Question: What will happen to our startup investments if the Yuan takes over USD as the world’s leading currency: “Saudi Arabia is open to discussions about trade in currencies other than the US dollar, according to the kingdom’s finance minister.”
My Response: If part of the world decides to use Yuan over Dollar, that will not destroy a Kenyan or Nigerian or Chilean business. You just re-price in the new currency. Our world is moving into a phase where currency will be abstracted out (you want to pay someone in London from New York, PayPal takes care of everything, and you will not see GBP anywhere). Sure, the US may see pressure on its economy if countries begin to pack reserves in Yuan.
The CFA franc zone has been in a union for decades. Yet, that zone is one of the least developed regions in Africa. In other words, currency does not offer huge advantages in the international market if you are not productive. That was my specialty in my Banking and Finance PhD and I wrote the lead paper for the African Union on this matter
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In the 1890s as Great Britain began to pass the baton to the US as the world’s dominant economy, it did all but with a diminishing production capacity, the message was clear: balance of trade wins, and powers economic supremacy. In the last ten centuries, China has dominated at least 6 economically. China is winning on the balance of trade and will pass the US – and the Yuan will rise. But just like the UK and broad Europe did not collapse when the pound lost to the USD, Africa should be fine. Indeed, most of the things used in Africa are imported from China, paying for those in Yuan may even help Africa.
We will win by solving market problems; currency strategies are limited to pushing competitive positioning in markets over a long time. If our startups offer value in markets, they will be fine, whether they’re paid in USD or Yuan, and irrespective of what the world uses.
Comment: ..but prof due to the expected collapse in the value of USD, should we not expect that all countries with USD denominated assets will experience a corresponding devaluation of their assets which would negatively impact their economies and standard of living. Thus one would expect that in order to escape the effects of the anticipated changes, entities with Dollar denominated assets should move them to more immune holders of value.
My Response: Certainly, there would be perturbations but people who remain productive will be fine. If the US empire begins to fade and people think putting their money in Chinese banks would be safer, people will do that. Yet, the openness in New York and London will not be replaced in months but decades if China takes over economically. More so, nothing stops UK and US banks to benchmark Yuan making sure your money stays in Goldman Sachs in its Yuan docket instead of in a bank in Beijing.
My thesis remains: the structural alignments where currency tracks economic dominance may be muted due to technology as tech will abstract currency just as tech will take out language barriers. If you have an asset in Morgan Stanley in USD and Yuan becomes dominant, they will offer a Yuan product. You can ask them to move everything to a “Yuan wallet”. If they do not do that, a startup will do that.
And the big one – would China be happy to allow its currency to appreciate? For years, the US has been demanding that as it continues to give China a huge advantage in the international market. In other words, if the US-based assets in Morgan Stanley begin to lose value compared to Yuan, it means Yuan is strengthening. That will become a huge issue for China, taking out what has helped it in global commerce. That can even shift back the advantage to the US.
Ghana explained why production matters (it lost its peg to USD). And Russia, through Elvira Nabiullina, their central bank governor, makes it clear that national economies cannot kaput even with the highest sanctions in records and blockade on currencies. The only thing that works is this: be productive as a nation or company, and you will be fine.
Finally, for Tekedia Capital portfolios priced in USD (dynamic assets, not docile dollar denominated assets), if USD is losing value, you simply re-price considering the new reality. That is what we do with naira where as exchanges move, real estates, etc reprice. The key thing remains: are you productive as that is what gives power to do anything? If you are, you can change move from USD to Yuan and still pursue the business missions. Great products and visions will thrive, in USD or Yuan!
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