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I’m surprised all the countries the US is trying to bully aren’t considering moving to the Euro as the reserve currency (even China might go along with this). I

I’m surprised all the countries the US is trying to bully aren’t considering moving to the Euro as the reserve currency (even China might go along with this). It would be so damaging for the US they might actually understand they have been benefiting from a win-win situation since the end of the Second World War.

dave4420 2y ago
I suspect many countries would prefer a Chinese reserve currency to a European one, due to past bad experiences of being ruled by Europeans. But even on a purely economic level… does the Eurozone even have a larger economy than China? I can see countries moving away from USD, but I don’t see them coalescing around a single alternative.
- FreebasingLLMs 2y ago
  [dead]
- magneticstain 2y ago
  I would suspect that some countries would definitely go to China due to the more sizable economy. But a large number of others - especially those with more democratic idealogies - would go with the Euro.
- malcolmgreaves 2y ago
  The RMB is a terrible reserve currency since the CCP can just arbitrarily change its value by decree.
  - dave4420 2y ago
    Sure — but if the CCP decided it wanted the benefits of owning a reserve currency, it could change that. Then suddenly it looks more attractive.
- psychlops 2y ago
  China would absolutely not want to have a reserve currency. Their export economy would be destroyed overnight.
  - kube-system 2y ago
    Doesn't China currently address this by having two currencies, with one dedicated to offshore use?
    - psychlops 2y ago
      Perhaps? I can't imagine that either could take the loss of production capacity the way the US has. The global inflation of product prices alone is staggering to consider.
    - ianburrell 2y ago
      China only has one currency, the renminbi or yuan. There are capital controls so it isn't fully traded on international markets. It has only been internationally traded since 2015, and I think there were various schemes before that.
      - deleted 2y ago
        [deleted]
      - kube-system 2y ago
        Aren't CNY and CNH effectively two different currencies, despite having the same name and being somewhat linked?
        ianburrell 2y ago
        I hadn't noticed that. I guess that is how they manage the capital controls. It sounds like they are supposed to be the same internally but that there is a spread. That seems like it could be a weakness.
seanmcdirmid 2y ago
The dollar is appealing because you can buy US treasuries for however much you have of it (because America's debt appetite is almost unlimited). I don't think you do that with the Euro yet, holding it would be much more complicated because you couldn't stash large amounts of it as easily into bonds. Also, the EU might not like being a reserve currency, and can do what the swiss did when CHF was used abroad too much: negative interest rates.
- somanyphotons 2y ago
  The EU appetite for debt would grow if non-EU kept trying to buy it. It would force practical EU interest rates lower regardless of what the central banks do, allowing governments to choose to take on more debt-funded projects due to debt being cheap
maxwell 2y ago
On the contrary, a weaker dollar would make exports more competitive and imports more expensive, thus realigning trade balance. https://www.lynalden.com/fraying-petrodollar-system https://www.lynalden.com/fraying-petrodollar-system
- rchaud 2y ago
  This is a strategy for low income countries in a race to the bottom, not rich ones. So maybe circle back to this in 5 years.
- jaredklewis 2y ago
  If you are manufacturing complex things with complex supply chains (like a Boeing 787 or a Caterpillar power shovel), the imports being expensive bit also drives up the price of exports. But regardless of what happens with trade balance, it will also make borrowing money much more expensive, which is not great for the US since our debt to GDP ratio is over 100%. It also removes another non-military weapon from our toolkit.
rayiner 2y ago
Why does having the reserve country benefit america? Because it enables us to run unsustainable deficits? Is that good for Americans in the long run?
- buyucu 2y ago
  the american standard of living would collapse if america could not run deficits. in the very long term, like in 50 years, it might actually be better for america, but this generation of americans would be hurt big time.
  - 0xffff2 2y ago
    Why? How? The US balanced the budget under Clinton. I was pretty young, but I don't remember the standard of living collapsing in the early 90s (quite the opposite in fact).
    - buyucu 2y ago
      for a few years only, and with tiny surpluses compared to deficits that came before and after. and the deficits exploded again. I can hold my breath for a few seconds, but not for a 10 minutes. it is like that. and that is only the federal deficit. local governments are also running massive deficits.
      - disgruntledphd2 2y ago
        I mean, the CBO has a range of policies for fixing the federal deficit, most of which are pretty reasonable. I'm a fan of taxing the better off more (but I'm not a US citizen or taxpayer so that's easy for me to say).
        rayiner 2y ago
        Define "the better off?" I also agree with you in principle, but you're overlooking an important fact about American politics. The mainstream "left" in the U.S. is dominated by affluent professionals who hate paying taxes as much as any Reagan Republican. They pay lip service to the idea of "taxing the better off more," but by that they mean "billionaires." That's not a big enough tax base to raise the $1-2 trillion we would need to fix the deficit. That's why you get a ridiculous situation where even the center-left party is promising not to raise taxes on people making under $400k/year. In reality, such a tax plan wouldn't even meaningfully raise taxes on people making $1 million a year. You can't solve the deficit by raising taxes if you're unwilling to tax 99.5% of the population.
psychlops 2y ago
Consider that this is the point of all the machinations. The US having the reserve currency is a liability in many ways and the direct reason why it's a consumer not producer economy. Losing reserve status will be damaging to some parts of the american economy and create a boom in others. Take a look at what current tariffs are across the world. The US isn't necessarily bullying as equalizing.
- rayiner 2y ago
  And also think about which industries and constituencies are helped by the U.S. having the reserve currency, and which ones are hurt by that. What would it take for America to have more of a German-style economy than the current American one? Who would that hurt and who would that help?
  - psychlops 2y ago
    I could be wrong, but think the German economy just broke last week when they blew the cap off their debt ceiling and kicked current day payments to future generations. Note that Germany protects its production with tariffs and VATs, the rough average I've found is 19-21%. I think China is the one to watch. They have double the energy output of the US and are basically the production capital of the world for the foreseeable future unless something changes.
    - xyzzyz 2y ago
      Germany doesn't protect its production with tariffs any more than, say, North Carolina does. There are no German tariffs, because Germany is part of European Union, which sets up common, shared tariff regime, and tariff-free goods movement within EU. Germany can lobby within EU to propose tariffs that it considers beneficial to it, just like North Carolina can in US, but if other EU members don't like it enough, it will not go through. Second, how does VAT protect domestic production? VAT applies to both imported and domestically manufactured goods equally. VAT is really ultimately just a sales tax, just collected in a somewhat different way, and you pay the same sales tax regardless of where the good was produced.
abtinf 2y ago
For better or worse, dollar is the only reserve currency. Every other central bank holds dollars on both sides of their balance sheet. As a result, any attempt to switch away from the dollar would be… cataclysmic.
- acdha 2y ago
  You couldn’t switch overnight but it’s hard to imagine that if, say, the EU, Canada, etc. started shifting to euros that it wouldn’t have a significant effect over time. They have massive economy anchoring their currency and right now there seem to be a lot of countries who would be receptive to reducing their exposure to economic uncertainty here. The USD has been popular due to stability, but if we voluntarily give that up there isn’t some kind of magic moat.
yeahwhatever10 2y ago
You should read a book https://www.amazon.com/Trade-Wars-Are-Class-International/dp/0300244177 https://www.amazon.com/Trade-Wars-Are-Class-International/dp...
rchaud 2y ago
They would have to unwind USD denominated investments, which make up a large chunk of many pension and sovereign wealth funds' portfolio. This can't be done overnight, but over a few years, definitely possible.
anon84873628 2y ago
Why does a reserve currency even need to exist? Bretton Woods was a result of the extraordinary circumstances of WW2. The move to the petrodollar was a good deal at the time letting the US play world police. Now it's clear that the US isn't a reliable security partner even if other countries wanted it. The oil producing nations would surely be happy to start selling in other currencies.
- disgruntledphd2 2y ago
  You're always going to have one currency that is used for most of international trade, because it's much cheaper for country A exporters and country B exporters to settle in one currency. 1-N systems are generally stabler than N-N systems.
rich_sasha 2y ago
The US dollar is just so, so, so incredibly ingrained into the global economy, it just ain't that simple. You can or course hold whatever else instead of USD, but then you'll find yourself just exchanging back and forth to/from USD. It's a bit like coming up with a realistic scheme for a computer with no RAM, only hard drive and CPU caches.

dave4420 2y ago

I suspect many countries would prefer a Chinese reserve currency to a European one, due to past bad experiences of being ruled by Europeans. But even on a purely economic level… does the Eurozone even have a larger economy than China? I can see countries moving away from USD, but I don’t see them coalescing around a single alternative.

FreebasingLLMs 2y ago
[dead]
magneticstain 2y ago
I would suspect that some countries would definitely go to China due to the more sizable economy. But a large number of others - especially those with more democratic idealogies - would go with the Euro.
malcolmgreaves 2y ago
The RMB is a terrible reserve currency since the CCP can just arbitrarily change its value by decree.
- dave4420 2y ago
  Sure — but if the CCP decided it wanted the benefits of owning a reserve currency, it could change that. Then suddenly it looks more attractive.
psychlops 2y ago
China would absolutely not want to have a reserve currency. Their export economy would be destroyed overnight.
- kube-system 2y ago
  Doesn't China currently address this by having two currencies, with one dedicated to offshore use?
  - psychlops 2y ago
    Perhaps? I can't imagine that either could take the loss of production capacity the way the US has. The global inflation of product prices alone is staggering to consider.
  - ianburrell 2y ago
    China only has one currency, the renminbi or yuan. There are capital controls so it isn't fully traded on international markets. It has only been internationally traded since 2015, and I think there were various schemes before that.
    - deleted 2y ago
      [deleted]
    - kube-system 2y ago
      Aren't CNY and CNH effectively two different currencies, despite having the same name and being somewhat linked?
      - ianburrell 2y ago
        I hadn't noticed that. I guess that is how they manage the capital controls. It sounds like they are supposed to be the same internally but that there is a spread. That seems like it could be a weakness.

seanmcdirmid 2y ago

The dollar is appealing because you can buy US treasuries for however much you have of it (because America's debt appetite is almost unlimited). I don't think you do that with the Euro yet, holding it would be much more complicated because you couldn't stash large amounts of it as easily into bonds. Also, the EU might not like being a reserve currency, and can do what the swiss did when CHF was used abroad too much: negative interest rates.

somanyphotons 2y ago
The EU appetite for debt would grow if non-EU kept trying to buy it. It would force practical EU interest rates lower regardless of what the central banks do, allowing governments to choose to take on more debt-funded projects due to debt being cheap

maxwell 2y ago

On the contrary, a weaker dollar would make exports more competitive and imports more expensive, thus realigning trade balance. https://www.lynalden.com/fraying-petrodollar-system https://www.lynalden.com/fraying-petrodollar-system

rchaud 2y ago
This is a strategy for low income countries in a race to the bottom, not rich ones. So maybe circle back to this in 5 years.
jaredklewis 2y ago
If you are manufacturing complex things with complex supply chains (like a Boeing 787 or a Caterpillar power shovel), the imports being expensive bit also drives up the price of exports. But regardless of what happens with trade balance, it will also make borrowing money much more expensive, which is not great for the US since our debt to GDP ratio is over 100%. It also removes another non-military weapon from our toolkit.

rayiner 2y ago

Why does having the reserve country benefit america? Because it enables us to run unsustainable deficits? Is that good for Americans in the long run?

buyucu 2y ago
the american standard of living would collapse if america could not run deficits. in the very long term, like in 50 years, it might actually be better for america, but this generation of americans would be hurt big time.
- 0xffff2 2y ago
  Why? How? The US balanced the budget under Clinton. I was pretty young, but I don't remember the standard of living collapsing in the early 90s (quite the opposite in fact).
  - buyucu 2y ago
    for a few years only, and with tiny surpluses compared to deficits that came before and after. and the deficits exploded again. I can hold my breath for a few seconds, but not for a 10 minutes. it is like that. and that is only the federal deficit. local governments are also running massive deficits.
    - disgruntledphd2 2y ago
      I mean, the CBO has a range of policies for fixing the federal deficit, most of which are pretty reasonable. I'm a fan of taxing the better off more (but I'm not a US citizen or taxpayer so that's easy for me to say).
      - rayiner 2y ago
        Define "the better off?" I also agree with you in principle, but you're overlooking an important fact about American politics. The mainstream "left" in the U.S. is dominated by affluent professionals who hate paying taxes as much as any Reagan Republican. They pay lip service to the idea of "taxing the better off more," but by that they mean "billionaires." That's not a big enough tax base to raise the $1-2 trillion we would need to fix the deficit. That's why you get a ridiculous situation where even the center-left party is promising not to raise taxes on people making under $400k/year. In reality, such a tax plan wouldn't even meaningfully raise taxes on people making $1 million a year. You can't solve the deficit by raising taxes if you're unwilling to tax 99.5% of the population.

psychlops 2y ago

Consider that this is the point of all the machinations. The US having the reserve currency is a liability in many ways and the direct reason why it's a consumer not producer economy. Losing reserve status will be damaging to some parts of the american economy and create a boom in others. Take a look at what current tariffs are across the world. The US isn't necessarily bullying as equalizing.

rayiner 2y ago
And also think about which industries and constituencies are helped by the U.S. having the reserve currency, and which ones are hurt by that. What would it take for America to have more of a German-style economy than the current American one? Who would that hurt and who would that help?
- psychlops 2y ago
  I could be wrong, but think the German economy just broke last week when they blew the cap off their debt ceiling and kicked current day payments to future generations. Note that Germany protects its production with tariffs and VATs, the rough average I've found is 19-21%. I think China is the one to watch. They have double the energy output of the US and are basically the production capital of the world for the foreseeable future unless something changes.
  - xyzzyz 2y ago
    Germany doesn't protect its production with tariffs any more than, say, North Carolina does. There are no German tariffs, because Germany is part of European Union, which sets up common, shared tariff regime, and tariff-free goods movement within EU. Germany can lobby within EU to propose tariffs that it considers beneficial to it, just like North Carolina can in US, but if other EU members don't like it enough, it will not go through. Second, how does VAT protect domestic production? VAT applies to both imported and domestically manufactured goods equally. VAT is really ultimately just a sales tax, just collected in a somewhat different way, and you pay the same sales tax regardless of where the good was produced.

abtinf 2y ago

For better or worse, dollar is the only reserve currency. Every other central bank holds dollars on both sides of their balance sheet. As a result, any attempt to switch away from the dollar would be… cataclysmic.

acdha 2y ago
You couldn’t switch overnight but it’s hard to imagine that if, say, the EU, Canada, etc. started shifting to euros that it wouldn’t have a significant effect over time. They have massive economy anchoring their currency and right now there seem to be a lot of countries who would be receptive to reducing their exposure to economic uncertainty here. The USD has been popular due to stability, but if we voluntarily give that up there isn’t some kind of magic moat.

yeahwhatever10 2y ago

You should read a book https://www.amazon.com/Trade-Wars-Are-Class-International/dp/0300244177 https://www.amazon.com/Trade-Wars-Are-Class-International/dp...

rchaud 2y ago

They would have to unwind USD denominated investments, which make up a large chunk of many pension and sovereign wealth funds' portfolio. This can't be done overnight, but over a few years, definitely possible.

anon84873628 2y ago

Why does a reserve currency even need to exist? Bretton Woods was a result of the extraordinary circumstances of WW2. The move to the petrodollar was a good deal at the time letting the US play world police. Now it's clear that the US isn't a reliable security partner even if other countries wanted it. The oil producing nations would surely be happy to start selling in other currencies.

disgruntledphd2 2y ago
You're always going to have one currency that is used for most of international trade, because it's much cheaper for country A exporters and country B exporters to settle in one currency. 1-N systems are generally stabler than N-N systems.

rich_sasha 2y ago

The US dollar is just so, so, so incredibly ingrained into the global economy, it just ain't that simple. You can or course hold whatever else instead of USD, but then you'll find yourself just exchanging back and forth to/from USD. It's a bit like coming up with a realistic scheme for a computer with no RAM, only hard drive and CPU caches.