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I know some seriously sophisticated folks who are not only trading USDT at par, but even long, which I have long found puzzling given that anyone who didn’t jus

I know some seriously sophisticated folks who are not only trading USDT at par, but even long, which I have long found puzzling given that anyone who didn’t just fall off the turnip truck knows it’s not even remotely capitalized to par. My personal suspicion is that when a trivially distressed asset is valued at or above par by smart people that those people expect a bailout/recapitalization. (Sidebar: USD is special among “fiat” currencies at the moment because its backed by the world’s largest military. Having guys with guns show up if you refuse to treat something as valuable is a pretty compelling argument to treat that thing as valuable.)

nradov 5y ago
The US government hasn't used their military to force anyone to transact in dollars, or even threatened to do so. The dollar has value primarily because taxes inside the US are denominated in dollars. If you don't pay your taxes with dollars then eventually civilian law enforcement will show up and seize your assets.
- benreesman 5y ago
  Ah absolutely, the much more tangible short-term example of “guys with guns” is (admittedly ever more militarized) domestic law enforcement. But the implied threat towards anyone who say, started dumping US sovereign debt, or transacting petroleum in EUR, or whatever is very real. Countries have been liberated for less.
  - RealityVoid 5y ago
    I admit it is mighty convenient for the US to have the dollar as the reserve currency, but really, you are stretching your point, people outside US not accepting US dollars don't have violent threats looming over them.
  - nradov 5y ago
    China dumped a bunch of US sovereign debt. They haven't been "liberated" yet. https://www.cnbc.com/2020/11/02/china-drops-us-treasurys-impact-on-us-deficit-and-coronavirus-stimulus.html https://www.cnbc.com/2020/11/02/china-drops-us-treasurys-imp... Russia has started transacting petroleum in EUR. They haven't been "liberated" yet. https://www.reuters.com/article/us-rosneft-contracts-euro-idUSKBN1X31JT https://www.reuters.com/article/us-rosneft-contracts-euro-id... Petroleum transaction only make up a small fraction of worldwide dollar use. It doesn't really matter. https://foreignpolicy.com/2009/10/07/debunking-the-dumping-the-dollar-conspiracy/ https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...
    - benreesman 5y ago
      Thank you for the links. I was unaware that the PRC’s Treasury holdings had been pared back so much. I do think it’s interesting to note that both of the examples you used are the only two countries that the US military wouldn’t like to try its hand against. And there is a broader point there: my original point becomes less relevant the further that global US hegemony slips.
    - elvatoloco55 5y ago
      Exactly. And this is not due to the fact that they are the global powers of enough strength to be a big opponent. /S
- ansible 5y ago
  > The US government hasn't used their military to force anyone to transact in dollars, or even threatened to do so. There were rumors that Iraq under Saddam Hussein was looking to start pricing their oil exports in something other than dollars...
  - 323 5y ago
    Oil is trading against Yuan for a number of years now: > Traders appear to embrace yuan oil futures contracts, pricing them similarly to the Brent and WTI benchmarks, says analyst > According to Bloomberg Intelligence, the volume of crude oil contracts traded on the Shanghai International Energy Exchange (INE) accounted for 10.5 per cent of the global volume at the start of June compared to 6.2 per cent in the second quarter of 2018. https://www.scmp.com/business/china-business/article/3088802/chinas-yuan-oil-future-contracts-find-love-among-traders https://www.scmp.com/business/china-business/article/3088802... EU also wants to start trading oil in Euros: https://pemedianetwork.com/petroleum-economist/articles/corporate-finance/2020/commission-pushes-euro-denominated-trading https://pemedianetwork.com/petroleum-economist/articles/corp...
    - notahacker 5y ago
      And with the Euro being explicitly set up by other countries with the intention of challenging the USD as a global reserve currency without the US so much as wagging a finger at them, it's a little hard to believe that the "real" reason a US administration dominated by neoconservative hawks resumed a decade-old conflict with an outspoken enemy in a strategically important region full of oil at a time the country was obsessed with fighting sponsors of terrorism was the relatively insignificant decision to accept Euros for some types of international payment... The best you could say about that theory is that it's confusing cause and effect. Other nations which have been hostile to and sanctioned by the US for some time also shifted from dollars to Euros.
- javert 5y ago
  Besides the Iraq thing someone mentioned, Gaddafi in Libya got taken out right after he spoke about wanting to sell oil in euros. But most importantly, there's Saudi Arabia. Saudi Arabia has no military except the US military, and Saudi Arabia prices oil in dollars. It isn't conceivable that they could price oil in another currency and still receive protection from the US (i.e., continue to exist). The US kind of "has" to continue this arrangement because if the world stops trading oil in dollars, the demand for dollars plummets and the dollar crashes because there are just too many dollars out there. The Fed can't "suck in" all that excess money without causing a severe recession/depression.
  - nradov 5y ago
    The US gains some minor benefits by providing the reserve currency used for most international oil trades. However that's only a small fraction of worldwide dollar use. Even if everyone switched to trading oil in euros tomorrow that wouldn't cause a dollar crash. https://foreignpolicy.com/2009/10/07/debunking-the-dumping-the-dollar-conspiracy/ https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...
    - javert 5y ago
      This article is interesting and helpful. So, thanks. That said, I'm not 100% convinced. If we stop trading oil in dollars, doesn't that reduce the need for countries to keep dollars in reserve? It could be the beginning of a slippery slope.
      - notahacker 5y ago
        The amount of dollars kept in reserve to trade oil with certain petroleum exporters is a tiny proportion of total dollars in circulation What is useful is having quadrillions of dollars of other payment obligations denominated in dollars, from the IRS to mortgage debt to IMF loans to international financial markets to people paying cash rent in Ecuador, and a central bank that can raise interest rates if it believes the demand for dollars is falling. Sterling is still valuable, despite the fact it stopped being the main global reserve currency decades ago and the UK doesn't have any real ability to invade people to change that.
- laserlight 5y ago
  When enough players believe that US would use their military power in case necessary, it won’t be necessary to use it. > The dollar has value primarily because taxes inside the US are denominated in dollars. The amount of USD reserves outside US is huge. Entities that hold these reserves have no interest in paying taxes to US government.

nradov 5y ago

The US government hasn't used their military to force anyone to transact in dollars, or even threatened to do so. The dollar has value primarily because taxes inside the US are denominated in dollars. If you don't pay your taxes with dollars then eventually civilian law enforcement will show up and seize your assets.

benreesman 5y ago
Ah absolutely, the much more tangible short-term example of “guys with guns” is (admittedly ever more militarized) domestic law enforcement. But the implied threat towards anyone who say, started dumping US sovereign debt, or transacting petroleum in EUR, or whatever is very real. Countries have been liberated for less.
- RealityVoid 5y ago
  I admit it is mighty convenient for the US to have the dollar as the reserve currency, but really, you are stretching your point, people outside US not accepting US dollars don't have violent threats looming over them.
- nradov 5y ago
  China dumped a bunch of US sovereign debt. They haven't been "liberated" yet. https://www.cnbc.com/2020/11/02/china-drops-us-treasurys-impact-on-us-deficit-and-coronavirus-stimulus.html https://www.cnbc.com/2020/11/02/china-drops-us-treasurys-imp... Russia has started transacting petroleum in EUR. They haven't been "liberated" yet. https://www.reuters.com/article/us-rosneft-contracts-euro-idUSKBN1X31JT https://www.reuters.com/article/us-rosneft-contracts-euro-id... Petroleum transaction only make up a small fraction of worldwide dollar use. It doesn't really matter. https://foreignpolicy.com/2009/10/07/debunking-the-dumping-the-dollar-conspiracy/ https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...
  - benreesman 5y ago
    Thank you for the links. I was unaware that the PRC’s Treasury holdings had been pared back so much. I do think it’s interesting to note that both of the examples you used are the only two countries that the US military wouldn’t like to try its hand against. And there is a broader point there: my original point becomes less relevant the further that global US hegemony slips.
  - elvatoloco55 5y ago
    Exactly. And this is not due to the fact that they are the global powers of enough strength to be a big opponent. /S
ansible 5y ago
> The US government hasn't used their military to force anyone to transact in dollars, or even threatened to do so. There were rumors that Iraq under Saddam Hussein was looking to start pricing their oil exports in something other than dollars...
- 323 5y ago
  Oil is trading against Yuan for a number of years now: > Traders appear to embrace yuan oil futures contracts, pricing them similarly to the Brent and WTI benchmarks, says analyst > According to Bloomberg Intelligence, the volume of crude oil contracts traded on the Shanghai International Energy Exchange (INE) accounted for 10.5 per cent of the global volume at the start of June compared to 6.2 per cent in the second quarter of 2018. https://www.scmp.com/business/china-business/article/3088802/chinas-yuan-oil-future-contracts-find-love-among-traders https://www.scmp.com/business/china-business/article/3088802... EU also wants to start trading oil in Euros: https://pemedianetwork.com/petroleum-economist/articles/corporate-finance/2020/commission-pushes-euro-denominated-trading https://pemedianetwork.com/petroleum-economist/articles/corp...
  - notahacker 5y ago
    And with the Euro being explicitly set up by other countries with the intention of challenging the USD as a global reserve currency without the US so much as wagging a finger at them, it's a little hard to believe that the "real" reason a US administration dominated by neoconservative hawks resumed a decade-old conflict with an outspoken enemy in a strategically important region full of oil at a time the country was obsessed with fighting sponsors of terrorism was the relatively insignificant decision to accept Euros for some types of international payment... The best you could say about that theory is that it's confusing cause and effect. Other nations which have been hostile to and sanctioned by the US for some time also shifted from dollars to Euros.
javert 5y ago
Besides the Iraq thing someone mentioned, Gaddafi in Libya got taken out right after he spoke about wanting to sell oil in euros. But most importantly, there's Saudi Arabia. Saudi Arabia has no military except the US military, and Saudi Arabia prices oil in dollars. It isn't conceivable that they could price oil in another currency and still receive protection from the US (i.e., continue to exist). The US kind of "has" to continue this arrangement because if the world stops trading oil in dollars, the demand for dollars plummets and the dollar crashes because there are just too many dollars out there. The Fed can't "suck in" all that excess money without causing a severe recession/depression.
- nradov 5y ago
  The US gains some minor benefits by providing the reserve currency used for most international oil trades. However that's only a small fraction of worldwide dollar use. Even if everyone switched to trading oil in euros tomorrow that wouldn't cause a dollar crash. https://foreignpolicy.com/2009/10/07/debunking-the-dumping-the-dollar-conspiracy/ https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...
  - javert 5y ago
    This article is interesting and helpful. So, thanks. That said, I'm not 100% convinced. If we stop trading oil in dollars, doesn't that reduce the need for countries to keep dollars in reserve? It could be the beginning of a slippery slope.
    - notahacker 5y ago
      The amount of dollars kept in reserve to trade oil with certain petroleum exporters is a tiny proportion of total dollars in circulation What is useful is having quadrillions of dollars of other payment obligations denominated in dollars, from the IRS to mortgage debt to IMF loans to international financial markets to people paying cash rent in Ecuador, and a central bank that can raise interest rates if it believes the demand for dollars is falling. Sterling is still valuable, despite the fact it stopped being the main global reserve currency decades ago and the UK doesn't have any real ability to invade people to change that.
laserlight 5y ago
When enough players believe that US would use their military power in case necessary, it won’t be necessary to use it. > The dollar has value primarily because taxes inside the US are denominated in dollars. The amount of USD reserves outside US is huge. Entities that hold these reserves have no interest in paying taxes to US government.