3 ms·

I think what is happening is that there is a push to settle bi-lateral trade using the currencies of the two countries that are trading, and then it will grow f

I think what is happening is that there is a push to settle bi-lateral trade using the currencies of the two countries that are trading, and then it will grow from there. Many Countries still use the US Dollar to settle bilateral trade between themselves.

yokem55 3y ago
There is a decent amount of inefficiency in doing this though because you still have to establish valuations between the bilateral currencies. How do you do that without using any reference to some kind of a reserve currency? Ie, how would you figure the 'correct' yen:peso rate with first refering to yen:usd and peso:usd? I mean, you can, but either party takes on a decent amount of risk of getting taken to the cleaners if they misjudge their direct currency ratios. Or, if you do use a reference currency, without actually settling with the reserve, the reference price can be more easily manipulated. So, that means everyone doing strict bilateral settlement has their guards up more which makes it harder to get any trade done.