3 ms·

It doesn't drive wages higher, but it improves buying power which is an indirect raise

refurb 4y ago
Then why are countries who aren't the reserve currency also have a more valuable currency? In some cases more valuable than the USD?
- adam_arthur 4y ago
  Whether the currency is <1 or >1 relative to the USD is not that important... it's largely a function of the money supply. 1 Euro is worth more than 1 USD, but goods in Europe may still cost more in USD terms than equivalent goods in the US. Or salaries could be lower (which is true as of today)
  - refurb 4y ago
    But that doesn't follow. 1. US has reserve currency status 2. That makes the purchasing power of the USD stronger (because USD > other currency) 3. Citizens benefit from that Ok, but other currencies have even stronger purchasing power than the USD.
    - adam_arthur 4y ago
      To put it simply: In an alternate world where USD was not the reserve currency, PPP of US based wages would be lower, all else equal. The actual nominal conversion rate of the currency is pretty meaningless. The fact that Yen is 100 to 1ish to the dollar is also not very meaningful. They're all just nominal values. Only the exchange rate relative to fundamentals matters. USD gets stronger exchange rates relative to the fundamentals of the currency (because many foreign countries and citizens also hold USD, not just locals). Which is mostly untrue for other currencies. PPP adjusted salaries are lower everywhere else in the world, partially, but not wholly for this reason.
      - refurb 4y ago
        You haven't actually proven that US' higher PPP is solely due to its reserve currency status. Other countries who are not reserve currencies have higher purchasing power than USD. So if the US wasn't the reserve currency, there is no reason it couldn't do the same. You're making a claim that you haven't backed up.
        adam_arthur 4y ago
        I never said "solely". Fact: The USD has large foreign demand which does not exist for other currencies. Fact: If more currency is demanded, it strengthens the currency in a relative sense. Fact: Therefore the USD is stronger than it would be otherwise, considering only local demand. Your whole counterargument seems to be based on a misunderstanding of real vs nominal. To say 1 Euro > 1 USD means people in Euro earning countries have higher purchasing power is simply wrong. All currency values are nominal. Fact: If USD money supply doubled overnight and all holders got 2x the amount and wages/prices adjusted automatically, the Euro would appreciate 2x against the dollar. Fact: That does not mean Euro earning citizens have higher purchasing power. It's an entirely nominal change. 1 hour of labor in USD terms earns the same in purchasing power, regardless of the face value of currency. Same concept as a stock split Fact: If Euro became the reserve currency tomorrow, Euro-holders would have more purchasing power due to foreign demand making each unit of currency more valuable in a relative sense than it was previously. Fact: If USD lost reserve currency status, it would weaken relative to other currencies. None of these are disputed, but you can believe whatever you want.
        refurb 4y ago
        But you still haven’t answered the question - if other countries have as strong (or stronger) currency than the US, then clearly the US could also have a strong currency without being the global reserve?

Then why are countries who aren't the reserve currency also have a more valuable currency? In some cases more valuable than the USD?

adam_arthur 4y ago
Whether the currency is <1 or >1 relative to the USD is not that important... it's largely a function of the money supply. 1 Euro is worth more than 1 USD, but goods in Europe may still cost more in USD terms than equivalent goods in the US. Or salaries could be lower (which is true as of today)
- refurb 4y ago
  But that doesn't follow. 1. US has reserve currency status 2. That makes the purchasing power of the USD stronger (because USD > other currency) 3. Citizens benefit from that Ok, but other currencies have even stronger purchasing power than the USD.
  - adam_arthur 4y ago
    To put it simply: In an alternate world where USD was not the reserve currency, PPP of US based wages would be lower, all else equal. The actual nominal conversion rate of the currency is pretty meaningless. The fact that Yen is 100 to 1ish to the dollar is also not very meaningful. They're all just nominal values. Only the exchange rate relative to fundamentals matters. USD gets stronger exchange rates relative to the fundamentals of the currency (because many foreign countries and citizens also hold USD, not just locals). Which is mostly untrue for other currencies. PPP adjusted salaries are lower everywhere else in the world, partially, but not wholly for this reason.
    - refurb 4y ago
      You haven't actually proven that US' higher PPP is solely due to its reserve currency status. Other countries who are not reserve currencies have higher purchasing power than USD. So if the US wasn't the reserve currency, there is no reason it couldn't do the same. You're making a claim that you haven't backed up.
      - adam_arthur 4y ago
        I never said "solely". Fact: The USD has large foreign demand which does not exist for other currencies. Fact: If more currency is demanded, it strengthens the currency in a relative sense. Fact: Therefore the USD is stronger than it would be otherwise, considering only local demand. Your whole counterargument seems to be based on a misunderstanding of real vs nominal. To say 1 Euro > 1 USD means people in Euro earning countries have higher purchasing power is simply wrong. All currency values are nominal. Fact: If USD money supply doubled overnight and all holders got 2x the amount and wages/prices adjusted automatically, the Euro would appreciate 2x against the dollar. Fact: That does not mean Euro earning citizens have higher purchasing power. It's an entirely nominal change. 1 hour of labor in USD terms earns the same in purchasing power, regardless of the face value of currency. Same concept as a stock split Fact: If Euro became the reserve currency tomorrow, Euro-holders would have more purchasing power due to foreign demand making each unit of currency more valuable in a relative sense than it was previously. Fact: If USD lost reserve currency status, it would weaken relative to other currencies. None of these are disputed, but you can believe whatever you want.
        refurb 4y ago
        But you still haven’t answered the question - if other countries have as strong (or stronger) currency than the US, then clearly the US could also have a strong currency without being the global reserve?