6 ms·

The first is a necessary step for the latter. There's a reason pundits have been talking about a multi-polar world for 20 years. No country is currently strong

The first is a necessary step for the latter. There's a reason pundits have been talking about a multi-polar world for 20 years. No country is currently strong enough to cement its position the way the US had, but the move away from the dollar will hurt the US a lot, by limiting the Fed and increasing inflation. It also enables other countries to have a foreign policy more antagonistic to the US, it takes away a good chunk of leverage.

fsckboy 3y ago
no, the move away from the dollar will not hurt the US. Exchange rates are the net result of trade in goods and services (and capital), it's the bottom line fudge factor that makes trade work. If a country imports too much, its currency drops making foreign goods more expensive slowing imports. If it exports too much, its currency rises making its goods more expensive and slowing exports. If the US imports a lot, it sends dollars overseas. If the foreigners want to invest in the US economy, those dollars come back in exchange for assets and the value of a dollar is not affected. If the foreigners don't want dollar denominated assets, they just buy their preferred currency instead, sending the dollar down. (In the case of investment, the US for most of its history ran a huge trade deficit. It was not a problem because economic growth meant foreigners wanted to invest here. Much of the trade deficit was caused by the purchase of capital equipment, used in driving the economy) People who are thinking about exchanging currencies are not doing it on whim, they are doing it for underlying reasons that have to do with economic activity, productivity, long term investment opportunities, etc. These things carry currency denominated prices, but those currency fluctuations do not affect the rates of return of the investments, rather those currency fluctuations are how the books are balanced and change the rates of ebb and flow.
- mpweiher 3y ago
  > no, the move away from the dollar will not hurt the US I doubt that. The US has been able to both support a trade imbalance and print money at prodigious rates that would be unsustainable for any other country. I remember articles from economists pointing this out going back to the eighties. One important reason for this is that not all dollars the US prints inflate the local money supply. Instead, they go out into the world where they are used by other countries to trade amongst themselves, without US involvement (and reserves). It's like writing a check that is never cashed. Cool if you can pull it off. You mention foreign investment. Well, if the value of the dollar goes down, because demand for those dollars is lower, those investments also become less attractive. Could cascade.
  - eternalban 3y ago
    > print money at prodigious rates +All that debt will become 'real'. We could look to UK and see what happens to a nation post (currency) empire. But a word of caution here regarding the analogy: the new empire (US) were allies of the dethroned empire (UK). Come US's time, it is doubtful that the new power will be a Western power. So US will have a harder time than UK and things have not gone well for UK since WW2. Zombie International Currency: The Pound Sterling 1945-1973, 2021: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP03-2020.pdf http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP...
- goodcanadian 3y ago
  You are not wrong, but you are missing an element. The US dollar's position as world reserve currency and preferred exchange currency artificially increases the value of the dollar. A big part of the reason that the US has been able to run a trade deficit and still maintain a strong currency is because there is demand for the currency, itself. People need dollars to use in their international trade, and countries hang on to them for their reserves (stuffing them in the figurative mattress). If people stop using the dollars for international trade, and countries start pulling them out of the mattress rather than stuffing them in, there will be a glut of unwanted dollars on the international market. As you point out, this will drive down the price of the US dollar, significantly weakening it as a currency, thus driving inflation in the US and hitting the economy HARD. Eventually, it may stimulate US exports, but things are going to settle out with Americans much poorer, overall, as their currency is no longer artificially supported.
  - yehosef 3y ago
    >no, the move away from the dollar will not hurt the US. This is wrong - as you point out. When people don't need dollars except to buy/sell from the US, the dollar is a less attractive currency to keep around. This is going to hurt...
    - eternalban 3y ago
      Actually one of the main (the main?) pillar of Dollar hegemony was the USA-KSA strategic agreement for mandating the use of US Dollars for energy transactions. This is all early 70s geopolitical actions that had and continues to have significant side effects, including dropping the Shah of Iran* (and embracing KSA instead). For many nations, holding Dollar reserves is/was for buying oil and gas. [1] https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret https://www.bloomberg.com/news/features/2016-05-30/the-untol... (https://archive.is/kRW9c https://archive.is/kRW9c) [2] https://www.currencytransfer.com/blog/expert-analysis/saudi-arabia-petrodollar https://www.currencytransfer.com/blog/expert-analysis/saudi-... * From [1]: “Just a week before setting foot in Saudi Arabia, Simon publicly lambasted the Shah of Iran, a close regional ally at the time, calling him a “nut.”” https://www.semanticscholar.org/paper/Showdown-at-Doha%3A-the-secret-oil-deal-that-helped-Cooper/fa4c8cf61f68a7038ffe4ce72529681b72ec602e https://www.semanticscholar.org/paper/Showdown-at-Doha%3A-th... The rise of Islamic Jihadis, financed by KSA and trained by CIA, propagation of Wahabism, tolerating the replacement of a secular ally in Iran with Islamist revolutionaries, ..., are all the direct consequence of this strategic shift by the USA. This is all in the context of post-Vietnam debt, rise of OPEC, and a still very menacing Soviet Union. The Shah had made the error of thinking that by not joining the oil embargo of Arab states he was proving yet another reason (beyond being a forward Western block allied barrier to Soviet Union’s access to the Persian Gulf) for being considered a strategic ally to US. Nixon and Kissinger publicly and privately also assured of Iran’s importance. But what actually happened was that the oil embargo demanded a reassessment of the value of Shah of Iran to US. It was seen that oil and Arab producing nations’ alignment was far more important than any value Shah’s Iran was providing as a bulwark against the Soviets. The Brezhinski doctrine effectively addressed the means of filling the vacuum: Islamic Fundamentalism.

fsckboy 3y ago

no, the move away from the dollar will not hurt the US. Exchange rates are the net result of trade in goods and services (and capital), it's the bottom line fudge factor that makes trade work. If a country imports too much, its currency drops making foreign goods more expensive slowing imports. If it exports too much, its currency rises making its goods more expensive and slowing exports. If the US imports a lot, it sends dollars overseas. If the foreigners want to invest in the US economy, those dollars come back in exchange for assets and the value of a dollar is not affected. If the foreigners don't want dollar denominated assets, they just buy their preferred currency instead, sending the dollar down. (In the case of investment, the US for most of its history ran a huge trade deficit. It was not a problem because economic growth meant foreigners wanted to invest here. Much of the trade deficit was caused by the purchase of capital equipment, used in driving the economy) People who are thinking about exchanging currencies are not doing it on whim, they are doing it for underlying reasons that have to do with economic activity, productivity, long term investment opportunities, etc. These things carry currency denominated prices, but those currency fluctuations do not affect the rates of return of the investments, rather those currency fluctuations are how the books are balanced and change the rates of ebb and flow.

mpweiher 3y ago
> no, the move away from the dollar will not hurt the US I doubt that. The US has been able to both support a trade imbalance and print money at prodigious rates that would be unsustainable for any other country. I remember articles from economists pointing this out going back to the eighties. One important reason for this is that not all dollars the US prints inflate the local money supply. Instead, they go out into the world where they are used by other countries to trade amongst themselves, without US involvement (and reserves). It's like writing a check that is never cashed. Cool if you can pull it off. You mention foreign investment. Well, if the value of the dollar goes down, because demand for those dollars is lower, those investments also become less attractive. Could cascade.
- eternalban 3y ago
  > print money at prodigious rates +All that debt will become 'real'. We could look to UK and see what happens to a nation post (currency) empire. But a word of caution here regarding the analogy: the new empire (US) were allies of the dethroned empire (UK). Come US's time, it is doubtful that the new power will be a Western power. So US will have a harder time than UK and things have not gone well for UK since WW2. Zombie International Currency: The Pound Sterling 1945-1973, 2021: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP03-2020.pdf http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP...
goodcanadian 3y ago
You are not wrong, but you are missing an element. The US dollar's position as world reserve currency and preferred exchange currency artificially increases the value of the dollar. A big part of the reason that the US has been able to run a trade deficit and still maintain a strong currency is because there is demand for the currency, itself. People need dollars to use in their international trade, and countries hang on to them for their reserves (stuffing them in the figurative mattress). If people stop using the dollars for international trade, and countries start pulling them out of the mattress rather than stuffing them in, there will be a glut of unwanted dollars on the international market. As you point out, this will drive down the price of the US dollar, significantly weakening it as a currency, thus driving inflation in the US and hitting the economy HARD. Eventually, it may stimulate US exports, but things are going to settle out with Americans much poorer, overall, as their currency is no longer artificially supported.
- yehosef 3y ago
  >no, the move away from the dollar will not hurt the US. This is wrong - as you point out. When people don't need dollars except to buy/sell from the US, the dollar is a less attractive currency to keep around. This is going to hurt...
  - eternalban 3y ago
    Actually one of the main (the main?) pillar of Dollar hegemony was the USA-KSA strategic agreement for mandating the use of US Dollars for energy transactions. This is all early 70s geopolitical actions that had and continues to have significant side effects, including dropping the Shah of Iran* (and embracing KSA instead). For many nations, holding Dollar reserves is/was for buying oil and gas. [1] https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret https://www.bloomberg.com/news/features/2016-05-30/the-untol... (https://archive.is/kRW9c https://archive.is/kRW9c) [2] https://www.currencytransfer.com/blog/expert-analysis/saudi-arabia-petrodollar https://www.currencytransfer.com/blog/expert-analysis/saudi-... * From [1]: “Just a week before setting foot in Saudi Arabia, Simon publicly lambasted the Shah of Iran, a close regional ally at the time, calling him a “nut.”” https://www.semanticscholar.org/paper/Showdown-at-Doha%3A-the-secret-oil-deal-that-helped-Cooper/fa4c8cf61f68a7038ffe4ce72529681b72ec602e https://www.semanticscholar.org/paper/Showdown-at-Doha%3A-th... The rise of Islamic Jihadis, financed by KSA and trained by CIA, propagation of Wahabism, tolerating the replacement of a secular ally in Iran with Islamist revolutionaries, ..., are all the direct consequence of this strategic shift by the USA. This is all in the context of post-Vietnam debt, rise of OPEC, and a still very menacing Soviet Union. The Shah had made the error of thinking that by not joining the oil embargo of Arab states he was proving yet another reason (beyond being a forward Western block allied barrier to Soviet Union’s access to the Persian Gulf) for being considered a strategic ally to US. Nixon and Kissinger publicly and privately also assured of Iran’s importance. But what actually happened was that the oil embargo demanded a reassessment of the value of Shah of Iran to US. It was seen that oil and Arab producing nations’ alignment was far more important than any value Shah’s Iran was providing as a bulwark against the Soviets. The Brezhinski doctrine effectively addressed the means of filling the vacuum: Islamic Fundamentalism.