If nations trade with each other and have different currencies how do they use the money if it’s not usable in those places? For example let’s say the US gives China 10 million dollars, but China doesn’t use dollars. What does China do with that money? If it’s converted then what happens to the dollars?
In: Economics
> For example let’s say the US gives China 10 million dollars, but China doesn’t use dollars. What does China do with that money? If it’s converted then what happens to the dollars?
US or China will sell those US dollars for Chinese currency (Yuan). Simple as that.
Couple options.
1. The US didn’t *actually* send money. It sent physical good that “cost” that much. This is largely what’s been going on with US military support to Ukraine. The US isn’t sending pallets full of cash, or even electronic transfers to some random bank account. It’s shipping guns and tanks and junk, which *hypothetically* could have been sold. This is really the most common scenario
2. For US dollars (USD) specifically everyone wants them. Especially at the international level. A country might accept USD and then use those to trade without *another* country that want’s USD. So hypothetically the US could send China $10 million and then China buys a bunch of oil from Saudi Arabia with that. This doesn’t work with every currency, but that’s why almost every country has at least some amount of USD on hand.
Also “countries trading with each other” doesn’t usually mean the two governments trading with each other. It means two companies within those countries trading with each other. And how they conduct the trade is largely up to themselves. But the two things above still apply.
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