15 ms·

The Tyranny of the U.S. Dollar

126 points by pdog 8y ago

gadders 8y ago
>> "now President Trump is retreating from the American chief executive’s traditional role as Leader of the Free World" Citation? He may not be some people's ideal of the leader of the free world but I wouldn't say he has retreated.
- wyldfire 8y ago
  He describes his nationalist policy as "America First" [1] and takes explicit action to disengage from global governance, foreign aid, etc. IMO this marks a retreat from many previous administrations. [1] https://en.wikipedia.org/wiki/America_First_(policy) https://en.wikipedia.org/wiki/America_First_(policy)
  - Covzire 8y ago
    I keep hearing about changes to US foreign policy dictated by our self-sufficient oil drilling. The US is now a net oil exporter and has fewer stakes in maintaining order in certain parts of the world since WW2.
    - mandelbrotwurst 8y ago
      In the short term. Historically the U.S. has avoided drilling much of its reserves preferring to use oil from foreign sources first, knowing that it would have its own remaining if those ever dried up, either literally or because they became untenable to access for whatever reason. If the U.S. uses up its reserves and doesn't drastically cut its consumption, it's no longer a net exporter. One potential solution: Use local reserves in the short term while redirecting military spending toward building sustainable / clean energy infrastructure domestically to avoid a scenario in which the country runs out of domestic reserves and is no longer able to obtain oil from foreign sources.
      - adventured 8y ago
        The US has at least a hundred years of oil remaining, and that's without properly exploring for oil off either massive coast using modern technology. That's also ignoring that gasoline is about to get demolished by electric cars, which will slash oil demand in a very dramatic manner. In likely terms, the US has enough oil for multiple centuries once it's no longer heavily used for transportation. And of course the US is neighbors with another huge oil producer up north that happens to have a small population. Mexico also likely has a lot of oil it's unaware of, near Texas, in the form of shale. Given it only has 500m people, North America is an energy reserves monster.
      - jerf 8y ago
        "Historically the U.S. has avoided drilling much of its reserves preferring to use oil from foreign sources first," Historically, shale oil was not economically viable. This has drastically changed the equations because suddenly available supply has shot up, rendering the old calculations moot. (Note I am not implying anything further other than what I said. There are good aspects to that, there are bad aspects to that, and there will be disagreement about which is which. I'm just saying the old strategy has been obsoleted by practical shale extraction.)
    - datavirtue 8y ago
      Right. This shift started with Obama though. While he still carried out imperialistic activity the message in his campaign was to stop. We see this in a deluge of violence that is breaking out for which we have no stake or involvement. It reminds me of pre-ww2 where all this shit went down and the US and others where like...meh.
    - XorNot 8y ago
      This is overstated though. Oil is fungible, and the US is not a vertically integrated supply chain even though it is (contrary to popular talking point) still the world's largest manufacturing exporter. Which means it needs to buy things from the outside, and trade something people want in return - that means oil. If you want to be stable on oil, it's either competing with international market or you're throwing up price controls and export restrictions to try and keep the price down. Do that, and your currency starts devaluing anyway making all those things you want more expensive.
  - rrggrr 8y ago
    Global governance is not automatically positive, or equitable. The majority of Brits came to this conclusion in the Brexit vote. China arrived at this conclusion when the ICJ invalidated its Spratly Islands claim. Likely majorities in Greece, Italy and elsewhere are near to the same conclusion - particularly if/when German taxpayers become similarly disenchanted with supporting these countries deficits.
  - lolsal 8y ago
    I can have a 'family first' policy about how I run my life, but that doesn't mean I might not be a good leader for other families to follow.
    - addicted 8y ago
      You’re describing a role model, not a leader. You’re not a leader for those other families. You may be a good role model. A more appropriate equivalent would be standing for mayor of your town and saying you will be a good leader, but you will be putting your family’s interests ahead of everyone else.
      - lolsal 8y ago
        That's a very fair point - often those words are interchanged but they are actually different. My analogy was accidentally describing a role model. The mayor analogy is better, but the US President is not actually a leader of any other country, so I'm not sure that one is totally analogous either. Maybe at best the president leads by example, or is a role model, but not actually a leader (from my very limited understanding of world politics :P).
  - drak0n1c 8y ago
    Whether you think it's for better or worse, how is independence from global governance moving the world away from freedom? Is diluting your vote on your nation's policies to include the rest of the world a necessary cost for having a free world?
- docker_up 8y ago
  He has been very vocal about a "US-first", isolationist policy. You can't be the leader of the free world by saying "I only care about my country" and expect others to follow you.
  - artificial 8y ago
    Indeed, and requesting that countries part of NATO fulfill their voluntarily agreed to commitments shouldn't be considered outrageous.
    - mrguyorama 8y ago
      If that was the only controversial thing he's done on the world stage, you might have a point
      - artificial 8y ago
        Why is it controversial?
  - rrggrr 8y ago
    You simply cannot be leader of the free world if you are attempting to do such as a country in decline or ruin. The first order of business is to restore American economic strength. The world must wait.
  - ArchTypical 8y ago
    > You can't be the leader of the free world by saying "I only care about my country" and expect others to follow you There's no evidence of that. The President is a citizen figurehead (with limited powers) which has to fight a monumentally massive bureaucracy made up of other branches and citizens. Trump is not a godhead or even going to be considered important in the long run (a generation+). Curb the sensationalism.
    - AnimalMuppet 8y ago
      True, many overstate the importance of the president. I think you understate his importance, though. His actions (and statements) have real-world consequences.
- throwaway5752 8y ago
  Scrapping TPP (ceding huge geopolitcal area to PRC / Silk Road), reducing NATO support, initiating trade conflicts, enthusiastic support of PRK/Kim... do those not all directly move us away from that role?
  - virmundi 8y ago
    If you assume the status quo for all of those items mentioned are good, then perhaps, yes the US is leaving its role. If you assume that most of those are bad (except in the case of PRK), the the US is asserting its role. Take the PRK. Will it collapse any time soon? Probably not. The government disarmed the populace. They are internally too weak to oust Kim. Does bringing the PRK into the less violent world benefit people? Yes. The US would have to spend far less on Korea. So the US could save anywhere from 350 million to 1 billion by not having to be there. [1] TPP was terrible for rights of the individual. It was a promotion by the media companies, among others, to strip ownership rights. It also pushed a greater term for copyright, which at the current levels already stagnates the economy. Reducing NATO has the benefit that it's making EU members start to think about spending their money on defense. The US has funded the EU social systems for too long. The EU countries mock the US saying, "If you spent less on your worthless bombs, perhaps you could provide good medical systems to your population." I'm tired of this lie. They don't spend much on their defense. They don't spend what they should with Russia parked on their front lawn. Is it good leadership to have your crew, who appear to be of little worth, make you spend on every outing? Initiating trade conflicts is not necessarily wrong if the deals are bad. Are Americans better off under these new deals? I don't know; not enough details nor time. If they are, isn't pushing such negotiations ago thing? Could the same ends been achieved with different means? 1 - https://www.quora.com/How-much-does-the-US-spend-on-defending-South-Korea https://www.quora.com/How-much-does-the-US-spend-on-defendin... On the idea of free trade https://youtu.be/rw7PUrgU3N0 https://youtu.be/rw7PUrgU3N0
    - deleted 8y ago
      [deleted]
    - adventured 8y ago
      Spending less on the military also wouldn't dent the healthcare problem the US has. The US has a $3.8 trillion healthcare system. Just covering the ~8% of the population without health insurance, would cost 50% of what the US spends on the military. The only good targets for slashing the military budget by eg $200b, is infrastructure (we could build national high-speed rail with it) or deficit reduction. You can only broaden healthcare coverage through massive cost reductions (minimum 1/3 cost slashing), or epic tax increases on the top ~60% income bracket (which is how everyone else pays for universal coverage, but this would be a huge cost break to corporations who currently largely foot that bill). Imagine if Canada had to actually spend real money on defense to keep Russia from going after its northern most territory (Russia has begun getting aggressive there). They're spending 1.3% of GDP on their military, with no ability to actually secure their own territory if Russia decides to start claiming some of their land in the Arctic region. Who are they going to look to as Russia gets more aggressive? The US of course, nobody else can do anything about it.
- josefresco 8y ago
  I'll bite as you don't appear to be a troll. Trump and his regime has on many occasions talked about "America first" and also bashed international organizations like NATO/UN. But ... you knew this. While you won't find a citation of him saying "I'm no longer interested in being the leader of free world" you will find that he rejects the concept of "the free world" by decrying "globalists" as being the cause of a perceived decline in America's influence and power. Not to mention his bashing of allies on trade, security and a variety of other issues - making it clear he's not interested in "leading" but rather ... dominating(?) So to me, retracting from the global economy, bashing allies, and complimenting authoritarian monsters would seem to indicate he's cool with "retreating" from that role.
  - mc32 8y ago
    For the longest time many on the left would complain about american hegemony, American interventionism, american-led globalism, etc. now that the US is retreating and China appears to be taking up some of the slack, now people are complaining of retreat, and focusing on america too much, etc.
    - empath75 8y ago
      People on the left usually weren't opposed to American interventionism in general or 'leading the free world', they were opposed to stuff like toppling governments to install friendly dictators.
    - thebooktocome 8y ago
      "The left" is a diverse group of competing interests and political philosophies, just as "the right" encompasses fiscal conservatives, multinational CEOs, Christians, and white supremacists.
    - UweSchmidt 8y ago
      Nice straw man: Retreating from Paris Agreement on Climate certainly is a kind of isolationism that is not welcome and viewed differently from military interventions around the world. Would you grant 'the left' to at least have a consistent view, or do you insist on your simplistic world view?
- jngreenlee 8y ago
  I don't think you getting downvoted is fair, as you asked a reasonable question. And some of the replies are helping answer said question. But also, this is an opinion piece, no need to take it too seriously in any measure. The responses you are getting are aligned opinions.
40acres 8y ago
I don't know much about montary theory but from what I do know it seems unlikely that in my lifetime the US dollar will be threatened as the world's reserve currency. I can only think of the euro, yen, renminbi, rupee and perhaps the pound as currencies that are backed by strong enough political forces to be considered as reserve. But there are many threats which each of these routes, do you trust the Chinese central bank? Is India stable enough? Is the EU stable enough? They are losing a prominent member in March 2019, will the UK recover post-brexit for the pound to be attractive?? Even then, as stated other nations have deep ties with the US which increases the risk of moving from the dollar. We provide for Japan's defense, we are the biggest funder of NATO, etc. While Trump has moved the US away from international institutions during his term I have no doubt that the US will continue to dictate global economic policy after his term is complete. In many ways, while it's fun to speculate, I don't see the rest of the world having the will or options to move away from the dollar as a reserve currency.
- datavirtue 8y ago
  The new currency can't be owned by anyone and it certainly can't be subject to a payment tax (conversion or transfer fees).
- kalleboo 8y ago
  Yeah the only existing currencies I could see taking over are the euro or yuan, but Europe is too politically diverse and China is too politically hostile. The only existing "currency" I could see is some kind of opening up and expansion of the SDR[1] (China has pushed for this as an alternative way to replace the USD as a reserve currency) [1] https://en.wikipedia.org/wiki/Special_drawing_rights https://en.wikipedia.org/wiki/Special_drawing_rights
  - XorNot 8y ago
    Europe's political diversity is a benefit here though - the EU Council as a governing body, provided it got to the point where it promised not to change anything, would easily look like a stable administrator. Business is more then happy to ignore all sorts of legal inconsistency if the trade off is predictable year over year behavior.
mc32 8y ago
If someone came up with a more stable store of convertible value, then it will likely gain traction; however, alternatives like the Yen, Renminbi, and Euro have so far failed to become international currencies for trade due to various reasons, but primarily stability and being relatively more free of manipulation. The article is mostly a scareticle warning that americans focusing on america endangers the “special perch” thd dollar enjoys as international currency.
ppeetteerr 8y ago
It seems to me, from the article, that the USD has a net-neutral effect on the US and a fairly positive effect on the rest of the world. Banks don't want to deal with volatile currency, even Russian banks make out mortgage loans in USDs. The world just needs one currency that everyone can depend on. Thankfully, given the US's general stability and investment into their military, the USD fits the bill quite nicely.
- duxup 8y ago
  I suspect a lot of the reason things are now the way they are is simply because they have been / you want something stable (relatively) / just need to pick SOMETHING to standardize off of. There's a lot of politics and such that leaks into these discussions but really the reasons are pretty simple.
- emodendroket 8y ago
  On the other hand, the importance of USD gives the US the power to, for instance, unilaterally kill the JCPOA.
  - kazen44 8y ago
    at what costs though? Killing the JCPOA with very little reason (considering nothing in the agreement has been broken) does not sit well with the EU for good reason considering iran is in the EU's backyard. This administration is bringing a serious rift in transatlantic relations, and that is a bad thing for both sides.
    - emodendroket 8y ago
      I agree it's bad (although not that it's happening for no reason -- the reason is that the JCPOA makes it hard for regime-change lunatics like John Bolton to get their way). I'm saying this is a problem with the hegemonic status of the dollar.
- __NCRH9OboNdAZ8 8y ago
  This is the case that the USD is, in fact, stable. Instability to the USD therefore represents the greatest systemic risk ever encountered in the history of human value. It is a double-edged sword.
bwb 8y ago
This might be something we look back on like the move away from the pound, or Nixon taking the USA off the gold standard. Hard to say at this time if it has any real possibility of being a huge shift in power structure. It could just as easily be a fizzle as the world breaks apart from the last 50 years of consistent policy choices...
datavirtue 8y ago
There is currently no alternative. I for one would love a global currency that was untethered from government corruption (printing), and manipulation. It would also be devoid of regulation where no actor gets to say if one person can use it or not. We aren't ready to empower individuals on that level though. Manipulating currency markets is ingrained in our political structures.
- dvtrn 8y ago
  Have you considered our liquid coin and solvent savior $randoCoin? It has a current market cap of $volumeLargerThanTheEconomyOfSmallNationYouveNeverHeardOf (Because surely someone was going to bring it up)
  - datavirtue 8y ago
    Yeah..but like most here I didn't want to be the one to bark about crypto. The settlement tech and security of crypto absolutly sucks.
    - badloginagain 8y ago
      Why would you choose a financial instrument that's only a few years old to replace the US Dollar? There are some primary use cases that crypto solves in regards to international monetary transactions, but there are big questions in terms of technological maturity, and most especially around governance. I love crypto, I think its potentially transformational. But it just isn't a contender yet. It needs to scale and it needs to mature.
  - amanaplanacanal 8y ago
    And we already have gold, which nobody wants to use because it doesn't allow governments to inflate at will. The exact same problem the cryptocurrencies have. What we see as a benefit, governments see as a drawback.
- iambvk 8y ago
  crypto currencies are supposed to fill that role.
rrggrr 8y ago
Complain about US exceptionalism as you wish... but about 84% of the over 5 trillion daily FX market volume is USD trades. Why? Because literally no other market (country) has the liquidity, transparency, stability, and asset base carry this level of risk (or trust).
- mrguyorama 8y ago
  Isn't this really just a first mover advantage though? After world war 2, the US was really the only country still in the position to advance rather than just rebuild. Combine that with the fact that we helped fund a lot of rebuilding with the USD. The United States has really lucked out in a lot of ways
  - rrggrr 8y ago
    No. The US legal system, a free press, a long-standing calvinist work ethic, its asset base and continued financial infrastructure investment are much more than luck. These things have proven impossible to reproduce - in aggregate - anywhere else.
    - cheez 8y ago
      Correct. I am not a US citizen and a majority of my assets are USD denominated primarily because I believe in the system of government, recent obstructionism is part of it. Basically, stay out of the people's way and provide recourse. Decent job so far. Not perfect, but better than any other place I've had direct experience with.
    - loceng 8y ago
      Will be interesting to see how this changes if the Trump-Russia shenanigans is successful, or not if security services, rank and order have a handle on it. Edit: A downvote? It won't be interesting? Go away shallow negativity.. Edit: -4 points. Hello darkness, my old friend..
      - deleted 8y ago
        [deleted]
pg_bot 8y ago
If dollars are immediately exchangeable for the fair value of your currency of choice, and it doesn't cost anything to change one currency to another, does it matter what currency the transaction happens in? (I know we don't live in this world)
- treis 8y ago
  A lot of payments are on net30 or other longer terms. If a currency plummets, you get a lot less value for your 100 million barrels of oil than you expected. So you want those payments in as stable of a currency as you can get.
- emodendroket 8y ago
  It matters if you don't want to comply with some request of the government issuing the currency.
  - pg_bot 8y ago
    Can you expand your reasoning a bit further? I believe what you are implying that the issuer of the currency has some control over how the currency is exchanged between third parties.
    - emodendroket 8y ago
      The US can, and does, use its control of the US payment system to punish anyone who deals with states it wants to sanction, such as Iran. https://www.washingtonpost.com/world/national-security/iran-plans-to-use-other-currencies-to-get-around-us-sanctions/2018/09/29/230df8e4-d4a3-4429-94be-4dbb90ece08e_story.html https://www.washingtonpost.com/world/national-security/iran-... > The power of U.S. sanctions lies in the use of the U.S. dollar in most international transactions. A foreign company that sends its proceeds from trade with Iran through an international bank would likely face sanctions because part of it would be conducted in dollars. An international company with an American employee who has something to do with a transaction, no matter how inconsequential, could also run afoul of U.S. sanctions. > Only a handful of countries agree with the U.S. decision to abandon the nuclear deal. The European Union said Monday that its member countries would establish a system to allow oil companies and private businesses to keep trading with Iran. But many international corporations have already stopped doing business with Iran because so much international business is conducted partially in U.S. dollars.
olivermarks 8y ago
The US Dollar reserve currency/petro dollar is the biggest weapon in the US arsenal, and the US has by far the largest army on the planet to enforce with https://www.amazon.com/New-Confessions-Economic-Hit-Man/dp/1626566747/ref=dp_ob_title_bk https://www.amazon.com/New-Confessions-Economic-Hit-Man/dp/1...
- JumpCrisscross 8y ago
  > petro dollar Petrodollar hypotheses get the dollar's hegemony in international trade backwards. Petrodollars (i.e. oil producers' surplus revenues invested in U.S. dollar denominated instruments [1]) don't cause the hegemony. The United States being (a) the only advanced economy not bombed to the 19th century post-WWII and (b) the world's largest single consumer market [2] created and create international holders of U.S. dollars. (In the initial case, thanks to Bretton Woods. In the recurring case, since Americans pay with U.S. dollars.) Those holders, in turn, drive demand for dollar-denominated investments. The interaction between these processes, international consumption by Americans and the reinvestment of international dollars, drives economies of scale in the American financial system. (It is why, until very recently, it was cheaper and faster to send U.S. dollars between two European capitals than initiate a Euro-denominated transfer.) [1] https://en.wikipedia.org/wiki/Petrocurrency https://en.wikipedia.org/wiki/Petrocurrency [2] https://en.wikipedia.org/wiki/List_of_largest_consumer_markets https://en.wikipedia.org/wiki/List_of_largest_consumer_marke...
  - platz 8y ago
    The interaction is also what varoufakis calls a "surplus recycling mechanism". When reinvestment of foreign American dollars back into Wall Street hiccuped in 2008, the cycle started to break - now there are deflationary winds blowing around
  - olivermarks 8y ago
    Since oil is traded in dollars I was referring to petrodollars in that context.https://en.wikipedia.org/wiki/Petrodollar_recycling https://en.wikipedia.org/wiki/Petrodollar_recycling The USA attacked Iraq in the S Hussien era the moment they attempted to formally trade oil in euros for example. http://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/ http://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/
known 8y ago
Iran can quit OPEC and sell Oil in Yuan/Rupee to CHINDIA
- myth_drannon 8y ago
  Libya tried to do just that. It doesn't look like it was allowed to do that.
- compcoffee 8y ago
  You say that as if those currencies have no risk... Provided you don't buy into the conspiracy theory that the US won't allow countries to price oil in other currencies, you have to ask why Iran doesn't do what you say. Perhaps it's because the dollar is bigger and more powerful than the political rhetoric that comes out of Washington.
nimbius 8y ago
The article from Bloomberg states the US dollar is "inaccurately" portrayed as “becoming a risky instrument in international settlements” I think this is partly true. - US Dollars are the first thing frozen by US Banks in an RIAA/MPAA dispute. that such a small lobby has such a critical control over a world currency is shocking. - Arbitrary domestic political pandering can, and has, frozen a number of assets for countries with literally no other enemy but the US - We can and do deny credit processing and financial transactions using broad-stroke legislation without real due process (wikileaks) other than a senator suggesting we should. - Republicans shut down the US Government four times under the last president. our credit rating was lowered and government debts could not be serviced. the only thing that was immediately resolved was most airlines abilities to ferry senators home for the weekend.
- wang_li 8y ago
  >- Republicans shut down the US Government four times under the last president. our credit rating was lowered and government debts could not be serviced. the only thing that was immediately resolved was most airlines abilities to ferry senators home for the weekend. The shutdowns during Obama's term as just as much the Democrats fault as the Republicans. Regardless, the US paid its debt. There have only been two federal defaults, one in 1790 and one in 1933.
  - akimball 8y ago
    1861 and 1979.
deleted 8y ago
[deleted]
RcouF1uZ4gsC 8y ago
There are only 2 alternatives to the US Dollar as the reserve currency of the world, the Euro and the Renminbi. With respect to the Euro, how sure are you that the European Union will be around 50 years from now as a political entity? With regards to China, their transparency needs to get a lot better before it becomes the reserve currency.
- akimball 8y ago
  The SDR is also an option.
  - hndamien 8y ago
    Why is Bitcoin not an option?
  - mark_l_watson 8y ago
    Not only an option, but I would bet that within 10 years SDRs will partially or wholly have replaced the US dollar. Of course, the largest component of SDRs would be the US dollar so this would be transitional, not an abrupt change. Anyway, just my opinion...
Nasrudith 8y ago
The funny part I see is that the US dollar appears to be two currencies in practice - clean and dirty and the distinction only comes up when attempting to use them in a clean market. Despite the terms and concepts being underworld there is no value judgement attached - clean only means legal and unsanctioned to US currently and there is nothing technically stopping them from doing something erratic like sanctioning Switzerland for being too neutral except good sense. Paper currency is almost always useful among the dirty as there is nothing to stop its use among even pirates and drug lords, and other sanctioned governments trade in US dollars independent of the fact they aren't supposed to be dealt with. Within the dirty economy it doesn't matter they are still stabilized, clean monet can come in if via illicit means and laundering allows for an effective conversion through many means including cash retail endpoints as the ultimate theoretical security at the cost of efficiency. (It isn't a crime for a legitimate businessman to accept a $250 cash payment for a bar tab from known gangsters - the opposite in fact. However adding it to the tills and cooking the books is.) If the US wanted to maximize their fiscal gain above all else they would essentially give up sanctioning as peak stable currency. Whether they would want to or it would be separate questions. It also points out why China would fail at their endeavor of replacing long term. Not even their own officials want to be in fiscal strangling reach. Nobody would believe they can reference Taiwan as a country and still remain part of their banking system let alone whatever else could draw their wrath.
NTDF9 8y ago
It seems to be that a currency is a commodity that most countries have to earn in order to use it. A better way to look at this is let's imagine a world where copper was currency. Today, US copper has the following characteristics: - Most efficient electric conduction - Most widely available - Most widely accepted outside US - Fair and just producers Suddenly, a new CEO of US copper Inc comes in and says, we are losing coppers to other countries (disregarding that they bartered something for it). New CEO implements policies that reduce external supply of US copper. That changes the characteristic of US copper to: - Still most efficient electric conductor but only locally - Not as widely available outside the US - Slowly, causing US copper to not be as widely acceptable outside the US since there's no use for it outside US (vicious cycle of fewer people wanting US dollars and availability of dollars) - Unfair and unjust producers who use US copper as a threatening and bargaining chip, causing entire countries to starve. This is perhaps the biggest threat to that commodity being valuable. Would any buyer buy US copper if it risks their populace? Sterling used to be a major reserve a hundred years ago. Its colonialism and world wars went too far and it has eroded so much now. What makes anyone think the US will remain the same?
platz 8y ago
America will go the way of the once mighty U.K. if the dollar no longer retains it's status as the global reserve currency. That is, America would shrink rapidly just like the U.K. did when it happened to them. It is what fuels American growth. Whether that is a good thing is whether you want the U.S. to be a global superpower or not.
ilaksh 8y ago
It's not as complicated as people are making it. Look at the history of civilization and the history of reserve currencies. When Britain had the reserve currency, how did we describe that? It was called the British Empire. When Spain had the reserve currency, what did we call that? It was called the Spanish Empire. Go back for thousands of years, the history of reserve currencies is the history of empires. Until, supposedly, we get to this great break in history with America's dominance. Which supposedly is not an empire but is based on some superior ideology or system. Is it not remarkable that up until now history was one way, and now the age of empires has gone away. And only America's luck, or ideology, or democracy, or some technical economic bullshit has supposedly created the massive advantages for America and American citizens. There has not been a break with history. The United States is the most dominant, powerful, and yes brutal Empire the world has ever seen. Reserve currency status has been maintained by rigorous continuous ongoing military campaigns involving both overt, covert and financial means. Libya is one extremely obvious example. The question is not something like, are we being nice enough, or are we 'leading the world'. The question is can and will any group really take geopolitical action against this domination by force? If and when they think that it is safe enough to do so then they will.
- matwood 8y ago
  > If and when they think that it is safe enough to do so then they will. Which is exactly why the US should and will continue to project power all over the world. What you're really saying is that given a power vacuum, other countries will try to step in. Are there any other countries you would prefer to be projecting power?
  - ilaksh 8y ago
    I would prefer that we make an effort to transition to a sane world. Even though it is very unlikely, the goal should still be a fair and safe planet. Its hard to speculate, but the next situation may not be controlled by a particular country per se. It may be some AI blockchain distributed political system that goes through an app that becomes popular in China but the Chinese government hates it. I think general purpose AI and distributed technologies will factor into geopolitics in some major way. Possibly. Aside from the speculation, I do know that we're not going to get into a better situation if we keep bullshitting ourselves about what's really going on.
JumpCrisscross 8y ago
Something I recently started to appreciate, as it relates to the dollar's attractiveness, is America's track record with peaceful leadership transitions. Reserve currencies must be freely exchangeable. Free capital flows imply giving up control over exchange rates (and/or monetary policy) [1]. That means an idiot government halfway across the world can mess with your currency, credit and export markets at any time. Including around leadership transitions. For countries with a history of violent leadership transitions, where such transitions are tightly controlled, that is terrifying. Now I'm sure the Congress would love to control the dollar in the months preceding an election. But there are powerful (read: wealthy) interests opposing that. Those people have this power because America is a country where the state is balanced against private interests, specifically, private property rights. One thus gets a currency which can be trusted to remain freely convertible. Because its powerful private interests, unafraid of a currency crisis triggering violent insurrection, are aligned in maintaining it. [1] https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity
ovrkil 8y ago
I was a computer science major, not an economic major so just asking. Couldn't so form of crypto currency perhaps become the worlds one and only currency? This seems to me an easy way to monitor and adjust in/for real time as needed.
arunmp 8y ago
Summing up the discussions, it seems to me that US is the capital lending source for the world. Every country loans, saves and invests in US dollars to improve their economy. Previously this role was played by Gold but gold source is limited while US can ensure(theoretically) unlimited supply of dollars. So, in effect, all the growth that we saw from 1971 was due to this switch from Gold. This arrangement works well for everyone. The other issue about US sanctions will push the rest of the world towards searching for an alternative, is not true.The reality is, the rest of the world adapts and tries to compromise with US. May be it is first mover or luck or strength of US economy, but this role played by US is not likely to be replicated or substituted. But, interestingly, this role of US dollar is very beneficial for capital or investments in US. And by the same corollary, is very bad for US labor, since they are competing not just against the other countries, but against US dollar. May be this is also the reason for the unrest and social protests?
anticodon 8y ago
U.S. dollar allows US to extract neo-colonial tax from the rest of the world. US has a huge trade deficit because US simply prints more dollars to buy everything they need.

126 points by pdog 8y ago

>> "now President Trump is retreating from the American chief executive’s traditional role as Leader of the Free World" Citation? He may not be some people's ideal of the leader of the free world but I wouldn't say he has retreated.

wyldfire 8y ago
He describes his nationalist policy as "America First" [1] and takes explicit action to disengage from global governance, foreign aid, etc. IMO this marks a retreat from many previous administrations. [1] https://en.wikipedia.org/wiki/America_First_(policy) https://en.wikipedia.org/wiki/America_First_(policy)
- Covzire 8y ago
  I keep hearing about changes to US foreign policy dictated by our self-sufficient oil drilling. The US is now a net oil exporter and has fewer stakes in maintaining order in certain parts of the world since WW2.
  - mandelbrotwurst 8y ago
    In the short term. Historically the U.S. has avoided drilling much of its reserves preferring to use oil from foreign sources first, knowing that it would have its own remaining if those ever dried up, either literally or because they became untenable to access for whatever reason. If the U.S. uses up its reserves and doesn't drastically cut its consumption, it's no longer a net exporter. One potential solution: Use local reserves in the short term while redirecting military spending toward building sustainable / clean energy infrastructure domestically to avoid a scenario in which the country runs out of domestic reserves and is no longer able to obtain oil from foreign sources.
    - adventured 8y ago
      The US has at least a hundred years of oil remaining, and that's without properly exploring for oil off either massive coast using modern technology. That's also ignoring that gasoline is about to get demolished by electric cars, which will slash oil demand in a very dramatic manner. In likely terms, the US has enough oil for multiple centuries once it's no longer heavily used for transportation. And of course the US is neighbors with another huge oil producer up north that happens to have a small population. Mexico also likely has a lot of oil it's unaware of, near Texas, in the form of shale. Given it only has 500m people, North America is an energy reserves monster.
    - jerf 8y ago
      "Historically the U.S. has avoided drilling much of its reserves preferring to use oil from foreign sources first," Historically, shale oil was not economically viable. This has drastically changed the equations because suddenly available supply has shot up, rendering the old calculations moot. (Note I am not implying anything further other than what I said. There are good aspects to that, there are bad aspects to that, and there will be disagreement about which is which. I'm just saying the old strategy has been obsoleted by practical shale extraction.)
  - datavirtue 8y ago
    Right. This shift started with Obama though. While he still carried out imperialistic activity the message in his campaign was to stop. We see this in a deluge of violence that is breaking out for which we have no stake or involvement. It reminds me of pre-ww2 where all this shit went down and the US and others where like...meh.
  - XorNot 8y ago
    This is overstated though. Oil is fungible, and the US is not a vertically integrated supply chain even though it is (contrary to popular talking point) still the world's largest manufacturing exporter. Which means it needs to buy things from the outside, and trade something people want in return - that means oil. If you want to be stable on oil, it's either competing with international market or you're throwing up price controls and export restrictions to try and keep the price down. Do that, and your currency starts devaluing anyway making all those things you want more expensive.
- rrggrr 8y ago
  Global governance is not automatically positive, or equitable. The majority of Brits came to this conclusion in the Brexit vote. China arrived at this conclusion when the ICJ invalidated its Spratly Islands claim. Likely majorities in Greece, Italy and elsewhere are near to the same conclusion - particularly if/when German taxpayers become similarly disenchanted with supporting these countries deficits.
- lolsal 8y ago
  I can have a 'family first' policy about how I run my life, but that doesn't mean I might not be a good leader for other families to follow.
  - addicted 8y ago
    You’re describing a role model, not a leader. You’re not a leader for those other families. You may be a good role model. A more appropriate equivalent would be standing for mayor of your town and saying you will be a good leader, but you will be putting your family’s interests ahead of everyone else.
    - lolsal 8y ago
      That's a very fair point - often those words are interchanged but they are actually different. My analogy was accidentally describing a role model. The mayor analogy is better, but the US President is not actually a leader of any other country, so I'm not sure that one is totally analogous either. Maybe at best the president leads by example, or is a role model, but not actually a leader (from my very limited understanding of world politics :P).
- drak0n1c 8y ago
  Whether you think it's for better or worse, how is independence from global governance moving the world away from freedom? Is diluting your vote on your nation's policies to include the rest of the world a necessary cost for having a free world?
docker_up 8y ago
He has been very vocal about a "US-first", isolationist policy. You can't be the leader of the free world by saying "I only care about my country" and expect others to follow you.
- artificial 8y ago
  Indeed, and requesting that countries part of NATO fulfill their voluntarily agreed to commitments shouldn't be considered outrageous.
  - mrguyorama 8y ago
    If that was the only controversial thing he's done on the world stage, you might have a point
    - artificial 8y ago
      Why is it controversial?
- rrggrr 8y ago
  You simply cannot be leader of the free world if you are attempting to do such as a country in decline or ruin. The first order of business is to restore American economic strength. The world must wait.
- ArchTypical 8y ago
  > You can't be the leader of the free world by saying "I only care about my country" and expect others to follow you There's no evidence of that. The President is a citizen figurehead (with limited powers) which has to fight a monumentally massive bureaucracy made up of other branches and citizens. Trump is not a godhead or even going to be considered important in the long run (a generation+). Curb the sensationalism.
  - AnimalMuppet 8y ago
    True, many overstate the importance of the president. I think you understate his importance, though. His actions (and statements) have real-world consequences.
throwaway5752 8y ago
Scrapping TPP (ceding huge geopolitcal area to PRC / Silk Road), reducing NATO support, initiating trade conflicts, enthusiastic support of PRK/Kim... do those not all directly move us away from that role?
- virmundi 8y ago
  If you assume the status quo for all of those items mentioned are good, then perhaps, yes the US is leaving its role. If you assume that most of those are bad (except in the case of PRK), the the US is asserting its role. Take the PRK. Will it collapse any time soon? Probably not. The government disarmed the populace. They are internally too weak to oust Kim. Does bringing the PRK into the less violent world benefit people? Yes. The US would have to spend far less on Korea. So the US could save anywhere from 350 million to 1 billion by not having to be there. [1] TPP was terrible for rights of the individual. It was a promotion by the media companies, among others, to strip ownership rights. It also pushed a greater term for copyright, which at the current levels already stagnates the economy. Reducing NATO has the benefit that it's making EU members start to think about spending their money on defense. The US has funded the EU social systems for too long. The EU countries mock the US saying, "If you spent less on your worthless bombs, perhaps you could provide good medical systems to your population." I'm tired of this lie. They don't spend much on their defense. They don't spend what they should with Russia parked on their front lawn. Is it good leadership to have your crew, who appear to be of little worth, make you spend on every outing? Initiating trade conflicts is not necessarily wrong if the deals are bad. Are Americans better off under these new deals? I don't know; not enough details nor time. If they are, isn't pushing such negotiations ago thing? Could the same ends been achieved with different means? 1 - https://www.quora.com/How-much-does-the-US-spend-on-defending-South-Korea https://www.quora.com/How-much-does-the-US-spend-on-defendin... On the idea of free trade https://youtu.be/rw7PUrgU3N0 https://youtu.be/rw7PUrgU3N0
  - deleted 8y ago
    [deleted]
  - adventured 8y ago
    Spending less on the military also wouldn't dent the healthcare problem the US has. The US has a $3.8 trillion healthcare system. Just covering the ~8% of the population without health insurance, would cost 50% of what the US spends on the military. The only good targets for slashing the military budget by eg $200b, is infrastructure (we could build national high-speed rail with it) or deficit reduction. You can only broaden healthcare coverage through massive cost reductions (minimum 1/3 cost slashing), or epic tax increases on the top ~60% income bracket (which is how everyone else pays for universal coverage, but this would be a huge cost break to corporations who currently largely foot that bill). Imagine if Canada had to actually spend real money on defense to keep Russia from going after its northern most territory (Russia has begun getting aggressive there). They're spending 1.3% of GDP on their military, with no ability to actually secure their own territory if Russia decides to start claiming some of their land in the Arctic region. Who are they going to look to as Russia gets more aggressive? The US of course, nobody else can do anything about it.
josefresco 8y ago
I'll bite as you don't appear to be a troll. Trump and his regime has on many occasions talked about "America first" and also bashed international organizations like NATO/UN. But ... you knew this. While you won't find a citation of him saying "I'm no longer interested in being the leader of free world" you will find that he rejects the concept of "the free world" by decrying "globalists" as being the cause of a perceived decline in America's influence and power. Not to mention his bashing of allies on trade, security and a variety of other issues - making it clear he's not interested in "leading" but rather ... dominating(?) So to me, retracting from the global economy, bashing allies, and complimenting authoritarian monsters would seem to indicate he's cool with "retreating" from that role.
- mc32 8y ago
  For the longest time many on the left would complain about american hegemony, American interventionism, american-led globalism, etc. now that the US is retreating and China appears to be taking up some of the slack, now people are complaining of retreat, and focusing on america too much, etc.
  - empath75 8y ago
    People on the left usually weren't opposed to American interventionism in general or 'leading the free world', they were opposed to stuff like toppling governments to install friendly dictators.
  - thebooktocome 8y ago
    "The left" is a diverse group of competing interests and political philosophies, just as "the right" encompasses fiscal conservatives, multinational CEOs, Christians, and white supremacists.
  - UweSchmidt 8y ago
    Nice straw man: Retreating from Paris Agreement on Climate certainly is a kind of isolationism that is not welcome and viewed differently from military interventions around the world. Would you grant 'the left' to at least have a consistent view, or do you insist on your simplistic world view?
jngreenlee 8y ago
I don't think you getting downvoted is fair, as you asked a reasonable question. And some of the replies are helping answer said question. But also, this is an opinion piece, no need to take it too seriously in any measure. The responses you are getting are aligned opinions.

40acres 8y ago

I don't know much about montary theory but from what I do know it seems unlikely that in my lifetime the US dollar will be threatened as the world's reserve currency. I can only think of the euro, yen, renminbi, rupee and perhaps the pound as currencies that are backed by strong enough political forces to be considered as reserve. But there are many threats which each of these routes, do you trust the Chinese central bank? Is India stable enough? Is the EU stable enough? They are losing a prominent member in March 2019, will the UK recover post-brexit for the pound to be attractive?? Even then, as stated other nations have deep ties with the US which increases the risk of moving from the dollar. We provide for Japan's defense, we are the biggest funder of NATO, etc. While Trump has moved the US away from international institutions during his term I have no doubt that the US will continue to dictate global economic policy after his term is complete. In many ways, while it's fun to speculate, I don't see the rest of the world having the will or options to move away from the dollar as a reserve currency.

datavirtue 8y ago
The new currency can't be owned by anyone and it certainly can't be subject to a payment tax (conversion or transfer fees).
kalleboo 8y ago
Yeah the only existing currencies I could see taking over are the euro or yuan, but Europe is too politically diverse and China is too politically hostile. The only existing "currency" I could see is some kind of opening up and expansion of the SDR[1] (China has pushed for this as an alternative way to replace the USD as a reserve currency) [1] https://en.wikipedia.org/wiki/Special_drawing_rights https://en.wikipedia.org/wiki/Special_drawing_rights
- XorNot 8y ago
  Europe's political diversity is a benefit here though - the EU Council as a governing body, provided it got to the point where it promised not to change anything, would easily look like a stable administrator. Business is more then happy to ignore all sorts of legal inconsistency if the trade off is predictable year over year behavior.

mc32 8y ago

If someone came up with a more stable store of convertible value, then it will likely gain traction; however, alternatives like the Yen, Renminbi, and Euro have so far failed to become international currencies for trade due to various reasons, but primarily stability and being relatively more free of manipulation. The article is mostly a scareticle warning that americans focusing on america endangers the “special perch” thd dollar enjoys as international currency.

ppeetteerr 8y ago

It seems to me, from the article, that the USD has a net-neutral effect on the US and a fairly positive effect on the rest of the world. Banks don't want to deal with volatile currency, even Russian banks make out mortgage loans in USDs. The world just needs one currency that everyone can depend on. Thankfully, given the US's general stability and investment into their military, the USD fits the bill quite nicely.

duxup 8y ago
I suspect a lot of the reason things are now the way they are is simply because they have been / you want something stable (relatively) / just need to pick SOMETHING to standardize off of. There's a lot of politics and such that leaks into these discussions but really the reasons are pretty simple.
emodendroket 8y ago
On the other hand, the importance of USD gives the US the power to, for instance, unilaterally kill the JCPOA.
- kazen44 8y ago
  at what costs though? Killing the JCPOA with very little reason (considering nothing in the agreement has been broken) does not sit well with the EU for good reason considering iran is in the EU's backyard. This administration is bringing a serious rift in transatlantic relations, and that is a bad thing for both sides.
  - emodendroket 8y ago
    I agree it's bad (although not that it's happening for no reason -- the reason is that the JCPOA makes it hard for regime-change lunatics like John Bolton to get their way). I'm saying this is a problem with the hegemonic status of the dollar.
__NCRH9OboNdAZ8 8y ago
This is the case that the USD is, in fact, stable. Instability to the USD therefore represents the greatest systemic risk ever encountered in the history of human value. It is a double-edged sword.

bwb 8y ago

This might be something we look back on like the move away from the pound, or Nixon taking the USA off the gold standard. Hard to say at this time if it has any real possibility of being a huge shift in power structure. It could just as easily be a fizzle as the world breaks apart from the last 50 years of consistent policy choices...

datavirtue 8y ago

There is currently no alternative. I for one would love a global currency that was untethered from government corruption (printing), and manipulation. It would also be devoid of regulation where no actor gets to say if one person can use it or not. We aren't ready to empower individuals on that level though. Manipulating currency markets is ingrained in our political structures.

dvtrn 8y ago
Have you considered our liquid coin and solvent savior $randoCoin? It has a current market cap of $volumeLargerThanTheEconomyOfSmallNationYouveNeverHeardOf (Because surely someone was going to bring it up)
- datavirtue 8y ago
  Yeah..but like most here I didn't want to be the one to bark about crypto. The settlement tech and security of crypto absolutly sucks.
  - badloginagain 8y ago
    Why would you choose a financial instrument that's only a few years old to replace the US Dollar? There are some primary use cases that crypto solves in regards to international monetary transactions, but there are big questions in terms of technological maturity, and most especially around governance. I love crypto, I think its potentially transformational. But it just isn't a contender yet. It needs to scale and it needs to mature.
- amanaplanacanal 8y ago
  And we already have gold, which nobody wants to use because it doesn't allow governments to inflate at will. The exact same problem the cryptocurrencies have. What we see as a benefit, governments see as a drawback.
iambvk 8y ago
crypto currencies are supposed to fill that role.

rrggrr 8y ago

Complain about US exceptionalism as you wish... but about 84% of the over 5 trillion daily FX market volume is USD trades. Why? Because literally no other market (country) has the liquidity, transparency, stability, and asset base carry this level of risk (or trust).

mrguyorama 8y ago
Isn't this really just a first mover advantage though? After world war 2, the US was really the only country still in the position to advance rather than just rebuild. Combine that with the fact that we helped fund a lot of rebuilding with the USD. The United States has really lucked out in a lot of ways
- rrggrr 8y ago
  No. The US legal system, a free press, a long-standing calvinist work ethic, its asset base and continued financial infrastructure investment are much more than luck. These things have proven impossible to reproduce - in aggregate - anywhere else.
  - cheez 8y ago
    Correct. I am not a US citizen and a majority of my assets are USD denominated primarily because I believe in the system of government, recent obstructionism is part of it. Basically, stay out of the people's way and provide recourse. Decent job so far. Not perfect, but better than any other place I've had direct experience with.
  - loceng 8y ago
    Will be interesting to see how this changes if the Trump-Russia shenanigans is successful, or not if security services, rank and order have a handle on it. Edit: A downvote? It won't be interesting? Go away shallow negativity.. Edit: -4 points. Hello darkness, my old friend..
    - deleted 8y ago
      [deleted]

pg_bot 8y ago

If dollars are immediately exchangeable for the fair value of your currency of choice, and it doesn't cost anything to change one currency to another, does it matter what currency the transaction happens in? (I know we don't live in this world)

treis 8y ago
A lot of payments are on net30 or other longer terms. If a currency plummets, you get a lot less value for your 100 million barrels of oil than you expected. So you want those payments in as stable of a currency as you can get.
emodendroket 8y ago
It matters if you don't want to comply with some request of the government issuing the currency.
- pg_bot 8y ago
  Can you expand your reasoning a bit further? I believe what you are implying that the issuer of the currency has some control over how the currency is exchanged between third parties.
  - emodendroket 8y ago
    The US can, and does, use its control of the US payment system to punish anyone who deals with states it wants to sanction, such as Iran. https://www.washingtonpost.com/world/national-security/iran-plans-to-use-other-currencies-to-get-around-us-sanctions/2018/09/29/230df8e4-d4a3-4429-94be-4dbb90ece08e_story.html https://www.washingtonpost.com/world/national-security/iran-... > The power of U.S. sanctions lies in the use of the U.S. dollar in most international transactions. A foreign company that sends its proceeds from trade with Iran through an international bank would likely face sanctions because part of it would be conducted in dollars. An international company with an American employee who has something to do with a transaction, no matter how inconsequential, could also run afoul of U.S. sanctions. > Only a handful of countries agree with the U.S. decision to abandon the nuclear deal. The European Union said Monday that its member countries would establish a system to allow oil companies and private businesses to keep trading with Iran. But many international corporations have already stopped doing business with Iran because so much international business is conducted partially in U.S. dollars.

olivermarks 8y ago

The US Dollar reserve currency/petro dollar is the biggest weapon in the US arsenal, and the US has by far the largest army on the planet to enforce with https://www.amazon.com/New-Confessions-Economic-Hit-Man/dp/1626566747/ref=dp_ob_title_bk https://www.amazon.com/New-Confessions-Economic-Hit-Man/dp/1...

JumpCrisscross 8y ago
> petro dollar Petrodollar hypotheses get the dollar's hegemony in international trade backwards. Petrodollars (i.e. oil producers' surplus revenues invested in U.S. dollar denominated instruments [1]) don't cause the hegemony. The United States being (a) the only advanced economy not bombed to the 19th century post-WWII and (b) the world's largest single consumer market [2] created and create international holders of U.S. dollars. (In the initial case, thanks to Bretton Woods. In the recurring case, since Americans pay with U.S. dollars.) Those holders, in turn, drive demand for dollar-denominated investments. The interaction between these processes, international consumption by Americans and the reinvestment of international dollars, drives economies of scale in the American financial system. (It is why, until very recently, it was cheaper and faster to send U.S. dollars between two European capitals than initiate a Euro-denominated transfer.) [1] https://en.wikipedia.org/wiki/Petrocurrency https://en.wikipedia.org/wiki/Petrocurrency [2] https://en.wikipedia.org/wiki/List_of_largest_consumer_markets https://en.wikipedia.org/wiki/List_of_largest_consumer_marke...
- platz 8y ago
  The interaction is also what varoufakis calls a "surplus recycling mechanism". When reinvestment of foreign American dollars back into Wall Street hiccuped in 2008, the cycle started to break - now there are deflationary winds blowing around
- olivermarks 8y ago
  Since oil is traded in dollars I was referring to petrodollars in that context.https://en.wikipedia.org/wiki/Petrodollar_recycling https://en.wikipedia.org/wiki/Petrodollar_recycling The USA attacked Iraq in the S Hussien era the moment they attempted to formally trade oil in euros for example. http://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/ http://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/

known 8y ago

Iran can quit OPEC and sell Oil in Yuan/Rupee to CHINDIA

myth_drannon 8y ago
Libya tried to do just that. It doesn't look like it was allowed to do that.
compcoffee 8y ago
You say that as if those currencies have no risk... Provided you don't buy into the conspiracy theory that the US won't allow countries to price oil in other currencies, you have to ask why Iran doesn't do what you say. Perhaps it's because the dollar is bigger and more powerful than the political rhetoric that comes out of Washington.

nimbius 8y ago

The article from Bloomberg states the US dollar is "inaccurately" portrayed as “becoming a risky instrument in international settlements” I think this is partly true. - US Dollars are the first thing frozen by US Banks in an RIAA/MPAA dispute. that such a small lobby has such a critical control over a world currency is shocking. - Arbitrary domestic political pandering can, and has, frozen a number of assets for countries with literally no other enemy but the US - We can and do deny credit processing and financial transactions using broad-stroke legislation without real due process (wikileaks) other than a senator suggesting we should. - Republicans shut down the US Government four times under the last president. our credit rating was lowered and government debts could not be serviced. the only thing that was immediately resolved was most airlines abilities to ferry senators home for the weekend.

wang_li 8y ago
>- Republicans shut down the US Government four times under the last president. our credit rating was lowered and government debts could not be serviced. the only thing that was immediately resolved was most airlines abilities to ferry senators home for the weekend. The shutdowns during Obama's term as just as much the Democrats fault as the Republicans. Regardless, the US paid its debt. There have only been two federal defaults, one in 1790 and one in 1933.
- akimball 8y ago
  1861 and 1979.

deleted 8y ago

[deleted]

RcouF1uZ4gsC 8y ago

There are only 2 alternatives to the US Dollar as the reserve currency of the world, the Euro and the Renminbi. With respect to the Euro, how sure are you that the European Union will be around 50 years from now as a political entity? With regards to China, their transparency needs to get a lot better before it becomes the reserve currency.

akimball 8y ago
The SDR is also an option.
- hndamien 8y ago
  Why is Bitcoin not an option?
- mark_l_watson 8y ago
  Not only an option, but I would bet that within 10 years SDRs will partially or wholly have replaced the US dollar. Of course, the largest component of SDRs would be the US dollar so this would be transitional, not an abrupt change. Anyway, just my opinion...

Nasrudith 8y ago

The funny part I see is that the US dollar appears to be two currencies in practice - clean and dirty and the distinction only comes up when attempting to use them in a clean market. Despite the terms and concepts being underworld there is no value judgement attached - clean only means legal and unsanctioned to US currently and there is nothing technically stopping them from doing something erratic like sanctioning Switzerland for being too neutral except good sense. Paper currency is almost always useful among the dirty as there is nothing to stop its use among even pirates and drug lords, and other sanctioned governments trade in US dollars independent of the fact they aren't supposed to be dealt with. Within the dirty economy it doesn't matter they are still stabilized, clean monet can come in if via illicit means and laundering allows for an effective conversion through many means including cash retail endpoints as the ultimate theoretical security at the cost of efficiency. (It isn't a crime for a legitimate businessman to accept a $250 cash payment for a bar tab from known gangsters - the opposite in fact. However adding it to the tills and cooking the books is.) If the US wanted to maximize their fiscal gain above all else they would essentially give up sanctioning as peak stable currency. Whether they would want to or it would be separate questions. It also points out why China would fail at their endeavor of replacing long term. Not even their own officials want to be in fiscal strangling reach. Nobody would believe they can reference Taiwan as a country and still remain part of their banking system let alone whatever else could draw their wrath.

NTDF9 8y ago

It seems to be that a currency is a commodity that most countries have to earn in order to use it. A better way to look at this is let's imagine a world where copper was currency. Today, US copper has the following characteristics: - Most efficient electric conduction - Most widely available - Most widely accepted outside US - Fair and just producers Suddenly, a new CEO of US copper Inc comes in and says, we are losing coppers to other countries (disregarding that they bartered something for it). New CEO implements policies that reduce external supply of US copper. That changes the characteristic of US copper to: - Still most efficient electric conductor but only locally - Not as widely available outside the US - Slowly, causing US copper to not be as widely acceptable outside the US since there's no use for it outside US (vicious cycle of fewer people wanting US dollars and availability of dollars) - Unfair and unjust producers who use US copper as a threatening and bargaining chip, causing entire countries to starve. This is perhaps the biggest threat to that commodity being valuable. Would any buyer buy US copper if it risks their populace? Sterling used to be a major reserve a hundred years ago. Its colonialism and world wars went too far and it has eroded so much now. What makes anyone think the US will remain the same?

platz 8y ago

America will go the way of the once mighty U.K. if the dollar no longer retains it's status as the global reserve currency. That is, America would shrink rapidly just like the U.K. did when it happened to them. It is what fuels American growth. Whether that is a good thing is whether you want the U.S. to be a global superpower or not.

ilaksh 8y ago

It's not as complicated as people are making it. Look at the history of civilization and the history of reserve currencies. When Britain had the reserve currency, how did we describe that? It was called the British Empire. When Spain had the reserve currency, what did we call that? It was called the Spanish Empire. Go back for thousands of years, the history of reserve currencies is the history of empires. Until, supposedly, we get to this great break in history with America's dominance. Which supposedly is not an empire but is based on some superior ideology or system. Is it not remarkable that up until now history was one way, and now the age of empires has gone away. And only America's luck, or ideology, or democracy, or some technical economic bullshit has supposedly created the massive advantages for America and American citizens. There has not been a break with history. The United States is the most dominant, powerful, and yes brutal Empire the world has ever seen. Reserve currency status has been maintained by rigorous continuous ongoing military campaigns involving both overt, covert and financial means. Libya is one extremely obvious example. The question is not something like, are we being nice enough, or are we 'leading the world'. The question is can and will any group really take geopolitical action against this domination by force? If and when they think that it is safe enough to do so then they will.

matwood 8y ago
> If and when they think that it is safe enough to do so then they will. Which is exactly why the US should and will continue to project power all over the world. What you're really saying is that given a power vacuum, other countries will try to step in. Are there any other countries you would prefer to be projecting power?
- ilaksh 8y ago
  I would prefer that we make an effort to transition to a sane world. Even though it is very unlikely, the goal should still be a fair and safe planet. Its hard to speculate, but the next situation may not be controlled by a particular country per se. It may be some AI blockchain distributed political system that goes through an app that becomes popular in China but the Chinese government hates it. I think general purpose AI and distributed technologies will factor into geopolitics in some major way. Possibly. Aside from the speculation, I do know that we're not going to get into a better situation if we keep bullshitting ourselves about what's really going on.

JumpCrisscross 8y ago

Something I recently started to appreciate, as it relates to the dollar's attractiveness, is America's track record with peaceful leadership transitions. Reserve currencies must be freely exchangeable. Free capital flows imply giving up control over exchange rates (and/or monetary policy) [1]. That means an idiot government halfway across the world can mess with your currency, credit and export markets at any time. Including around leadership transitions. For countries with a history of violent leadership transitions, where such transitions are tightly controlled, that is terrifying. Now I'm sure the Congress would love to control the dollar in the months preceding an election. But there are powerful (read: wealthy) interests opposing that. Those people have this power because America is a country where the state is balanced against private interests, specifically, private property rights. One thus gets a currency which can be trusted to remain freely convertible. Because its powerful private interests, unafraid of a currency crisis triggering violent insurrection, are aligned in maintaining it. [1] https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity

ovrkil 8y ago

I was a computer science major, not an economic major so just asking. Couldn't so form of crypto currency perhaps become the worlds one and only currency? This seems to me an easy way to monitor and adjust in/for real time as needed.

arunmp 8y ago

Summing up the discussions, it seems to me that US is the capital lending source for the world. Every country loans, saves and invests in US dollars to improve their economy. Previously this role was played by Gold but gold source is limited while US can ensure(theoretically) unlimited supply of dollars. So, in effect, all the growth that we saw from 1971 was due to this switch from Gold. This arrangement works well for everyone. The other issue about US sanctions will push the rest of the world towards searching for an alternative, is not true.The reality is, the rest of the world adapts and tries to compromise with US. May be it is first mover or luck or strength of US economy, but this role played by US is not likely to be replicated or substituted. But, interestingly, this role of US dollar is very beneficial for capital or investments in US. And by the same corollary, is very bad for US labor, since they are competing not just against the other countries, but against US dollar. May be this is also the reason for the unrest and social protests?

anticodon 8y ago

U.S. dollar allows US to extract neo-colonial tax from the rest of the world. US has a huge trade deficit because US simply prints more dollars to buy everything they need.