4 ms·

It's also that the US doesn't play games with it's currency, there was alot learned from the 1850s experiments with 'free banking'. Since the collapse of Bretto

It's also that the US doesn't play games with it's currency, there was alot learned from the 1850s experiments with 'free banking'. Since the collapse of Bretton Woods they've let the USD freely float without intervening or controlling it in any way. There's hardly much in the club as such: the GBP, JPY, CHF (broke all trust early last year, simply because they didn't do it on a weekend), USD, EUR and CAD. Fun fact with CHF, they've had 2.2% inflation on average since 1880, unrivalled, it's crazy they threw that stability away. It's not as simple as just being in existence. There's alot of 'trust' to it too, Countries could easily diversify against the USD on their reserve baskets. The CNY isn't a significant proportion of any basket because of the lack of trust & free liquidity with it.

John23832 10y ago
The US kept the value of the dollar down in 2008 with QE. We manipulate too, just more in the open.
- akhatri_aus 10y ago
  QE is debatable, in a sense it's 'printed' loans that need to be returned, there's no direct influence on the exchange rate. If the US ends up having inflation as a result, it'll be damaging and countries will need to find a way to deal with it by switching their reserve currencies away somewhat. Russia is doing this with gold, but who knows that could be political. All in all, full employment matters more than currency perception overseas, at least if its done using free market forces, such as the purchase of bonds in the secondary market for QE.
  - John23832 10y ago
    I was addressing this: >It's also that the US doesn't play games with it's currency, Let's call a spade a spade. Sure, the US wasn't directly affecting rates. But a the time the financial world was burning, and people were flocking to (and holding) the Dollar for shelter. QE 1 2 and 3 were 600B, 600B and a monthly 85B. That much money put into the market keeps rates down simply because of supply influx.
    - akhatri_aus 10y ago
      Yes that's not good, but there's been no inflation as a result and the bonds the fed buys are freely tradable on the open market. Further the fed only trades on the secondary market so they wont directly bid in a Treasury auction. This isn't too bad picturing it. I assume if there is inflation there will be a problem so long as its not overdone like in the late 1970s. There's more vexing things that would affect this perception such as the credit rating, especially with so much debt. Yet History says the managers in government, and the Fed are good at their jobs. So even despite the QE perception on money printing the issues with this haven't been much of an issue, or it would have shown up with a weaker dollar/diversification away from USD on central bank's balance sheets
      - DominikR 10y ago
        > Yes that's not good, but there's been no inflation as a result and the bonds the fed buys are freely tradable on the open market. There is certainly an enormous inflation of the money supply but you don't see and feel it because it is sitting idly in bank accounts or is invested in bonds, the stock market or real estate. (here we actually see inflation) Once the holders of this money decide to move it out of these asset classes you are going to see inflation, because all of this money created by the FED does actually exist now.
        redcalx 10y ago
        > There is certainly an enormous inflation of the money supply Of M0 or 'narrow' money, yes. But the broader money supply was shrinking as loans defaulted. Arguably QE was an attempt to equalise the total (broad) money supply, and price inflation can be expected if QE money is not withdrawn as new loans are made, or rather, as the total amount of debt increases, creating broad money through fractional reserve banking.
        DominikR 10y ago
        How do you withdraw the QE money that is already out there? Erase it from the books?
  - gozur88 10y ago
    >QE is debatable, in a sense it's 'printed' loans that need to be returned, there's no direct influence on the exchange rate. People have this idea that with QE officially over the Fed's balance sheet will shrink over time, but it's not true. Bonds that were purchased under QE are replaced with new bonds as they mature, so it's effectively printed money. This is just the kind of fiddling you don't want to see when you're holding currency.
    - akhatri_aus 10y ago
      That's their process of rolling over. They've specifically will at one point stop using the phrase in their monthly meetings, which means the bonds will be left to mature - thereby destroying the money they created & shrinking the balance sheet - the bonds get taken off, as does the reserve balance created to buy them. It's nothing new in fact its near bog standard. This process is done with the lower maturity instruments when interest rates are higher by matching it up to the federal funds rate by purchasing or selling them & rolling them over in the exact same fashion (with this 'printed'/reserve money as well). It's just this is done using longer term assets instead.
      - gozur88 10y ago
        >That's their process of rolling over. They've specifically will at one point stop using the phrase in their monthly meetings, which means the bonds will be left to mature... That's the theory. I doubt it will ever actually happen, though, since whoever makes that decision will be blamed for any poor economic performance that follows.
        akhatri_aus 10y ago
        This is why the Fed is apolitical. Their concern isn't with economic performance it's simply with full employment and inflation most and foremost. Even if it is at the cost of poor economic performance - infact that is the goal, thereby reducing inflationary pressure.
        10y ago
DominikR 10y ago
> It's also that the US doesn't play games with it's currency I would never consider buying Yuan over Dollars but I simply cannot agree with this statement. What the FED has been doing since 2008 and the ECB with the Euro is a massive experiment in gaming the markets which could possibly lead to catastrophic event. At least in the case of the EU I have no doubt that this will happen. Today when you buy commodities or currencies your success or failure is not determined anymore by what the market believes is valuable or not, but instead by what governments and bureaucrats have decided should be valuable or what should go down in value. I am fundamentally opposed to this because it creates a lot of bad behaviour, corruption and governments ending up owning previously privately held property and companies. It is not inconceivable that we could see various Western governments ending up owning most of the property in their countries in the next decades. That'd certainly be a creative way to implement Communism, I'll give them that.
runeks 10y ago
> It's not as simple as just being in existence. There's > alot of 'trust' to it too, Countries could easily > diversify against the USD on their reserve baskets. The > CNY isn't a significant proportion of any basket > because of the lack of trust & free liquidity with it. I'm not quite sure what you're referring to here. What are countries' "reserve baskets"? Central banks hold bonds as assets on their balance sheet, not medium of exchange. These assets are what the medium of exchange is issued against in the first place. I'm arguing that it is not possible for foreign central banks to just choose to switch out US Treasury bonds with Chinese government bonds, because the Chinese bonds have terrible liquidity -- and bond liquidity isn't particularly good in times of crisis to begin with.
- akhatri_aus 10y ago
  Central Banks usually have to hold reserves of other countries currencies, or more generally a basket of reserves that it can use with another Central Bank for the purposes of trade or moving capital beyond the border. Say I buy a container of iron ore from Australia from the US, the process needs money to flow to Australia. In this flow the Federal Reserve would provide to the Reserve Bank of Australia (RBA) some of the assets in this currency basket to back its claim, it simply says the RBA is owed that (and subsequently the RBA can use that against USD trade, or use that against some other trading partner). So this way that the person I buy ore from in Australia has his credit in his account backed by something intrinsic (owed to him by the RBA, owed to the RBA by the Fed). No money has really flowed between countries, just the Fed owes the RBA assets in this currency basket as a result. This communication is done using the Bank for International Settlements which allows these reserves to be exchanged between other countries when they trade amongst each other. Hence it's important the basket contain assets that are universally acceptable and can store value. It used to be Special Drawing Rights, and before that Gold. The Federal Reserve's gold hoard is also amongst this basket. The terminology remains from the basic function of exchange accounting under the Bretton woods system, in principle using fiat instead of Gold. This method was devised to avoid countries having to ship gold to each other. They could simply owe it to another Central Bank and trade against that. The bonds are stored in a different form as part of their monetary policy, the functions in this sort of basket is part of the Fed's function with international settlements.
NotSammyHagar 10y ago
The obvious reason why the rmb could become a global currency is lots of companies buy and sell stuff from china, imports and exports, so they come to accumulate it. They want to trade it for other things, so the rmb comes to be used and more. Of course it doesn't float free, and the country limits transactions across borders. But I could see it slowly becoming more used as a universal currency, if they stop controlling the exchange rate and stop limiting capital flows. Those are 2 big changes, but the more they slowly relax those controls, the more likely they will succeed.

John23832 10y ago

The US kept the value of the dollar down in 2008 with QE. We manipulate too, just more in the open.

akhatri_aus 10y ago
QE is debatable, in a sense it's 'printed' loans that need to be returned, there's no direct influence on the exchange rate. If the US ends up having inflation as a result, it'll be damaging and countries will need to find a way to deal with it by switching their reserve currencies away somewhat. Russia is doing this with gold, but who knows that could be political. All in all, full employment matters more than currency perception overseas, at least if its done using free market forces, such as the purchase of bonds in the secondary market for QE.
- John23832 10y ago
  I was addressing this: >It's also that the US doesn't play games with it's currency, Let's call a spade a spade. Sure, the US wasn't directly affecting rates. But a the time the financial world was burning, and people were flocking to (and holding) the Dollar for shelter. QE 1 2 and 3 were 600B, 600B and a monthly 85B. That much money put into the market keeps rates down simply because of supply influx.
  - akhatri_aus 10y ago
    Yes that's not good, but there's been no inflation as a result and the bonds the fed buys are freely tradable on the open market. Further the fed only trades on the secondary market so they wont directly bid in a Treasury auction. This isn't too bad picturing it. I assume if there is inflation there will be a problem so long as its not overdone like in the late 1970s. There's more vexing things that would affect this perception such as the credit rating, especially with so much debt. Yet History says the managers in government, and the Fed are good at their jobs. So even despite the QE perception on money printing the issues with this haven't been much of an issue, or it would have shown up with a weaker dollar/diversification away from USD on central bank's balance sheets
    - DominikR 10y ago
      > Yes that's not good, but there's been no inflation as a result and the bonds the fed buys are freely tradable on the open market. There is certainly an enormous inflation of the money supply but you don't see and feel it because it is sitting idly in bank accounts or is invested in bonds, the stock market or real estate. (here we actually see inflation) Once the holders of this money decide to move it out of these asset classes you are going to see inflation, because all of this money created by the FED does actually exist now.
      - redcalx 10y ago
        > There is certainly an enormous inflation of the money supply Of M0 or 'narrow' money, yes. But the broader money supply was shrinking as loans defaulted. Arguably QE was an attempt to equalise the total (broad) money supply, and price inflation can be expected if QE money is not withdrawn as new loans are made, or rather, as the total amount of debt increases, creating broad money through fractional reserve banking.
        DominikR 10y ago
        How do you withdraw the QE money that is already out there? Erase it from the books?
- gozur88 10y ago
  >QE is debatable, in a sense it's 'printed' loans that need to be returned, there's no direct influence on the exchange rate. People have this idea that with QE officially over the Fed's balance sheet will shrink over time, but it's not true. Bonds that were purchased under QE are replaced with new bonds as they mature, so it's effectively printed money. This is just the kind of fiddling you don't want to see when you're holding currency.
  - akhatri_aus 10y ago
    That's their process of rolling over. They've specifically will at one point stop using the phrase in their monthly meetings, which means the bonds will be left to mature - thereby destroying the money they created & shrinking the balance sheet - the bonds get taken off, as does the reserve balance created to buy them. It's nothing new in fact its near bog standard. This process is done with the lower maturity instruments when interest rates are higher by matching it up to the federal funds rate by purchasing or selling them & rolling them over in the exact same fashion (with this 'printed'/reserve money as well). It's just this is done using longer term assets instead.
    - gozur88 10y ago
      >That's their process of rolling over. They've specifically will at one point stop using the phrase in their monthly meetings, which means the bonds will be left to mature... That's the theory. I doubt it will ever actually happen, though, since whoever makes that decision will be blamed for any poor economic performance that follows.
      - akhatri_aus 10y ago
        This is why the Fed is apolitical. Their concern isn't with economic performance it's simply with full employment and inflation most and foremost. Even if it is at the cost of poor economic performance - infact that is the goal, thereby reducing inflationary pressure.
        10y ago

DominikR 10y ago

> It's also that the US doesn't play games with it's currency I would never consider buying Yuan over Dollars but I simply cannot agree with this statement. What the FED has been doing since 2008 and the ECB with the Euro is a massive experiment in gaming the markets which could possibly lead to catastrophic event. At least in the case of the EU I have no doubt that this will happen. Today when you buy commodities or currencies your success or failure is not determined anymore by what the market believes is valuable or not, but instead by what governments and bureaucrats have decided should be valuable or what should go down in value. I am fundamentally opposed to this because it creates a lot of bad behaviour, corruption and governments ending up owning previously privately held property and companies. It is not inconceivable that we could see various Western governments ending up owning most of the property in their countries in the next decades. That'd certainly be a creative way to implement Communism, I'll give them that.

runeks 10y ago

> It's not as simple as just being in existence. There's > alot of 'trust' to it too, Countries could easily > diversify against the USD on their reserve baskets. The > CNY isn't a significant proportion of any basket > because of the lack of trust & free liquidity with it. I'm not quite sure what you're referring to here. What are countries' "reserve baskets"? Central banks hold bonds as assets on their balance sheet, not medium of exchange. These assets are what the medium of exchange is issued against in the first place. I'm arguing that it is not possible for foreign central banks to just choose to switch out US Treasury bonds with Chinese government bonds, because the Chinese bonds have terrible liquidity -- and bond liquidity isn't particularly good in times of crisis to begin with.

akhatri_aus 10y ago
Central Banks usually have to hold reserves of other countries currencies, or more generally a basket of reserves that it can use with another Central Bank for the purposes of trade or moving capital beyond the border. Say I buy a container of iron ore from Australia from the US, the process needs money to flow to Australia. In this flow the Federal Reserve would provide to the Reserve Bank of Australia (RBA) some of the assets in this currency basket to back its claim, it simply says the RBA is owed that (and subsequently the RBA can use that against USD trade, or use that against some other trading partner). So this way that the person I buy ore from in Australia has his credit in his account backed by something intrinsic (owed to him by the RBA, owed to the RBA by the Fed). No money has really flowed between countries, just the Fed owes the RBA assets in this currency basket as a result. This communication is done using the Bank for International Settlements which allows these reserves to be exchanged between other countries when they trade amongst each other. Hence it's important the basket contain assets that are universally acceptable and can store value. It used to be Special Drawing Rights, and before that Gold. The Federal Reserve's gold hoard is also amongst this basket. The terminology remains from the basic function of exchange accounting under the Bretton woods system, in principle using fiat instead of Gold. This method was devised to avoid countries having to ship gold to each other. They could simply owe it to another Central Bank and trade against that. The bonds are stored in a different form as part of their monetary policy, the functions in this sort of basket is part of the Fed's function with international settlements.

NotSammyHagar 10y ago

The obvious reason why the rmb could become a global currency is lots of companies buy and sell stuff from china, imports and exports, so they come to accumulate it. They want to trade it for other things, so the rmb comes to be used and more. Of course it doesn't float free, and the country limits transactions across borders. But I could see it slowly becoming more used as a universal currency, if they stop controlling the exchange rate and stop limiting capital flows. Those are 2 big changes, but the more they slowly relax those controls, the more likely they will succeed.