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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

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.
  - yehosef 3y ago
    Right! The fact that Arab-oil countries want to join BRICS and are starting to trade in Yuan instead of Dollars is also going to accelerate this. https://www.zerohedge.com/geopolitical/five-arab-states-plus-iran-among-19-nations-ready-join-brics https://www.zerohedge.com/geopolitical/five-arab-states-plus...
    - eternalban 3y ago
      some go quietly, some put up a fight, some linger in centuries long decline, some collapse overnight Well, imho, this question hinges more on the calculations (and subsequent actions) of US's allies rather than the counter-organizing efforts of the rebel states.
    - AtlasBarfed 3y ago
      I get this seems inconceivable to those involved and so thoroughly permeated with oil == power dynamic of the 20th century. But it's interesting this particular "power center" of the world (US dollars for oil) is weakening just as oil's grip on the world is weakening. The world was totally beholden to oil for what, 100 years? But everyone with a brain sees that oil demand is going to plummet with EVs and wind/solar to recharge them ... and domestic reserves will likely cover the remaining demand. The political power dynamic of the petrodollar has ... what ... a decade? Or it's already dead? Power and economic productivity is/were hand in hand. The geopolitical dominance of oil provided direct political dominance over everyone's economy. But Solar/Wind/EVs are largely independent of geopolitical control. Yes China appears to be dominant in EV production, batteries, and solar cells, but it isn't the ironclad grip of "we have oil underground you don't". EV drivetrains are simple, everyone can make an electric motor. Viable EV battery chemistries are proliferating and also becoming immune to cobalt, nickel, and even lithium supply constraints. Anyone can make a wind turbine, and solar cell production will likely plummet in cost and diversify in production if/when perovskites and other non-silicon panels hit the mainstream. But likely we are headed back to a cold war alignment, or even more fascinating, a tri-power alignment (EU, US, China), and economic alignment will be replaced with the good old protection racket of the Cold War. Oil will probably remain as a military energy source. But likely everyone will be able to solve gas production with, at minimum, biofuels.
908B64B197 3y ago
> 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 No. It's a measure of much foreigners trust the Us economy and it's political and judicial system. What drives the demand for the dollar is the will of people to invest money in American securities and on the American capital market. Chinese investors invest on the Chinese market in Yuans. Rich Chinese investors invest on the US market with US dollars.
- mpweiher 3y ago
  >> because there is demand for the currency, itself > No. Actually, what the OP wrote is true: the use of the dollar as both a reserve currency and as a trading currency between non-US countries means there is a demand for the currency itself without actually wanting to buy goods and services from the US or invest there. What you describe, investing in the US, also happens. But it isn't the only thing that happens, the demand for dollars without such investment also happens, and as far as I know is the larger part. If it didn't happen the de-dollarization that the fine article talks about couldn't be happening.
  - 908B64B197 3y ago
    > as a trading currency between non-US countries If country A trades with country B, it'll either get paid or pay with country B's currency. Country A might not be interested in country B's currency, so it can use the US dollar and a US institution as a proxy between the two. But that doesn't do anything to affect the value of the three currencies. It's simply a matter of convenience (these US dollars get exchanged back into currency A or B seconds after being purchased). What matters is how confident people are of their respective government, laws and institutions compared to the US. Would they prefer to hold assets in the United States or their own country, or country A or B.
    - mpweiher 3y ago
      Once again: no, they are not (just) holding US assets, they are also holding currency in order to trade. And no, your idea that they change money into dollars, execute the trade and then change right back is an interesting theory, but not actually what happens.

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.
- yehosef 3y ago
  Right! The fact that Arab-oil countries want to join BRICS and are starting to trade in Yuan instead of Dollars is also going to accelerate this. https://www.zerohedge.com/geopolitical/five-arab-states-plus-iran-among-19-nations-ready-join-brics https://www.zerohedge.com/geopolitical/five-arab-states-plus...
  - eternalban 3y ago
    some go quietly, some put up a fight, some linger in centuries long decline, some collapse overnight Well, imho, this question hinges more on the calculations (and subsequent actions) of US's allies rather than the counter-organizing efforts of the rebel states.
  - AtlasBarfed 3y ago
    I get this seems inconceivable to those involved and so thoroughly permeated with oil == power dynamic of the 20th century. But it's interesting this particular "power center" of the world (US dollars for oil) is weakening just as oil's grip on the world is weakening. The world was totally beholden to oil for what, 100 years? But everyone with a brain sees that oil demand is going to plummet with EVs and wind/solar to recharge them ... and domestic reserves will likely cover the remaining demand. The political power dynamic of the petrodollar has ... what ... a decade? Or it's already dead? Power and economic productivity is/were hand in hand. The geopolitical dominance of oil provided direct political dominance over everyone's economy. But Solar/Wind/EVs are largely independent of geopolitical control. Yes China appears to be dominant in EV production, batteries, and solar cells, but it isn't the ironclad grip of "we have oil underground you don't". EV drivetrains are simple, everyone can make an electric motor. Viable EV battery chemistries are proliferating and also becoming immune to cobalt, nickel, and even lithium supply constraints. Anyone can make a wind turbine, and solar cell production will likely plummet in cost and diversify in production if/when perovskites and other non-silicon panels hit the mainstream. But likely we are headed back to a cold war alignment, or even more fascinating, a tri-power alignment (EU, US, China), and economic alignment will be replaced with the good old protection racket of the Cold War. Oil will probably remain as a military energy source. But likely everyone will be able to solve gas production with, at minimum, biofuels.

908B64B197 3y ago

> 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 No. It's a measure of much foreigners trust the Us economy and it's political and judicial system. What drives the demand for the dollar is the will of people to invest money in American securities and on the American capital market. Chinese investors invest on the Chinese market in Yuans. Rich Chinese investors invest on the US market with US dollars.

mpweiher 3y ago
>> because there is demand for the currency, itself > No. Actually, what the OP wrote is true: the use of the dollar as both a reserve currency and as a trading currency between non-US countries means there is a demand for the currency itself without actually wanting to buy goods and services from the US or invest there. What you describe, investing in the US, also happens. But it isn't the only thing that happens, the demand for dollars without such investment also happens, and as far as I know is the larger part. If it didn't happen the de-dollarization that the fine article talks about couldn't be happening.
- 908B64B197 3y ago
  > as a trading currency between non-US countries If country A trades with country B, it'll either get paid or pay with country B's currency. Country A might not be interested in country B's currency, so it can use the US dollar and a US institution as a proxy between the two. But that doesn't do anything to affect the value of the three currencies. It's simply a matter of convenience (these US dollars get exchanged back into currency A or B seconds after being purchased). What matters is how confident people are of their respective government, laws and institutions compared to the US. Would they prefer to hold assets in the United States or their own country, or country A or B.
  - mpweiher 3y ago
    Once again: no, they are not (just) holding US assets, they are also holding currency in order to trade. And no, your idea that they change money into dollars, execute the trade and then change right back is an interesting theory, but not actually what happens.