5 ms·
The system you described would be beneficial for all but USA :) The last two people that wanted to challenge US dollar dominance in the world financial markets
by mamon 11y ago
The system you described would be beneficial for all but USA :)
The last two people that wanted to challenge US dollar dominance in the world financial markets were Saddam Hussein (wanted to trade oil for Euros instead of USD) and Muammar Kadafi (wanted to trade oil for gold). We all know how that ended for both of them - their countries were invaded in under 6 months after they announced their plans.
Now, the only country powerful enough to force switch from USD to currency basket is China, and their recent initiatives, like creating AIIB bank, or devaluating juan are aimed at exactly that.
- cheriot 11y agoI've not been able to figure out the benefits. Stability by increasing the stakeholders in the value of the dollar? It gives people more reason to buy dollars => raises the value of dollars => and makes US exports less competitive => makes the US poorer.
- vetinari 11y agoCompare the sizes of real economy vs financing in US. There's your answer.
- ArkyBeagle 11y agoIs that an answer? What's the optimal ratio? On what does change in that ratio depend?
- nopinsight 11y agoEffects of strong dollar and its global reserve status: --> Americans can buy stuff / take international vacations more cheaply --> Better lifestyle --> American corporations can use their stocks valued in dollars to takeover foreign companies/assets and expand more cheaply. --> Power to punish enemies with financial sanctions/manipulations. --> QE over and over again with near perfect impunity. Ability to rescue itself from certain kinds of financial crises.
- cheriot 11y ago#1 Very nice from the Zanzibar beach I'm sitting on, but I doubt it's a big motivator! #2 Sounds like something significant. Do you know of a way to quantify it? #3 As far as I know, the threat is to shut financial institutions out of the US market. I don't think the US government has much control over a dollar once it's leaves the country. #4 The Chinese have a similar ability to print massive amounts of money without inflation. I wonder if it's a property of sufficiently large economies. The article also mentions a downside that the Fed has had to print money to keep foreign institutions afloat.
- ivanca 11y agoA strong dollar means they can import raw materials very cheaply, so that's how they balance out any risk of being "less competitive". And many American products compete on quality and brand recognition (see e.g Apple's iPhone) not on price.
- mineshaftgap 11y agoDevaluing the Yuan means abandoning, at least for a while, China's attempt to have it become a reserve currency. No one wants to hold money in a currency that is losing value.
- tedunangst 11y agoTragic, really, that US foreign policy is so willing to snuff out such visionary leaders.
- barry-cotter 11y agoTragic that the US destroyed two more or less functioning nation states and left civil wars in their wake. Iraq would have been better off under Saddam, Libya under Gaddafi.
- mahranch 11y ago> that US foreign policy is so willing to snuff out such visionary leaders. You're kidding, right? Economic views aside, these men were monsters who, combined, were responsible for the deaths of hundreds of thousands, if not millions of people. These were not great men. They were monsters. I'm not going to call Charles Manson "charitable" and "soft-hearted" because his social views are liberal, the guy is still a monster. That's what he is, first and foremost.
- vezzy-fnord 11y agoHe was clearly being sardonic.
- happyscrappy 11y agoDevaluing the Yuan will not help it become a reserve currency, unless people suddenly like to lose money.
- mamon 11y agoDevaluing Yuan had more subtle reason: Just recently China started to sell US Treasury bonds (they have about $2 bln of them to sell) And if you sell bonds for yuans that causes the yuan's value to raise which hurts Chinese exporters. So, devaluating it first was a way of neutralizing that effect, protecting China's economy. Bond sale itself was a way of putting mild pressure on US in the ongoing negotiations about making Yuan part of world's reserve system.
- happyscrappy 11y agoDevaluing the Yuan has set any hopes of it being a reserve currency back by a decade at least. It was a move of weakness and has accelerated capital outflow from China as well as causing some head scratching about the competence of party leaders, because it seems unduly drastic, unless things are worse than they seem.
- mamon 11y agoWhat you are saying is true, but won't matter anyway, because switch from USD to SDR won't be a free market decision, it would be forced upon us once US and China agree on that.
- mahranch 11y ago> Just recently China started to sell US Treasury bonds (they have about $2 bln of them to sell) China didn't just "start selling US treasury bonds". You're implying that they're offloading their bonds, they are far from it. China sold off an insignificant portion of their holdings for liquidity to bail out themselves. They were facing an economic crash and they were trying to stave it off. They needed cash to do that, hence, they sold a very specific amount of their bonds for that specific purpose. If they sold all of their treasury bonds, it would be economic suicide because there would be so much unstableness in the global economy that every market would crash, including Chinas. They would probably fall the hardest, too.
- ArkyBeagle 11y agoIt has never been clear to me that the US has any actual gain from being "the reserve currency." The usual story is "goods are cheaper; vacations are cheaper" and meanwhile goods and vacations are extremely cheap already. Since all currencies are fungible, you're only a multiplication-by-the-exchange-rate away from any other currency.
- sokoloff 11y agoI don't understand your first paragraph. It reads to me like "the usual story is 'water is wet' and meanwhile water is already extremely wet."
- ArkyBeagle 11y agoSo what does the US - the people of the US - gain by the dollar being this "reserve currency"?
- sokoloff 11y agoThe status quo advantages: a (relatively) stable and strong currency, meaning net importers are helped. Of course, that means our exporters are conversely harmed when selling to a location with a weaker currency (as our goods become more expensive). A vacation abroad is similar to a net import. You consume something in a foreign locale paid for with US currency. The confusion I have is your argument of "that can't be the reserve currency advantage, because it's already true", which seems to ignore the (strong?_) probability that it's already true because of being the reserve currency.
- ArkyBeagle 11y agoI just suspect that I shouldn't really care what the reserve currency is. If anything, it probably has minor annoyances for Americans. I meant that vacations for people who live in non-dollar places are cheap, goods are cheap. I recall that trips from Canada cost pretty much the same as from the US, taxes notwithstanding. The main complaint I hear about goods is VAT and import duty where applicable.