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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 dea

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.
pjc50 8y ago
There's really 3 things going on, none of which have anything to do with the military. 1) convenient defaults. People trade in dollars for the same reason they speak English - because it's mutually convenient between two different countries with their own language and currency. This is partly due to sheer size and partly due to successful cultural export. 2) clearing and settlment. This is not well developed globally, so in practice a lot of smaller countries, foreign banks, and multinationals keep US bank accounts so they can more easily handle payments. This system plays by US rules, which is why the EU is constructing a parallel one to trade with Iran. 3) "eurodollars". I don't fully understand this aspect but apparently this market is coming under regulatory pressure.
- ppeetteerr 8y ago
  The reason I bring up the military has to do with external influence. The US has a solid internal system of governance (as per other comments), but it would be worth nothing if other countries could intimidate it through military power.
  - emodendroket 8y ago
    It goes further than that. The US is quite able to intimidate (or outright depose) governments it perceives as hostile to its interests. Even in friendly countries the presence of its military gives something of a check on internal politics, before we even get to outright cloak-and-dagger stuff (which has been influential on the political course of numerous US allies). One of the more comical illustrations of this is that the US passed a law during the Bush administraron authorizing invasion of the Hague if US officials were to be tried in the ICC. Less amusing is story after story of US-authorized violence to depose governments perceived as hostile to US business interests and slaughter supporters of the deposed governments.
    - kazen44 8y ago
      > One of the more comical illustrations of this is that the US passed a law during the Bush administraron authorizing invasion of the Hague if US officials were to be tried in the ICC. You might find this comical, but many dutchmen find it absolutely abhorrent that the US is willing to enact suchs an aggresive policy into law, especially as the dutch have been close allies with the US for a very long time.
onetimemanytime 8y ago
>>Banks don't want to deal with volatile currency, even Russian banks make out mortgage loans in USDs. But Russians get paid in local currency. If that crashes in relation to the usd, go ahead, make the $280 mortgage payment. It will be xx% more expensive this month while your salary and expenses stayed the same.
- ppeetteerr 8y ago
  Yup, this happened about 2-3 years ago when the Ruble collapsed, causing many lenders to default.
nabla9 8y ago
The net is slightly positive for the US, but the effect size is relatively small The benefit comes mainly from lower borrowing costs. The harm comes from the higher exchange rate that hurts competitiveness of US exports. https://www.mckinsey.com/featured-insights/employment-and-growth/an-exorbitant-privilege https://www.mckinsey.com/featured-insights/employment-and-gr... >In a “normal” year for the world economy, we estimate that the net financial benefit to the United States is between about $40 billion and $70 billion
- bzbarsky 8y ago
  I suggest reading https://foreignpolicy.com/2011/09/07/an-exorbitant-burden/ https://foreignpolicy.com/2011/09/07/an-exorbitant-burden/ for a counterargument. The harm is not just export competitiveness; it's also other countries being able to export their lack of demand and unemployment to the US (via the exchange rate and balance of trade mechanisms, true, but the point is that the harm affects all of the US economy, not just export-oriented industries). As one specific example, the low rate of saving by US consumers is a direct consequence of the use of the dollar as a reserve currency. It's not clear to me that lower borrowing costs, even if those are present, outweigh even that one harm. And to be clear, "the United States" as a whole that's benefitting in the mckinsey report you link is an average. The actual benefits and harms from the use of dollars as a reserve currency flow to different people, and as far as I can tell that contributes to worsening inequality in the US, which is an effect (benefit or harm, take your pick) the mckinsey report doesn't seem to mention.
- amanaplanacanal 8y ago
  How could the US keep running its enormous budget deficits if the dollar wasn't in this situation? It seems to me that either taxes would have to be raised substantially, or spending cut substantially, or US inflation would be much higher if other countries weren't soaking up so many of the excess dollars.
  - nabla9 8y ago
    Most of US deficit is internal, not external. Federal reserve is the biggest owner of federal debt. The level of dept is internal issue for the United States. US has floating exchange rate and it adjusts automatically the international balances. Because US has no debt denominated in foreign currency, it is shielded from hyperinflation and other issues that Venezuela and other countries suffer.
anticodon 8y ago
> even Russian banks make out mortgage loans in USDs Maybe you'll find a 2-3 obscure banks giving mortgage loans in USD in Russia. Although I'm not sure about even that. And in the last 10 years you won't find a sane person that will apply for loan in USD in Russia. I'm always surprised when people from the West discuss the economical/political issues in Russia while they know absolutely nothing but the typical media propaganda. Typically: "The only truth about Russia can be found in our media, not even the Russians themselves know anything about politics, economics, banks, loans, etc in their own country".

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.

pjc50 8y ago

There's really 3 things going on, none of which have anything to do with the military. 1) convenient defaults. People trade in dollars for the same reason they speak English - because it's mutually convenient between two different countries with their own language and currency. This is partly due to sheer size and partly due to successful cultural export. 2) clearing and settlment. This is not well developed globally, so in practice a lot of smaller countries, foreign banks, and multinationals keep US bank accounts so they can more easily handle payments. This system plays by US rules, which is why the EU is constructing a parallel one to trade with Iran. 3) "eurodollars". I don't fully understand this aspect but apparently this market is coming under regulatory pressure.

ppeetteerr 8y ago
The reason I bring up the military has to do with external influence. The US has a solid internal system of governance (as per other comments), but it would be worth nothing if other countries could intimidate it through military power.
- emodendroket 8y ago
  It goes further than that. The US is quite able to intimidate (or outright depose) governments it perceives as hostile to its interests. Even in friendly countries the presence of its military gives something of a check on internal politics, before we even get to outright cloak-and-dagger stuff (which has been influential on the political course of numerous US allies). One of the more comical illustrations of this is that the US passed a law during the Bush administraron authorizing invasion of the Hague if US officials were to be tried in the ICC. Less amusing is story after story of US-authorized violence to depose governments perceived as hostile to US business interests and slaughter supporters of the deposed governments.
  - kazen44 8y ago
    > One of the more comical illustrations of this is that the US passed a law during the Bush administraron authorizing invasion of the Hague if US officials were to be tried in the ICC. You might find this comical, but many dutchmen find it absolutely abhorrent that the US is willing to enact suchs an aggresive policy into law, especially as the dutch have been close allies with the US for a very long time.

onetimemanytime 8y ago

>>Banks don't want to deal with volatile currency, even Russian banks make out mortgage loans in USDs. But Russians get paid in local currency. If that crashes in relation to the usd, go ahead, make the $280 mortgage payment. It will be xx% more expensive this month while your salary and expenses stayed the same.

ppeetteerr 8y ago
Yup, this happened about 2-3 years ago when the Ruble collapsed, causing many lenders to default.

nabla9 8y ago

The net is slightly positive for the US, but the effect size is relatively small The benefit comes mainly from lower borrowing costs. The harm comes from the higher exchange rate that hurts competitiveness of US exports. https://www.mckinsey.com/featured-insights/employment-and-growth/an-exorbitant-privilege https://www.mckinsey.com/featured-insights/employment-and-gr... >In a “normal” year for the world economy, we estimate that the net financial benefit to the United States is between about $40 billion and $70 billion

bzbarsky 8y ago
I suggest reading https://foreignpolicy.com/2011/09/07/an-exorbitant-burden/ https://foreignpolicy.com/2011/09/07/an-exorbitant-burden/ for a counterargument. The harm is not just export competitiveness; it's also other countries being able to export their lack of demand and unemployment to the US (via the exchange rate and balance of trade mechanisms, true, but the point is that the harm affects all of the US economy, not just export-oriented industries). As one specific example, the low rate of saving by US consumers is a direct consequence of the use of the dollar as a reserve currency. It's not clear to me that lower borrowing costs, even if those are present, outweigh even that one harm. And to be clear, "the United States" as a whole that's benefitting in the mckinsey report you link is an average. The actual benefits and harms from the use of dollars as a reserve currency flow to different people, and as far as I can tell that contributes to worsening inequality in the US, which is an effect (benefit or harm, take your pick) the mckinsey report doesn't seem to mention.
amanaplanacanal 8y ago
How could the US keep running its enormous budget deficits if the dollar wasn't in this situation? It seems to me that either taxes would have to be raised substantially, or spending cut substantially, or US inflation would be much higher if other countries weren't soaking up so many of the excess dollars.
- nabla9 8y ago
  Most of US deficit is internal, not external. Federal reserve is the biggest owner of federal debt. The level of dept is internal issue for the United States. US has floating exchange rate and it adjusts automatically the international balances. Because US has no debt denominated in foreign currency, it is shielded from hyperinflation and other issues that Venezuela and other countries suffer.

anticodon 8y ago

> even Russian banks make out mortgage loans in USDs Maybe you'll find a 2-3 obscure banks giving mortgage loans in USD in Russia. Although I'm not sure about even that. And in the last 10 years you won't find a sane person that will apply for loan in USD in Russia. I'm always surprised when people from the West discuss the economical/political issues in Russia while they know absolutely nothing but the typical media propaganda. Typically: "The only truth about Russia can be found in our media, not even the Russians themselves know anything about politics, economics, banks, loans, etc in their own country".