China buys oil with Yuan, not Dollars

[Riggerjack]

Felix, sorry for the slow response, I missed this. I think I see the disconnect here. I'm not being sarcastic when I used these simplistic definitions, I'm trying to be clear.

The ratio between currency and goods and services is constantly in flux. When it moves in aggregate, we call this inflation.

The ratio of currency to other currency is always in flux. This is tacked in the exchange rate.

Currency speculation works by trying to guess future values. This means at its simplest, ratio of dollars to pounds, to gold, but can really be any commodity and/or currency. In you example above, it doesn't matter if the oil mogul is Saudi or Texan. What matters is the assets he is trading, currency, and locations of both assets.

[Riggerjack]

Currency valuation changes mainly due to import/export ratios, but it's more tricky than that. It's import/export/currency approximately equals import/export/currency. Then you factor in all the deals of other countries in either currency. That's why I describe a certain event as having upward or downward pressure. All that information isn't available historically, let alone real time. But in aggregate it is available through exchange rates.

As near as I can tell, there are only two advantages to the dollar being a reserve currency. One is simplification, if everybody is comfortable using dollars, it is easier to get the deal done, and this brings its own efficiency. Two, having central banks hold treasuries increases demand for treasuries, which lowers the interest rate on treasuries. Since you believe in a zero interest rate, that last probably isn't an issue for you.

Given that, what's the worry about oil and Yuan?