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It has nothing to do with consumption demand. Countries have realized that US dollars is not a safe store of value (aka reserve currency) because of decisions t

It has nothing to do with consumption demand. Countries have realized that US dollars is not a safe store of value (aka reserve currency) because of decisions taken by the US administration vis-a-vis its sanctions regime. It is not worth having your US dollars frozen and your entire Country beholden to the United States leaving you with zero options on the table (to trade with other countries) just because there are differences in opinions/ideology/politics. This is starkly evident when US has a different set of rules for itself (my way or the highway) vs rules it expects the World to follow (rules based order). This might have worked in the past when other Countries were technologically inept at building necessary infrastructure to connect banking systems and had to rely on SWIFT. However, this is no longer the case today. Most countries now have better home grown systems where transactions are settled instantly (instead of taking multiple days) and have realized that the same can be extended when it comes to inter-country (read it as bilateral) trade too. Instead of India holding USD in a US Bank and Russia holding USD in a US Bank, and using US Bank as an intermediary for any bilateral trade (giving a cut to US Bank as well as being at mercy of the US Government), India and Russia can bypass the middleman (US Bank) and trade directly: India holding Rubles in Russian Bank, while Russia holds INR in Indian Bank. There is no SWIFT being used anywhere in between. Totally avoids sanctions as well as removes the middle man from the equation. De-dollarization has nothing to do with US Dollars losing its value. It has more to do with the US Government losing its economic superpower status where it can control other countries through economic sanctions. Even after de-dollarization, USD might be the most sought after currency purely for its value and not for "fear of the US Government". There is no "perceived loss" for USD as such. But there is significant loss for the US Administration if it cannot use USD as a weapon against another Country. That's the point that is most important to realize. It is all about balancing power dynamics.

neximo64 3y ago
My argument is that the US dollars that are on these reserves only exist because consumers have spent them. The argument that this does not have anything to do with consumer demand is almost not understanding where these dollars come from. These reserves can only come from excess consumption. To have an alternative you need another country with the type of consumption the US has. So while your argument is correct about the rules and affect of sanctions it misses the point that the dollars are basically loans to America because the other country did not save them. Since the US dollars do come from somewhere vs a central bank making them or out of thin air in some way that makes America strong. It is not as if Indian Rupees or Chinese Yuan can replace these as it would mean the consumption would need to originate from China/ or India in the first place. If you were to sell your US dollars for Chinese Yuan for example, that bag of US dollars is simply held by someone else (the person you bought the Yuan/Rupees from) - until it is finally consumed. The issue is they never tend to be consumed. The issue with it looking at it 'strategically' like you are is it forgets that these dollars come from somewhere and they are still there because they are not spent not because of rules but because of savings habits in the other country.
- shri_krishna 3y ago
  > it misses the point that the dollars are basically loans to America because the other country did not save them I did not understand this point. How does USD became a loan to America if say India did not save them? > Since the US dollars do come from somewhere vs a central bank making them or out of thin air in some way that makes America strong. Again, this has nothing to do with de-dollarization. What makes America economically strong is its consumption demand. Correct. However, we are talking about removing SWIFT and US Bank as an intermediary. Russia and India can decide to fix prices (Rubles <-> INR) bilaterally for international trade (unconnected to exchange rate fluctuations) and commit a certain sum of money in each others banks to establish that rate for a period of say 5 years. And then trade against that rate. There is no involvement of USD here anywhere. Neither is a middleman (US Bank) needed here. > It is not as if Indian Rupees or Chinese Yuan can replace these as it would mean the consumption would need to originate from China/ or India in the first place Again, you are fixated on consumption. Even if I take your point that USD is valuable and is the one currency which is sought after, it is purely on the basis of US Government's benevolence. It can be removed just as quickly if the US Government decides to sanction your country because you woke up from the wrong side of the bed. So de-dollarization has nothing to do with, say, bilateral trade between US and India. We will still trade in USD and INR. So USD won't lose its value vis-a-vis bilateral trade between US and countries it trades with. However, there is no requirement for Russia and India to trade in USD. We can always settle trade in our own currencies. > If you were to sell your US dollars for Chinese Yuan for example, that bag of US dollars is simply held by someone else - until it is consumed. Okay and what does it have to do with China and India trading with each other or Russia and India trading with each other? We don't need to trade using USD. > The issue with it looking at it 'strategically' like you are is it forgets that these dollars come from somewhere and they are still there because they are not spent not because of rules but because of savings habits in the other country. All of this makes no sense when US Government decides to sanction my country overnight. USG sanctioned India for conducting reciprocal nuclear tests (China conducted it first and we were forced to retaliate by conducting our own nuclear tests). Bill Clinton decided that communist China is more favourable to democratic India and decided to sanction us, while not sanctioning China, for the same effing tests. We were subjected to heavy sanctions and had a tough time trading with other countries who had no connection with the conflict whatsoever. And it is not like only India was sanctioned in the past. Almost every country that has gone against US's favour have been subjected to sanctions in some way or the other. No one is going to keep tolerating a bully.
johnvanommen 3y ago
> Countries have realized that US dollars is not a safe store of value (aka reserve currency) because of decisions taken by the US administration vis-a-vis its sanctions regime. Another thing that really doesn't get enough attention, is how recent events have jeopardized the peace that the United States Navy has provided for 70+ years. I don't think that most people appreciate the role that the Navy plays in the world, basically creating a situation where the United States provides security to seafaring vessels all over the world, in exchange for an unspoken agreement that other countries won't build a massive navy. Of course, this state of affairs was in response to Germany and Japan building massive navies in the years following WW I.

neximo64 3y ago

My argument is that the US dollars that are on these reserves only exist because consumers have spent them. The argument that this does not have anything to do with consumer demand is almost not understanding where these dollars come from. These reserves can only come from excess consumption. To have an alternative you need another country with the type of consumption the US has. So while your argument is correct about the rules and affect of sanctions it misses the point that the dollars are basically loans to America because the other country did not save them. Since the US dollars do come from somewhere vs a central bank making them or out of thin air in some way that makes America strong. It is not as if Indian Rupees or Chinese Yuan can replace these as it would mean the consumption would need to originate from China/ or India in the first place. If you were to sell your US dollars for Chinese Yuan for example, that bag of US dollars is simply held by someone else (the person you bought the Yuan/Rupees from) - until it is finally consumed. The issue is they never tend to be consumed. The issue with it looking at it 'strategically' like you are is it forgets that these dollars come from somewhere and they are still there because they are not spent not because of rules but because of savings habits in the other country.

shri_krishna 3y ago
> it misses the point that the dollars are basically loans to America because the other country did not save them I did not understand this point. How does USD became a loan to America if say India did not save them? > Since the US dollars do come from somewhere vs a central bank making them or out of thin air in some way that makes America strong. Again, this has nothing to do with de-dollarization. What makes America economically strong is its consumption demand. Correct. However, we are talking about removing SWIFT and US Bank as an intermediary. Russia and India can decide to fix prices (Rubles <-> INR) bilaterally for international trade (unconnected to exchange rate fluctuations) and commit a certain sum of money in each others banks to establish that rate for a period of say 5 years. And then trade against that rate. There is no involvement of USD here anywhere. Neither is a middleman (US Bank) needed here. > It is not as if Indian Rupees or Chinese Yuan can replace these as it would mean the consumption would need to originate from China/ or India in the first place Again, you are fixated on consumption. Even if I take your point that USD is valuable and is the one currency which is sought after, it is purely on the basis of US Government's benevolence. It can be removed just as quickly if the US Government decides to sanction your country because you woke up from the wrong side of the bed. So de-dollarization has nothing to do with, say, bilateral trade between US and India. We will still trade in USD and INR. So USD won't lose its value vis-a-vis bilateral trade between US and countries it trades with. However, there is no requirement for Russia and India to trade in USD. We can always settle trade in our own currencies. > If you were to sell your US dollars for Chinese Yuan for example, that bag of US dollars is simply held by someone else - until it is consumed. Okay and what does it have to do with China and India trading with each other or Russia and India trading with each other? We don't need to trade using USD. > The issue with it looking at it 'strategically' like you are is it forgets that these dollars come from somewhere and they are still there because they are not spent not because of rules but because of savings habits in the other country. All of this makes no sense when US Government decides to sanction my country overnight. USG sanctioned India for conducting reciprocal nuclear tests (China conducted it first and we were forced to retaliate by conducting our own nuclear tests). Bill Clinton decided that communist China is more favourable to democratic India and decided to sanction us, while not sanctioning China, for the same effing tests. We were subjected to heavy sanctions and had a tough time trading with other countries who had no connection with the conflict whatsoever. And it is not like only India was sanctioned in the past. Almost every country that has gone against US's favour have been subjected to sanctions in some way or the other. No one is going to keep tolerating a bully.

johnvanommen 3y ago

> Countries have realized that US dollars is not a safe store of value (aka reserve currency) because of decisions taken by the US administration vis-a-vis its sanctions regime. Another thing that really doesn't get enough attention, is how recent events have jeopardized the peace that the United States Navy has provided for 70+ years. I don't think that most people appreciate the role that the Navy plays in the world, basically creating a situation where the United States provides security to seafaring vessels all over the world, in exchange for an unspoken agreement that other countries won't build a massive navy. Of course, this state of affairs was in response to Germany and Japan building massive navies in the years following WW I.