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> It will still be first in global finance, because nothing is poised to fully replace it. There are many countries with their own currencies, and all it takes

> It will still be first in global finance, because nothing is poised to fully replace it. There are many countries with their own currencies, and all it takes is one of them to back it with gold, or a basket of commodities, and create infrastructure around it, and now there is something more attractive than the dollar to denominate debts in. That's all it takes. Everyone just wants to conduct business, get paid, buy food, etc. If the dollar is inflating away 10% every year, and there's something that fluctuates less than that, it's not exactly a hard choice. Especially if the choice is just a drop down in an app. What may be more concerning, is it's not going to be a western democracy that sets up a stable-coin backed by commodities. They move too slowly, it's going to be an authoritarian regime that can move fast and wants to advance it's significance in the global economy.

fatbird 1y ago
The backing the US dollar has is the strength of the world's only superpower. It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability. That means an entity strong enough to be fully independent, and governed by the rule of law, so that if you're holding a bunch of that currency you can be confident it'll be worth as much tomorrow as it is today. It doesn't matter if Russia or China peg their currencies to gold reserves, no one trusts them keep the currency market-stable, because they're autocracies. And if Canada pegged its currency to gold or commodities, it wouldn't matter because it's not strong enough to maintain its independence by force, if it came to war. The EU and the Euro might be a replacement for USD in terms of a currency backed by a big enough, stable enough entity to make it that trustworthy, but that's a long way in the future. Though, as US Treasuries lose their preferred status, European instruments will likely gain from that.
- dgfitz 1y ago
  This is the logical conclusion, the rest of the whole debate about US monetary policy today is window dressing.
- watwut 1y ago
  > no one trusts them keep the currency market-stable, because they're autocracies. Oh boy, I have some news about US and its trust. China seems more trustworthy right now, which is kind of achievement in the US side. USA cant be trusted to ve stable nor to keep its contracts. Whether Euro collapses into the same state remains to be seen.
- alphazard 1y ago
  > It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability. Commodity backing is a mechanism by which a country can ensure the stability of its currency across different political administrations. It's a kind of social technology like a constitution or super-majority requirement that creates stability. It's a plus that the US is stable power, but you can bet that the dollar will inflate year over year. That is its own form of instability.
  - throw0101d 1y ago
    > Commodity backing is a mechanism by which a country can ensure the stability of its currency across different political administrations. Historical data contradicts the idea that you get stability on the gold standard: * https://archive.is/https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/ https://archive.is/https://www.theatlantic.com/business/arch... * https://www.moneyandbanking.com/commentary/2016/12/14/why-a-gold-standard-is-a-very-bad-idea https://www.moneyandbanking.com/commentary/2016/12/14/why-a-...
- SturgeonsLaw 1y ago
  So if the USA was to lose its status as the world's only superpower, or if the world loses faith in its ability to back the dollar, or if the world is unconvinced that the US is governed by the rule of law, then that wouldn't bode well for the US dollar's position as the world's reserve currency, right?
  - dgfitz 1y ago
    I posit that if the US loses their status as the dominant superpower, WWIII will swiftly follow.
  - Kon-Peki 1y ago
    Presumably, for the dollar to be the world’s reserve currency the world needs to have sufficient excess reserves to be able to buy lots of US Treasuries. If there were some event or events that causes a dramatic contraction in world trade and set off financial crises around the world, many countries may be unable to buy treasuries in the same quantity. A potentially scary thought exercise may be to figure out what the collective reduction in treasury purchases needs to be before it all blows up. I have no clue what that number may be. But I have a feeling that if the dollar ceases to be the reserve currency, it will not be because the world has decided on something else.
  - fatbird 1y ago
    Your second and third options, absolutely. For the first, it's a matter of whether the sovereignty of US could be credibly threatened militarily, which would is hard to imagine without a long, long fall in its military power. It's not the superpower status, it's the absence of credible military threat against it. Canada or Mexico (or Finland, or Vietnam or North Korea) can't guarantee the absence of instability by their military heft alone.
skissane 1y ago
Let's say some random country follows your advice and decides to go back to the gold standard – is that going to convince people globally to use their currency? Probably not. Because even if the currency is on the gold standard today, what stops the country's government from switching back to fiat tomorrow and pocketing all the gold? Or, gradually doing so by introducing restrictions on gold redemption and slowly tightening them over time? Whether a currency is fiat or backed, it is ultimately a statement that you trust the government which controls the currency to take good care of it – and in general, it is easier to have that trust with democracies than authoritarian regimes. And this is part of the argument for fiat currencies – if trust in the institutions ultimately counts for more than what the currency is backed by, why do we really need the backing? Which is why replacing the USD is so hard. I think even if the US starts to go really downhill, people will be looking at currencies like the EUR, JPY, GBP as an alternative. If the IMF allowed private parties to use SDR as a currency – a move the US has always blocked as a threat to the USD, but in a global crisis the US might feel it has no choice but to change its mind – that might become a viable alternative global currency. CNY may become important in trade with China and its close allies, but who outside of China trusts the Chinese government enough to use CNY as a long-term store of value? Only as a riskier bet in a diversified portfolio including safer options.
EasyMark 1y ago
If this was true some country would have risen since the 70s when we completely left any semblence of that. Gold backed currency as the best path forward died in the 1800s
HDThoreaun 1y ago
gold makes a horrible currency, very volatile. No one wants to settle debt in gold due to the volatility, number one goal of currency is predictability. You should be able to guess about how valuable a currency will be 10 years from now. This requires fiat.
Zigurd 1y ago
Translated, this "all it takes is one of them to back it with gold, or a basket of commodities, and create infrastructure around it" amounts to "all it takes is to re-create the western finance system at scale and make it work better for a couple decades without falling back into developing world problems of corruption and instability." Though we are doing a particularly spectacular job of messing that up this year.

fatbird 1y ago

The backing the US dollar has is the strength of the world's only superpower. It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability. That means an entity strong enough to be fully independent, and governed by the rule of law, so that if you're holding a bunch of that currency you can be confident it'll be worth as much tomorrow as it is today. It doesn't matter if Russia or China peg their currencies to gold reserves, no one trusts them keep the currency market-stable, because they're autocracies. And if Canada pegged its currency to gold or commodities, it wouldn't matter because it's not strong enough to maintain its independence by force, if it came to war. The EU and the Euro might be a replacement for USD in terms of a currency backed by a big enough, stable enough entity to make it that trustworthy, but that's a long way in the future. Though, as US Treasuries lose their preferred status, European instruments will likely gain from that.

dgfitz 1y ago
This is the logical conclusion, the rest of the whole debate about US monetary policy today is window dressing.
watwut 1y ago
> no one trusts them keep the currency market-stable, because they're autocracies. Oh boy, I have some news about US and its trust. China seems more trustworthy right now, which is kind of achievement in the US side. USA cant be trusted to ve stable nor to keep its contracts. Whether Euro collapses into the same state remains to be seen.
alphazard 1y ago
> It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability. Commodity backing is a mechanism by which a country can ensure the stability of its currency across different political administrations. It's a kind of social technology like a constitution or super-majority requirement that creates stability. It's a plus that the US is stable power, but you can bet that the dollar will inflate year over year. That is its own form of instability.
- throw0101d 1y ago
  > Commodity backing is a mechanism by which a country can ensure the stability of its currency across different political administrations. Historical data contradicts the idea that you get stability on the gold standard: * https://archive.is/https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/ https://archive.is/https://www.theatlantic.com/business/arch... * https://www.moneyandbanking.com/commentary/2016/12/14/why-a-gold-standard-is-a-very-bad-idea https://www.moneyandbanking.com/commentary/2016/12/14/why-a-...
SturgeonsLaw 1y ago
So if the USA was to lose its status as the world's only superpower, or if the world loses faith in its ability to back the dollar, or if the world is unconvinced that the US is governed by the rule of law, then that wouldn't bode well for the US dollar's position as the world's reserve currency, right?
- dgfitz 1y ago
  I posit that if the US loses their status as the dominant superpower, WWIII will swiftly follow.
- Kon-Peki 1y ago
  Presumably, for the dollar to be the world’s reserve currency the world needs to have sufficient excess reserves to be able to buy lots of US Treasuries. If there were some event or events that causes a dramatic contraction in world trade and set off financial crises around the world, many countries may be unable to buy treasuries in the same quantity. A potentially scary thought exercise may be to figure out what the collective reduction in treasury purchases needs to be before it all blows up. I have no clue what that number may be. But I have a feeling that if the dollar ceases to be the reserve currency, it will not be because the world has decided on something else.
- fatbird 1y ago
  Your second and third options, absolutely. For the first, it's a matter of whether the sovereignty of US could be credibly threatened militarily, which would is hard to imagine without a long, long fall in its military power. It's not the superpower status, it's the absence of credible military threat against it. Canada or Mexico (or Finland, or Vietnam or North Korea) can't guarantee the absence of instability by their military heft alone.

skissane 1y ago

Let's say some random country follows your advice and decides to go back to the gold standard – is that going to convince people globally to use their currency? Probably not. Because even if the currency is on the gold standard today, what stops the country's government from switching back to fiat tomorrow and pocketing all the gold? Or, gradually doing so by introducing restrictions on gold redemption and slowly tightening them over time? Whether a currency is fiat or backed, it is ultimately a statement that you trust the government which controls the currency to take good care of it – and in general, it is easier to have that trust with democracies than authoritarian regimes. And this is part of the argument for fiat currencies – if trust in the institutions ultimately counts for more than what the currency is backed by, why do we really need the backing? Which is why replacing the USD is so hard. I think even if the US starts to go really downhill, people will be looking at currencies like the EUR, JPY, GBP as an alternative. If the IMF allowed private parties to use SDR as a currency – a move the US has always blocked as a threat to the USD, but in a global crisis the US might feel it has no choice but to change its mind – that might become a viable alternative global currency. CNY may become important in trade with China and its close allies, but who outside of China trusts the Chinese government enough to use CNY as a long-term store of value? Only as a riskier bet in a diversified portfolio including safer options.

EasyMark 1y ago

If this was true some country would have risen since the 70s when we completely left any semblence of that. Gold backed currency as the best path forward died in the 1800s

HDThoreaun 1y ago

gold makes a horrible currency, very volatile. No one wants to settle debt in gold due to the volatility, number one goal of currency is predictability. You should be able to guess about how valuable a currency will be 10 years from now. This requires fiat.

Zigurd 1y ago

Translated, this "all it takes is one of them to back it with gold, or a basket of commodities, and create infrastructure around it" amounts to "all it takes is to re-create the western finance system at scale and make it work better for a couple decades without falling back into developing world problems of corruption and instability." Though we are doing a particularly spectacular job of messing that up this year.