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Why is "reserve currency" the central issue? Also, the US stock market, US Dollar and US economy/gdp aren't hard linked to one another these days. The companie

Why is "reserve currency" the central issue? Also, the US stock market, US Dollar and US economy/gdp aren't hard linked to one another these days. The companies listed can be selling to non US markets, employing internationally, founded internationally. They're just listing on the US stock market because well.. that's where the stock market is. The US could, in theory, become more or less popular a stock market regardless of its currency's popularity. Meanwhile, both the Euro and RMB have similar size markets backing their currency. Neither one is currently trying to displace the USD. I think the importance of owning the international currency is somewhat speculative.

bobthepanda 4y ago
Yeah, China has already indicated that it would prefer the ability to implement sudden, nearly total capital controls rather than be annoyed with the day-to-day of a reserve currency.
malandrew 4y ago
Stock markets are natural monopolies. Liquidity begets liquidity. What would cause companies to choose other exchanges and what stops the dominant exchanges from adapting to changes that threaten its liquidity advantage. Is there anything stopping the NYSE, Nasdaq or CME/CBOT from handling trades in another currency?
- gumby 4y ago
  > Is there anything stopping the NYSE, Nasdaq or CME/CBOT from handling trades in another currency? It would reduce liquidity. Equity prices would fluctuate not only on buy/sell basis but exchange rates. Sure, computers could figure all that out these days but what's the advantage? Overwhelmingly, equity buyers and sellers (not "traders") buy in their local currency because they use the money to live in a local economy. Companies list in other countries for access to those countries' buyers. What would be the point of Shell listing in Euro on the NYSE? They want to list in dollars. Nobody outside Nigeria lists on its exchange but local companies do because local people understand the companies and everything (both their operations and their stock) is in naira. So if you want to be an exchange in a different currency, just buy a local exchange. NASDAQ did try to buy the London Stock Exchange, though I think it fell through.
PKop 4y ago
The reserve currency built atop the petrodollar system produces a cycle of the rest of world needing to acquire dollars to trade for commodities and most other commerce around the world. Because it gains this reserve status, it has stability and confidence, and thus since countries need it to buy input commodities and energy, they acquire foreign exchange surpluses by selling goods to the US and running trade surpluses. Since they have stockpiles of dollars, it is conducive that these dollars are also used for trade of other goods and also the creation of borrowing and lending demand in dollars outside of the US. If countries then acquire dollar surpluses by running trade surpluses with the US, the US by contrast has a trade deficit. This is equivalent to having a capital surplus for the US. It means excess capital is funneled back into the US into the capital markets buying stocks and bonds. This is maybe a chicken and egg phenomenon..is it the demand to invest in the US creating a capital surplus that creates the dynamic whereby the $ becomes reserve currency and the US runs increasingly large trade deficits? Is it the military/political power that creates all of the rest? Probably all of above. But in any case the reserve currency system has at its core the financial markets of the US that the rest of world invests their surplus into, incentivizing them to produce in excess and trade real goods and work with US in exchange for paper IOU's that they can invest into the US markets. A big aspect of this $ financial/trade system isn't just the $ as currency itself but the unique and important position of US treasury debt as the premier reserve asset that countries store their surplus and forex reserve in, and which is the center piece of the eurodollar[0] lending markets. [0] https://www.investopedia.com/terms/e/eurodollar.asp https://www.investopedia.com/terms/e/eurodollar.asp
- lottin 4y ago
  Trade deficits and capital surpluses go hand in hand. This is easy to see. If the value of your imports exceeds the value of your exports (i.e. you have a trade deficit), the excess imports must be financed somehow—either borrowing money abroad or selling assets (such as equity) to the rest of the world. This results in a net flow of money into the country, i.e. a capital surplus.
- deleted 4y ago
  [deleted]
- 4y ago

bobthepanda 4y ago

Yeah, China has already indicated that it would prefer the ability to implement sudden, nearly total capital controls rather than be annoyed with the day-to-day of a reserve currency.

malandrew 4y ago

Stock markets are natural monopolies. Liquidity begets liquidity. What would cause companies to choose other exchanges and what stops the dominant exchanges from adapting to changes that threaten its liquidity advantage. Is there anything stopping the NYSE, Nasdaq or CME/CBOT from handling trades in another currency?

gumby 4y ago
> Is there anything stopping the NYSE, Nasdaq or CME/CBOT from handling trades in another currency? It would reduce liquidity. Equity prices would fluctuate not only on buy/sell basis but exchange rates. Sure, computers could figure all that out these days but what's the advantage? Overwhelmingly, equity buyers and sellers (not "traders") buy in their local currency because they use the money to live in a local economy. Companies list in other countries for access to those countries' buyers. What would be the point of Shell listing in Euro on the NYSE? They want to list in dollars. Nobody outside Nigeria lists on its exchange but local companies do because local people understand the companies and everything (both their operations and their stock) is in naira. So if you want to be an exchange in a different currency, just buy a local exchange. NASDAQ did try to buy the London Stock Exchange, though I think it fell through.

PKop 4y ago

The reserve currency built atop the petrodollar system produces a cycle of the rest of world needing to acquire dollars to trade for commodities and most other commerce around the world. Because it gains this reserve status, it has stability and confidence, and thus since countries need it to buy input commodities and energy, they acquire foreign exchange surpluses by selling goods to the US and running trade surpluses. Since they have stockpiles of dollars, it is conducive that these dollars are also used for trade of other goods and also the creation of borrowing and lending demand in dollars outside of the US. If countries then acquire dollar surpluses by running trade surpluses with the US, the US by contrast has a trade deficit. This is equivalent to having a capital surplus for the US. It means excess capital is funneled back into the US into the capital markets buying stocks and bonds. This is maybe a chicken and egg phenomenon..is it the demand to invest in the US creating a capital surplus that creates the dynamic whereby the $ becomes reserve currency and the US runs increasingly large trade deficits? Is it the military/political power that creates all of the rest? Probably all of above. But in any case the reserve currency system has at its core the financial markets of the US that the rest of world invests their surplus into, incentivizing them to produce in excess and trade real goods and work with US in exchange for paper IOU's that they can invest into the US markets. A big aspect of this $ financial/trade system isn't just the $ as currency itself but the unique and important position of US treasury debt as the premier reserve asset that countries store their surplus and forex reserve in, and which is the center piece of the eurodollar[0] lending markets. [0] https://www.investopedia.com/terms/e/eurodollar.asp https://www.investopedia.com/terms/e/eurodollar.asp

lottin 4y ago
Trade deficits and capital surpluses go hand in hand. This is easy to see. If the value of your imports exceeds the value of your exports (i.e. you have a trade deficit), the excess imports must be financed somehow—either borrowing money abroad or selling assets (such as equity) to the rest of the world. This results in a net flow of money into the country, i.e. a capital surplus.
deleted 4y ago
[deleted]
4y ago