One consequence of the transition to renewable energy and electrified transport, is that oil imports will start to decline. And the dollar is of course the currency of choice for that.

The US economy and other countries that export fossil fuels will feel the impact over the next decade or so. The energy transition might go a lot quicker than people seem to expect. Currently about 20% of global car sales is electric. In some countries it's well over 50%. China of course being one of them. And they are making rapid progress with electrifying freight as well. This is already impacting their fossil fuel imports. They still import a lot.

One effect that I think people underestimate is that while it will take a long time for all the ICE vehicles to disappear, the new ones do most of the driving. So, new EVs have a relatively large impact on fuel consumption and imports pretty early on. E.g. Chinese diesel imports apparently already are being impacted by their rapid deployment of tens of thousands of electrical trucks. Soon hundreds of thousands. That's already a third of the market in China and will probably head for well over 50% in a few short years. The EU is not that far behind.

The ripple effect that's going to have on oil trading, refinery capacity, etc. is going to be substantial. Of course current geopolitics is speeding things up massively. LNG and oil scarcity is causing a lot of issues globally and countries are accelerating moves to reduce their dependence on that.

The yuan will never become a reserve currency as long as China maintain tight currency controls around importing and exporting it. It's very difficult to (legally) send CNY out or China.

The euro is in a much better position to be adopted as an alternative, but its share of global reserves has been flat at around 20% for years.

https://data.imf.org/en/news/imf%20data%20brief%20march%2027

If you are trying to apply lessons from the gold standard era to lessons in the current era of non-convertible fiat currencies, then you are going to draw the exact opposite of the correct conclusions. There is a fundamental difference in how global capital flows work when the world uses specie flows versus when the world does not.

Here is one hint. The reason why currencies like the Spanish dollar or Dutch guilder became standards were primarily questions of prestige and minting quality as you held those currencies in your own possession. But everyone could recognize a guilder and so when dealing with a foreigner, it was easier to have them.

In that type of environment, being a global export power meant that you were a global gold issuer because you sold your goods to the rest of the world, got their gold (or silver), melted it down, and issued your own stamped gold or silver coins, that circulated all over the world.

If that is your mental model of foreign trade today, then please read a bit further in your history books, because we live in the world of non-convertible fiat money. This means that when China sells $100 of stuff to America, it doesn't get to take that money home, the money is kept in an American bank account, with the name of that chinese seller as the beneficiary of the account. It's a non-convertible currency. A dollar is always a dollar, China can't melt it down and convert it to a Yuan.

So now, to be the reserve currency doesn't mean that your specialized minting tech is being stored in central banks all over the world, it means that central banks all over the world have deposit accounts in your banking system. And that can only happen by being the world's largest importer, the exact opposite of the situation in the age of the Dutch trading empire. Your entire analysis is backwards.

This whole house of card is very modern, there was no such thing as "Reserve currency" not even the British pound, it was the most traded currency. but holding a currency's (debt) as a foreign reserve instead of gold is very recent phenomena, even central banks reserves or their function is also rather modern phenomena.

while Yuan usage in trade will reduce the US influence, the amount of assets held in dollar nominated investments is so so much bigger, and this will very slowly change if it will at all.

I think this has the causality reversed. The dollar is the world's reserve currency because the US wields incredible negotiating power and has been the de facto military hegemony in the past few decades.

It seems likely that the dominance the US has enjoyed in the recent past will diminish somewhat as other blocks with larger population bases catch up on the technology and industrialization fronts, and eventually start flexing their industrial might to create peer-level militaries.

It’s very unlikely that the USD will lose its status particularly to the Yuan. You can do that mental calculation yourself. Would you convert all of your lifesavings from USD to Yuans today or in the next 10 years? The answer is probably “not a chance”. The reason is simple, liquidity and trust. China has no comparable open and independent financial institutions international central banks can trust, nor can they have them without surrendering control over their monetary policy. So as long as there’s no alternative to the USD (BRICS will likely fail), it will continue being the default global currency for reserves, debt and trade.

Losing the reserve currency doesn't happen in a vacuum. It happened to the British and Dutch because their empires were dismantled.

So, yeah, it could happen to the US, slowly, over time (it already is). But nobody wakes up tomorrow and says they no longer want USD. Where are you parking the money, yuan?

USD exorbitant privilege is mostly just exorbitant now that sanction evasion solved problem due to US going ham. Central banks pulling out of treasuries, rates increase selling to institutional vs marginal buyers, USD just terminal debt serving sink hole now. Ironically PRC can now lend out USD from their reserves and trade surplus at better rates than FED... the answer to USD in meantime for PRC is PRC USD, every dollar PRC recycles their USD is a dollar not buying treasuries that makes USD reserve more onerous to maintain.

LBH PRC not dumb enough to dig itself into Triffin deindustrialization hole US has. IMO Yuan positioning itself to be better than a reserve currency, it'll be premium currency for PRC tech stack (everything do be primogem) once PRC overtake west in critical strategic goods - ultimately, whoever controls discounted society sustaining tech / commodities stack long term controls payment preference. In meantime, PRC more than fine USD continue it's decline into debt serviced casino where somehow now house net loses until US inevitably have to debase/inflate away leaving others holding bag. There's really no alternative scenario (i.e. default) for USD at this point. Downstream of that is FX re reevaluations etc, i.e. PRC nominal > US nominal is not going to take years, is not dependant on PRC vs US growth, in the end it will take a few months of FX swing outside of either party's controls.

As other people on this thread will point out the Yuan is not close to replacing the dollar, nor is any other aspect of the Chinese financial system highly competitive, even with the staggering rise of corruption in the US.

But this is yet another indicator of the loss of soft power, which is much farther gone than, I'd say, 90% of Americans realize.

The supposedly smart people in the tech industry should be alarmed by the loss of soft power. A lot of tech revenue comes from overseas, but if US technology is seen to be the tool of an unreliable, belligerent, corrupt, authoritarian government, that revenue will evaporate, and it will happen faster than, for example, fundamental international finance changes. And yet these supposedly smart people have lined up behind our government.

The US is also has very large investment markets that are attractive to investors worldwide. Countries that export to the US can build up large US investments, and not just bonds either. (Flip side of trade deficit.)

It seems hard to say when that would change.

Aren’t there reasons though?

Example: China holds the most foreign reserves. They are a natural world bank whether you want to call them that or not.

The US has oil and trade dominance, the USD is tied to petrodollar, aircraft sales, weapons, etc. and SWIFT - so that makes the US a kind of world bank in practical terms.

But what does Germany bring to the table? Energy? It seems to me that Russia, Iran, or even Mexico would be next in line considering the reality of trade and international finance. Why Germany?

How come Deutsche Bank, a German bank, is the first bank doing this? And why now? Is it because the less friendly political stance towards Europe from the US side that the tables have turned a bit?

I also wonder how much political backing a bank needs to offer a service with the implications towards the status of an allied currency as reserve currency status - small as it may be for now.

Being the reserve currency means the rest of the world accumulates your liabilities as their savings, i.e. it means you are the world's largest debtor, and the world's largest net importer. That is how the rest of the world accumulates your currency - because they sell more to you than they buy from you, allowing them to accumulate your fiat.

So this "reserve currency" status is a great burden to US industry, which is why China has created a web of laws that effectively make it illegal to be a reserve currency. The entire east asian bloc has industrialized based on an export led growth model -- that is, exporting more than they import, and thus being accumulators of other nation's currencies. It's not that they need to accumulate dollars, they just need to accumulate some other country's currency, otherwise it's mathematically impossible to run a trade surplus.

A lot of people don't understand this distinction between positive and negative -- e.g. accumulating the currency of other nations and other nations accumulating your currency. These people hold to what I call the fallacy of "the equality of all good things". These are the same people that argue for a "strong dollar" and also "strong exports", when actually these are opposites. I think of this as a form of tribalism, where the analysis is limited to "our guy good, their guy bad. X good, Y bad".

Such people are resistant to trade offs, e.g. you get the advantage of cheap consumer goods by being a net importer, but you have the disadvantage of losing jobs and industries to those nations that are willing to have expensive consumer goods for their populations in order to export more and import less.

In any case, continuing with lists of fallacies, we can say that America having a "strong economy" has little to do with its reserve currency status. Rather, it needs 1) a large bond market 2) investor rights protections 3) a legal framework allowing foreign capital inflows and outflows, with little friction. 4) A relatively stable currency.

To see how important this is, take the example of Russia, which decided that it will sell its oil to India by accumulating rupees. That's great, there was much celebrating "multipolarity" but the fact of the matter is the Rupee has lost over 20% of its value (in dollar terms) since Russia started accumulating it, and India has laws blocking Russia from selling its rupee holdings for other currencies, it can only use those Rupees to purchase Indian goods and take them back to Russia. So now Russia has tons of rupees it can't use except to buy Indian goods, and has started requiring India to pay with Quatari Riyal, as Quatar as more investor friendly laws. Also, there is not that much you can buy with Riyal, when you have two hundred billion dollars of value a year you want to park in some foreign jurisdiction, Quatar just can't absorb that. China isn't willing to accept it. India will accept it but not let you take it out. Where are you gonna put it?

So we see, we have already left the world of "America declining! The Dollar is collapsing!", because like it or not, even though America has tarnished its reputation of respecting investor rights, it's still miles ahead of any alternative when you need to park overseas earnings.

China blocks foreign capital inflows. Europe suffers from all the problems that the US does and even moreso as they are now openly seizing foreign ships and the bank accounts of private citizens - for example freezing bank accounts of people with Russian sounding last names - and Europe has even more barriers to moving money in and out.

So in which jurisdiction will you park your overseas earnings if not the US?

There is no alternative. No alternative is even beginning to appear over the horizon.

While I am holding forth on all these fallacies, another one is what I call the "balloon theory" of trust. This is the assumption that because the US, which used to be a high trust, investor-rights respecting nation, but has begun losing those investor rights credentials after seizing the sovereign assets of Afghanistan, Iran, Venezuela, Syria, as well as other official enemies - that because of this, some other nation must magically arise that will have that reputation for respecting foreign investor rights. E.g. that trust is a balloon, and if you squeeze one part of it, another must by necessity expand. This also comes from tribalism, e.g. the view that if your enemies suffer that you must benefit. But trust isn't like that, it could just be that as the US begins to look less attractive, then no other nation will take its place, and this will create real problems for the export-led growth economies in Asia, as they need some nation whose currency they can accumulate in order to run the trade surpluses needed for them to maintain domestic employment.

That horse has already bolted and bought a whole new stable with blackjack and hookers in a foreign country.

The US is in for a hard couple decades ahead given they aren't leading innovation, manufacturing, finance, geopolitics, and even their military power is now in question.

At least they owned the libs.

it wields power with missiles, with the dollar as a consequence

I really hope this is one step into a more multipolar world, maybe without a single hegemon the world is easier to change for the better

The current admin has destroyed much of the government backing. Its to he seen if the global business fail to uphold its value.

And its going to be incredible to watch how many of our own country will be gleefully cheering this on as if the replacement will be better for them.