiness countries don't want any other currency besides the dollar. And the reason why Chinese products are cheap relates to the purchasing power of the currency you're using to buy the product with. So buying goods with the Dollar or the Euro from China would reduce the price according to the exchange rate.

- Edited -

Perhaps I should collaborate on the term "World Reserve Currency" because apparently my integrity is being tried by a Top Contributor of Woman Gender study and I wouldn't want that after having your thanks.

It would be navie to think that whenever foreign business men gather to exchange they use phyisical dollars or a separate bank account pertaining only to dollars and I'm sorry if my text book friendly answer described an affair of so.

The real importance of being the anchor currency is actually that that all products on the global market are peg to the dollar. True that I've heard of people trading with bullion, and it isn't unusual for France to do business in Euros, but I, like everyone else in the world, have never invested or exchanged in an asset that didn't have its value first detrimine by the dollar.

In short, you can buy whatever object you like with whatever currency you like, but the value of the good and currency
comes from how much it's worth in dollars. That's the reality.

]]> By: shebs http://www.myylt.com/2008/12/31/how-does-china-get-the-currency-to-pay-for-oil/#comment-10712 shebs Tue, 30 Nov 1999 00:00:00 +0000 http://www.myylt.com/2008/12/31/how-does-china-get-the-currency-to-pay-for-oil/#comment-10712 Justin is sort of right, though his answer is more of a clean, text-book answer rather than a reflection of reality. While the USD is the world reserve currency, it has never been the universal currency of international trade, and progressively less so in recent years, as you note. Euros and often preferred by some nations, the Pound Sterling and Swiss Franc have always help a niche market, and many people trade using bullion, as this is more stable and private. In the long term this will lead to a progression away from the USD as the preferred currency of trade, just as the Pound Sterling was relegated from the major to minor player status. This is due to many things, not least the violent fluctuations in the USD in recent years, political reasons, and lack of faith in the dollar as a secure currency. The USD is not likely to become irrelevant any time soon, if ever, but there will be a move away from it as dominant. There was never any ongoing promise or requirement at Bretton Woods that the USD's position as the world reserve currency was going to be forever. As for China getting USD, it holds vast amounts, both as currency banknotes and electronically as debts held over US interests. China also buys vast amounts of foreign currency and trades forex regularly as part of it's economic activity, as do all governments. China simply has the ability, by itself, to heavily influence the currencies of several nations and trading blocs to the point where it can alter it's price on the market to ahuge degree. Remember that this ability essentially puts the value of the USD in the hands of non-Americans, something that was always going to be an issue with a world reserve currency scenario. Justin is sort of right, though his answer is more of a clean, text-book answer rather than a reflection of reality.

While the USD is the world reserve currency, it has never been the universal currency of international trade, and progressively less so in recent years, as you note. Euros and often preferred by some nations, the Pound Sterling and Swiss Franc have always help a niche market, and many people trade using bullion, as this is more stable and private.

In the long term this will lead to a progression away from the USD as the preferred currency of trade, just as the Pound Sterling was relegated from the major to minor player status. This is due to many things, not least the violent fluctuations in the USD in recent years, political reasons, and lack of faith in the dollar as a secure currency. The USD is not likely to become irrelevant any time soon, if ever, but there will be a move away from it as dominant. There was never any ongoing promise or requirement at Bretton Woods that the USD's position as the world reserve currency was going to be forever.

As for China getting USD, it holds vast amounts, both as currency banknotes and electronically as debts held over US interests. China also buys vast amounts of foreign currency and trades forex regularly as part of it's economic activity, as do all governments. China simply has the ability, by itself, to heavily influence the currencies of several nations and trading blocs to the point where it can alter it's price on the market to ahuge degree. Remember that this ability essentially puts the value of the USD in the hands of non-Americans, something that was always going to be an issue with a world reserve currency scenario.

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