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Comment by conjecTech | Hacker News Reader

This is a misrepresentation which is trying to paint a relatively weak position as a stronger one. A small fraction of that money is being spent on gold. According the financial times[1], China only bought 15.6 tonnes - about $675 million worth[2], compared to the dollar deficit of ~$7.5 billion.

China has a trade surplus with the US, but is net losing dollars because it has to use dollars to buy oil and other imported goods as very little international trade is transacted in yuan. They aren't choosing to shift away from the US dollar. They need them and are going through their stockpile.

[1]https://www.ft.com/content/ca50aa10-8b18-11e9-a1c1-51bf8f989... [2]https://www.wolframalpha.com/input/?i=value+of+15.6+tonnes+o...

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You’re correct here; however, the narrative that China wants Americans to see is that they can mess up the dollar. The truth is selling a huge pile of dollar denominated bonds wouldn’t do much other than hurt China by pushing up the yuan and thus depressing exports even further.

And given that the dollar has been very relatively high for the last five years, now is an ideal time for China to begin selling. I'd like to see them get on with it. The Fed should immediately start a repurchase program and take the entire position off of China's hands permanently. China of course won't do any such thing, even if the trade war gets worse. The only value in it is the bluff, because it would barely scratch the dollar if they began more aggressively selling. It'd be a great excuse for the Fed to run some more QE and lower the cost of some US debt.

Additionally, China's gold acquisitions may be as a hedge against inflation risks as they (a) devalue the RMB; (b) reportedly see 70% increases in pork prices due to swine flu, and (c) need to purchase gold to keep their ~3 year old RMB/Gold/Petro market intact.

Ok, we'll switch to the subtitle above.

Watch what happens when the Fed decides to cut rates again. Treasuries will be dumped massively.

In favor of what?

That would only affect new bonds not existing ones. Even if assumed true (their current push is an interest rate rise) dumping old more valueable ones in response wouldn't make sense.

>China has a trade surplus with the US, but is net losing dollars because it has to use dollars to buy oil and other imported goods as very little international trade is transacted in yuan

China is a net exporter to the tune of half a trillion per year. I don't see how they could be running out of dollars. Your first link is behind a paywall so I'm not sure what stats they use to back that up.

Domestic spending?

Denominated in RMB, which they can print. They aren't spending their USD reserves internally only when they need to purchase stuff from abroad.

I believe the missing factor is investment. You're likely referencing numbers just for trade. There is also foreign investment to consider. I believe China has been a large net investor for some time and those investments, by their foreign nature, reduce China's foreign reserves as well.

Sure, it's possible they have a net negative dollar flow because of investments. But that's a lot different than having a net negative dollar flow because they're importing oil.

There is some nuance here. We can talk about all of their net flows as if they're denominated in a given currency, but this article is specifically talking about their reserves of a particular currency, and oil is a very large reason for the continued depletion of their dollar reserves, independent of their overall account balance when all of it is converted to dollars. I don't have a good knowledge of what their other currency reserves are, or the feasibility/implications of converting such massive dollar figures between currencies. If you want to provide some more details about the particular figure you mentioned, we might be able to discuss it more meaningfully.

This cite has them at 873B of net exports with about 200B in petroleum imports in 2017:

https://atlas.media.mit.edu/en/profile/country/chn/

The net exports decreased to about 500B for 2018. I can't seem to find a dollar figure for 2018 oil but I've seen articles saying imports are up 10% by volume. So total petroleum imports are less than half of their net export amount. Meaning that they could triple their petroleum imports and still be a net exporter.

Yeah, hard to tell just looking at that data. I don't know what currencies each one of the trade relationships is settled in. The differences in balance with the US there is also similar to what they spend on oil (~11%). If all other trade is settled in other currencies and all oil is bought with dollars(from countries other than the US), they would be about flat in terms of dollar reserve growth from trade. My understanding is that most of their dollar reserves originated from buying dollars w/ yuan in the years after 2009 to help keep the value of the yuan depressed for the sake of trade competitiveness. So that does seem to imply that investment balance is the factor tipping the balance here. Which is probably why the Chinese government has set stringent rules on currency controls for individuals.

Which currency the trades are settled in is effectively meaningless as long as it's hard currency. If they end up with a surplus of Euros and a deficit of Dollars they can easily exchange Euros for Dollars. If they end up with fewer dollars it's mostly by choice.

We're talking about hundreds of billions of dollars here. How confident are you that you could 'easily' do that without major undesired effects?

This cite says the average daily volume of EUR/USD trades is half a trillion a day:

https://www.currenciesfx.com/index.php/eur-usd

So hundreds of billions of dollars a year is small relative to the volumes being traded.

Very little of that is true demand. That corresponds to 10x American GDP annualized.

Net exporter to the U.S... But as the OP points out, they do other things with US$ such as buy oil and invest. You are right that they aren't running out of dollars, but they aren't stockpiling them at the rate of the trade surplus either.

That half trillion net export includes oil imports.

Your argument assumes China could find more than ~$675M of physical gold on the market in April.

The trend is even weaker for the previous 6 months. The financial times article also mentions those numbers.

Would you mind expanding on your point? I understand that there is limited trade in gold, but why does the fact that they are running up against a limit in buying gold matter to the argument?

There's a common belief among conspiracists/Zerohedge believers that the amount of physical gold is basically fraudulent, and that the gold that is being traded doesn't exist. So when the coming financial crisis happens and gold becomes the currency of trade, when people actually open up their coffers, they'll see that it either doesn't exist or it's gold bars filled with tungsten.

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