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Why should there be only one? I get financial advisor emails every week that pretty much always tell me to diversify where I put my money. If I were an independ

by dwater 6y ago

Why should there be only one? I get financial advisor emails every week that pretty much always tell me to diversify where I put my money. If I were an independent nation that needed reserve currency, I wouldn't want to bet it all on the US, China, or Europe. They've all got their own risks ahead. And there's no clear winner for the next decade or two to get on the good side of.

sukilot 6y ago
Why is there a monopoly in anything? It's convenient and tends to happen naturally via small scale local optimizations.
JumpCrisscross 6y ago
> Why should there be only one? Network effects. Every marginal dollar spender, dollar acceptor, dollar lender, dollar borrower, dollar investor and dollar investment makes the dollar more attractive to use for all. That makes it more attractive to intermediate, which results in more services around U.S. dollars which keeps the flywheel going. As financial and trading and distribution relationships become more complicated, these advantages grow.
- toomuchtodo 6y ago
  I agree with this, but, I’ve become very comfortable with TransferWise, which is kinda like Libra without the blockchain bullshit. I can move between currencies effortlessly and inexpensively (and I don’t want an index currency that trades a basket of currencies beneath it, an unnecessary abstraction in my opinion). I provide charity to a friend down on their luck in CAD. I buy SaaS services in USD and EUR. I pay an Australian mortgage for a vacation home and investment property in Tasmania in AUD. From an iOS app! As FinTech velocity accelerates, the value of network effects will diminish. It’ll all be IP between fintech providers (mostly like SWIFT, but not quite).
  - selectodude 6y ago
    All of those transactions are settled in USD. Just because it's happening behind the scenes doesn't mean it's not happening at all.
    - toomuchtodo 6y ago
      But it can be settled in any currency trivially. All you want in a currency is acceptance and value stability, and the infrastructure to support rapid changes in currency polices. Disclosure: I work in financial services and am familiar with this infrastructure.
      - selectodude 6y ago
        Then you should almost certainly aware of the fact that the spreads on USD currency pairs are extremely low. Low enough where it ends up being cheaper to go Currency A -> USD -> Currency B than it is to go Currency A -> Currency B. If all you want is acceptance and value stability, it doesn't get a whole lot more stable than that.
        toomuchtodo 6y ago
        You’re missing my point (which is probably my fault). It’s not about the financial mechanisms of currency exchange, it’s about the financial infrastructure. How does a crypto exchange support a new coin at genesis? They just add it to the platform. We’re arguing about the window dressing (currency spreads), and I’m talking about the technical implementation and fundamentals of supporting global treasury management. Edit: @JumpCrisscross I am familiar with how TransferWise works under the hood. The underlying settlement system is the legacy slowly being replaced.
        JumpCrisscross 6y ago
        > We’re arguing about the window dressing (currency spreads) TransferWise is the window dressing. It is bolted onto an international credit and settlement system which is built on dollar settlement rails. The fact that it's turned every other currency into, in effect, a feature, underscores the point.
hogFeast 6y ago
Because none of the alternatives are large enough. If you are a central bank, and you need to deposit $100bn...you realise that you can't walk into your local branch of Chase and ask if they will take a cheque. If you give it to a bank, you are now an equity investor (as Middle East central banks found out in the 80s). If you invest in a non-USD currency, you are exposed to that currency in size and you probably can't sell (as Commonwealth central banks found out in the 60/70s). USTs are the only market where you can trade tens of billions easily. That is it. There are no alternatives. China and Russia have both tried to exit, and all they have managed to do is buy a few billion of gold. The ECB is trying to create an alternative but EU financial markets are microscopic because their banking system is so large/insolvent. There are also economic reasons, the US is the largest economy in the world, almost all trade is priced in USD so exporters/importers will earn/sell in USD which will usually be key to other areas of central bank policy. But yes, the main issue is quite fundamental: no other currency is large enough.
prionassembly 6y ago
(1) Not everyone has a financial advisor. Also, mass emails may not constitute financial advice. Living in various countries of Latin America, my uncles and aunts have always had in mind the USD as a unit of account and an alternative savings medium. Not all of these people were intellectually sophisticated or "good with money" necessarily. They'd either struggle with baskets of currency or bear an additional cognitive/stress load that would make them worse off. 2) At a more formal setting where cashflow projections are made and international investors placated (and so on), having forecasts be conditional on both USD and euro is already commonplace, particularly if there's lots of intercontinental logistics implicitly baked in costs and revenues. Adding another currency to these types of calculations (also backed by econometric models, commodity price forecasts etc) would not add 50% complexity, it would pretty much double it. I can't imagine being responsible for a cashflow in four or five currencies at a scale in which exchange rate volatility matters. This isn't to say there wouldn't be benefits, but surely there'd be costs.

by dwater 6y ago

sukilot 6y ago

Why is there a monopoly in anything? It's convenient and tends to happen naturally via small scale local optimizations.

JumpCrisscross 6y ago

> Why should there be only one? Network effects. Every marginal dollar spender, dollar acceptor, dollar lender, dollar borrower, dollar investor and dollar investment makes the dollar more attractive to use for all. That makes it more attractive to intermediate, which results in more services around U.S. dollars which keeps the flywheel going. As financial and trading and distribution relationships become more complicated, these advantages grow.

toomuchtodo 6y ago
I agree with this, but, I’ve become very comfortable with TransferWise, which is kinda like Libra without the blockchain bullshit. I can move between currencies effortlessly and inexpensively (and I don’t want an index currency that trades a basket of currencies beneath it, an unnecessary abstraction in my opinion). I provide charity to a friend down on their luck in CAD. I buy SaaS services in USD and EUR. I pay an Australian mortgage for a vacation home and investment property in Tasmania in AUD. From an iOS app! As FinTech velocity accelerates, the value of network effects will diminish. It’ll all be IP between fintech providers (mostly like SWIFT, but not quite).
- selectodude 6y ago
  All of those transactions are settled in USD. Just because it's happening behind the scenes doesn't mean it's not happening at all.
  - toomuchtodo 6y ago
    But it can be settled in any currency trivially. All you want in a currency is acceptance and value stability, and the infrastructure to support rapid changes in currency polices. Disclosure: I work in financial services and am familiar with this infrastructure.
    - selectodude 6y ago
      Then you should almost certainly aware of the fact that the spreads on USD currency pairs are extremely low. Low enough where it ends up being cheaper to go Currency A -> USD -> Currency B than it is to go Currency A -> Currency B. If all you want is acceptance and value stability, it doesn't get a whole lot more stable than that.
      - toomuchtodo 6y ago
        You’re missing my point (which is probably my fault). It’s not about the financial mechanisms of currency exchange, it’s about the financial infrastructure. How does a crypto exchange support a new coin at genesis? They just add it to the platform. We’re arguing about the window dressing (currency spreads), and I’m talking about the technical implementation and fundamentals of supporting global treasury management. Edit: @JumpCrisscross I am familiar with how TransferWise works under the hood. The underlying settlement system is the legacy slowly being replaced.
        JumpCrisscross 6y ago
        > We’re arguing about the window dressing (currency spreads) TransferWise is the window dressing. It is bolted onto an international credit and settlement system which is built on dollar settlement rails. The fact that it's turned every other currency into, in effect, a feature, underscores the point.

hogFeast 6y ago

Because none of the alternatives are large enough. If you are a central bank, and you need to deposit $100bn...you realise that you can't walk into your local branch of Chase and ask if they will take a cheque. If you give it to a bank, you are now an equity investor (as Middle East central banks found out in the 80s). If you invest in a non-USD currency, you are exposed to that currency in size and you probably can't sell (as Commonwealth central banks found out in the 60/70s). USTs are the only market where you can trade tens of billions easily. That is it. There are no alternatives. China and Russia have both tried to exit, and all they have managed to do is buy a few billion of gold. The ECB is trying to create an alternative but EU financial markets are microscopic because their banking system is so large/insolvent. There are also economic reasons, the US is the largest economy in the world, almost all trade is priced in USD so exporters/importers will earn/sell in USD which will usually be key to other areas of central bank policy. But yes, the main issue is quite fundamental: no other currency is large enough.

prionassembly 6y ago

(1) Not everyone has a financial advisor. Also, mass emails may not constitute financial advice. Living in various countries of Latin America, my uncles and aunts have always had in mind the USD as a unit of account and an alternative savings medium. Not all of these people were intellectually sophisticated or "good with money" necessarily. They'd either struggle with baskets of currency or bear an additional cognitive/stress load that would make them worse off. 2) At a more formal setting where cashflow projections are made and international investors placated (and so on), having forecasts be conditional on both USD and euro is already commonplace, particularly if there's lots of intercontinental logistics implicitly baked in costs and revenues. Adding another currency to these types of calculations (also backed by econometric models, commodity price forecasts etc) would not add 50% complexity, it would pretty much double it. I can't imagine being responsible for a cashflow in four or five currencies at a scale in which exchange rate volatility matters. This isn't to say there wouldn't be benefits, but surely there'd be costs.