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FRNs are not an illusion, just their intrinsic value. Originally, dollars were exchangeable for gold or silver. Now, we get the privilege of paying taxes and co

FRNs are not an illusion, just their intrinsic value. Originally, dollars were exchangeable for gold or silver. Now, we get the privilege of paying taxes and court fees with FRNs. Outside of those arbitrary fees, they have no value. Its current currency value is that everybody (in the US) takes them and most international markets are based on them. once the international markets switch to some other currency, the FRN will lose a rapid part of its value, and the real brunt of the inflationary principles the Fed has adopted will be felt. It will be quite painful.

derefr 6y ago
> once the international markets switch to some other currency, the FRN will lose a rapid part of its value I mean, other countries manage to have inflationary monetary policies, without their currencies being the global reserve currency.
AnthonyMouse 6y ago
There seems to be this meme that hyperinflation is always painful. Long-term hyperinflation is painful because nobody wants your currency and that causes all kinds of problems. Short-term hyperinflation is short-term disruptive, but it also has the result of effectively wiping out your debts (which would be helpful on net to most in the US, including the government), and then people just adjust to the new prices, which are higher but become stable, and wages rise to compensate. The main loss to the US from not being the reserve currency would be that they couldn't keep printing even more money without incurring the normal amount of inflation that usually implies for everybody else. But that's assuming the rest of the world is even interested in handing that power to somebody else. And who would that be? Everybody wants it to be themselves, which is what nobody else wants. Meanwhile all the powerful international holders of US debt have a huge interest in it continuing to be the US, since they're the ones the wiping out of dollar-denominated debts would hurt the most. And none of that seems especially likely in the immediate future, because the Fed is doing all it can right now to prevent deflation, by keeping interest rates on the floor and printing a ton of money. It would be so easy for them to prevent inflation right now that all they would have to do is stop actively doing half the things they're doing to prevent its opposite. So it only happens if they want it to.

derefr 6y ago

> once the international markets switch to some other currency, the FRN will lose a rapid part of its value I mean, other countries manage to have inflationary monetary policies, without their currencies being the global reserve currency.

AnthonyMouse 6y ago

There seems to be this meme that hyperinflation is always painful. Long-term hyperinflation is painful because nobody wants your currency and that causes all kinds of problems. Short-term hyperinflation is short-term disruptive, but it also has the result of effectively wiping out your debts (which would be helpful on net to most in the US, including the government), and then people just adjust to the new prices, which are higher but become stable, and wages rise to compensate. The main loss to the US from not being the reserve currency would be that they couldn't keep printing even more money without incurring the normal amount of inflation that usually implies for everybody else. But that's assuming the rest of the world is even interested in handing that power to somebody else. And who would that be? Everybody wants it to be themselves, which is what nobody else wants. Meanwhile all the powerful international holders of US debt have a huge interest in it continuing to be the US, since they're the ones the wiping out of dollar-denominated debts would hurt the most. And none of that seems especially likely in the immediate future, because the Fed is doing all it can right now to prevent deflation, by keeping interest rates on the floor and printing a ton of money. It would be so easy for them to prevent inflation right now that all they would have to do is stop actively doing half the things they're doing to prevent its opposite. So it only happens if they want it to.