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Using a national currency as the de facto global reserve guarantees a trade deficit for that country. No one else can manufacture USD's, so other countries hav

Using a national currency as the de facto global reserve guarantees a trade deficit for that country. No one else can manufacture USD's, so other countries have to acquire them by shaping their economies to supply goods and services demanded by the US. They can then use these earned dollars to transact with other countries, as the US itself insists they do. For the US, this is a simple trade off - gain massive political influence (and market intelligence - all USD transactions go through US institutions regardless of where those transacting partners are located), at the expense of hollowing out domestic industry and running a deficit in physical goods traded. The solution is a non-national global reserve, calculated on a basket of national currencies. This was Keynes argument at Bretton Woods, but the US would not have it then, and does not want it now.

lotsofpulp 1y ago
The US isn’t forcing anyone else to use USD. People around the world use USD because they are confident it will help them buy products and services they want in the future.
- kylebenzle 1y ago
  [flagged]
  - sorcerer-mar 1y ago
    > We literally murder people and bomb countries that even joke about not buying and using our worthless currency, Citation needed
    - lumost 1y ago
      There is a common thread in the 1991 gulf conflict that Iraq was going to sell oil in alternative currencies. The entire 1991 conflict is actually quite confusing, the majority western cold war apparatus moved to Saudi Arabia to fight the war. There aren't many reasons for why this was done.
      - sorcerer-mar 1y ago
        Seems at least equally probable (IMO far more) that was due to the whole invading Kuwait thing. Carter ten years prior: "Let our position be absolutely clear: An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force"
        20after4 1y ago
        It appears that the US mislead¹ Saddam Husein into believing that the we would not intervene in the border dispute with Kuwait. This was enough assurance for him to go ahead with the decision to attack Kuwait. That action was then used by the US as a pretext for the invasion of Iraq. 1. https://adst.org/2016/02/a-bum-rap-for-april-glaspie-saddam-and-the-start-of-the-iraq-war/ https://adst.org/2016/02/a-bum-rap-for-april-glaspie-saddam-...
        sorcerer-mar 1y ago
        What's the relevance?
        20after4 1y ago
        Just that they maybe were looking for an excuse and weren't genuinely that concerned about Kuwait.
        sorcerer-mar 1y ago
        It seems much more likely they were concerned about disruptions to energy which can immediately cripple an economy than some abstract vague mentions of using a different currency.
- fatbird 1y ago
  This. Fundamentally, the USD is the global reserve currency because the US is seen by the rest of the world as the most stable entity able to guarantee the future value of its currency: It's militarily powerful enough to guarantee its independence, and legally predictable as a "rule of law" nation and a stable democracy. If you want to park your assets anywhere, the safest bet is US treasuries. Everything else follows from that.
  - herbst 1y ago
    Or because they designed they currency and economy to get there. Then one orange guy took about 3 months to break the trust they built into their currency for many many years.
- throw_m239339 1y ago
  > The US isn’t forcing anyone else to use USD. I disagree. The petrodollar is a thing.
  - lotsofpulp 1y ago
    What kind of force is the US using to force oil sellers to only accept USD (assuming they only accept USD). Are Canada and Russia and Iran only accept USD for their oil sales? https://www.investopedia.com/articles/company-insights/082316/worlds-top-10-oil-exporters.asp https://www.investopedia.com/articles/company-insights/08231...
    - foobarian 1y ago
      > What kind of force is the US using to force oil sellers to only accept USD Ask Saddam Hussein, Hugo Chavez, or Muammar Gaddafi
  - WrongAssumption 1y ago
    20% of oil is traded in currencies other than the US dollar.
Symmetry 1y ago
The US dollar was the global reserve currency in the 1960s but the US was running a trade surplus then.
- hunglee2 1y ago
  Nixon broke Bretton Woods by coming off the gold standard, leading to massive expansion of the money supply. Lyn Alden has good analysis of this process https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/
  - franktankbank 1y ago
    The more I hear about this Nixon feller the less I like him. Seems like a real scoundrel.
    - HDThoreaun 1y ago
      Dumping the gold standard was one of the best moves nixon made. The gold standard was directly responsible for untold economic suffering in the country.
      - franktankbank 1y ago
        [flagged]
        HDThoreaun 1y ago
        Second worst economic period in US history directly caused by the lack of fiat currency. https://en.wikipedia.org/wiki/Long_Depression https://en.wikipedia.org/wiki/Long_Depression Worst economic period in US history directly caused by the lack of fiat currency. https://en.wikipedia.org/wiki/Great_Depression https://en.wikipedia.org/wiki/Great_Depression Fiat currency is just below electricity and insulin as the greatest inventions of the recent centuries.
    - hunglee2 1y ago
codingbot3000 1y ago
Adam Smith already pointed out that a trade deficit is not really interesting, so I do not understand the American obsession about it ;) Also, the often-mentioned US-EU trade deficit is not that big if you count in services. Which I think should be done in the 21st century. Large parts of the US economy are focused on digital high-value services, and they are "exported" worldwide.
- hunglee2 1y ago
  yes indeed - it has been conflated with the decline of US manufacturing. Reality is the most significant export of the US is the USD itself - that is the trade good which everyone must have (at US insistence)
  - ryandrake 1y ago
    Out of all the many industries out there, I don't understand why we keep glorifying and romanticizing manufacturing and trying to "bring it back." Depending on what you are manufacturing, it can be a very boring, stressful, stinky, physically taxing, or dangerous job. And it really doesn't pay well. It may have paid well 70 years ago, but it doesn't today, and you can't turn time back. A lot of customer service and telemarketing jobs have gone offshore. Nobody is romanticizing about bringing them back. Same with textiles and clothing. Nobody is calling for a return of sewing sweatshops. So why does manufacturing win elections?
    - parpfish 1y ago
      [flagged]
      - munificent 1y ago
        > some segments of American men really glorify their work. What should they glorify instead? Being valued by a community? Consumerism and mobility has fragmented communities such that most Americans aren't part of any meaningful social institutions anymore. Secularism (which I think is overall a good thing) has cut off church as another aspect of community. Being a good friend? Again consumerism and mobility has led to a massive loneliness epidemic with many men reporting they have zero close friends. Venturing into the unknown and discovering new resources to bring back home? The map is fully painted in. The exploring that's left to do is in the deep reaches of science that requires massive education investment in order to spend years in a lab making a tiny discovery. Going off to war and protecting the innocent against violent invaders? The last arguably justifiable war was nearly a century ago. It's hard world to find dignity and meaning in today, especially for men in the US, and especially for ones who by personality lean as much towards using their body as their mind. The US used to offer them form or factory jobs that were, yes, hard and dangerous, but (at least in our romanticized memory of it) enabled them to come home at the end of the day and feel they'd provided some value.
ta20240528 1y ago
>> all USD transactions go through US institutions regardless of where those transacting partners are located. Do they? It is my understanding that the (originally London based) Eurodollar market deals in USD without US treasury oversight. As will Hong Kong soon.
- chollida1 1y ago
  You are correct and the original poster is wrong in this specific regard. Infact one of the most interesting/scary incidents for the US dollar was China selling USD denominated bonds and getting almost the same rate as the US government gets, which essentially means China can compete for USD with US government. The implications of this is that if CHina wants, they now have another level to compete with the US. They can now issue USD denominated debt along the yield curve in areas where it would hurt the US hte most. In the short term that is the frond end of the yield curve(short term under a year) where the US has to roll about $8 Trillion in debt over the next year. With China competing by offering bonds here they will force up the interest rate the US has to pay pushing yields up with is the exact opposite of what Trump has publicly stated that he wants and making the US's already large fiscal deficit an even larger problem.
  - hunglee2 1y ago
    appreciate the education
  - tcgv 1y ago
    China certainly can issue dollar bills more cheaply than the US and it already does in small size, but scaling that up would concentrate currency, rollover and sanctions risk on Beijing while simultaneously reinforcing the dollar system it ultimately wants to escape. The trade-off is therefore asymmetric: the political sting to Washington would be modest and reversible, whereas the balance-sheet, legal and geopolitical liabilities for China would linger long after the bonds are sold.
    - ta20240528 1y ago
      > Its Western assumption that China wants to escape the USD reserve currency. Nah, they have a lot of them, they don't want their value to drop. What the world wants is to escape (at least in the medium term) is the US oversight that forces the USA's enemies to be everyone else's enemies. From what I can tell, they are going to use (are using) Hong Kong as a ex-USA location to price and trade USD - modeled on the Eurodollar. With a lot of trade-with-China being settled in their e-CNY CBDC. As a poster alluded to - the big loss for the USA is the insights into pricing and demand. Nascent, but that's the trend AFAICT.
mrtksn 1y ago
US doesn't just get political influence. It gets massive amounts of products and services enabling the US residents live well beyond their means. China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers. US is definitely not the victim here. There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes. It makes sense to be worried for such an eventuality but US is definitely not being taken advantage here. The situation is more like selling your startup at young age and live a lavish lifestyle with the money without working and studying and risk becoming penniless and unemployable by the 50s.
- actionfromafar 1y ago
  Even more sad that the US chose NOT to invest this surplus, for instance in infrastructure, education and a sensible health system.
  - NoMoreNicksLeft 1y ago
    The surplus came with alot of responsibilities, like policing the world. And that had a hefty price tag... nearly $1 trillion annually. Wasn't much left over for public transit and free foot massages. I can entertain arguments that it was a bad bargain.
    - actionfromafar 1y ago
      IMHO that's a false dichotomy. The US has the worlds most inefficient health system, which is an incredibly large budget post, most of the money going to middlemen. Besides, it has also benefited from open shipping lanes as much as the rest of the world, if not more.
    - triceratops 1y ago
      "Policing the world" doesn't have to cost that much. Nearly $2tn spent just on the pointless Iraq misadventure. How much public transit and education could that have funded?
lurk2 1y ago
> all USD transactions go through US institutions regardless of where those transacting partners are located This isn’t true.
deleted 1y ago
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rax0m 1y ago
Another alternative to a non-national global reserve is of course gold (or dare I say the B asset which must not be named)
corimaith 1y ago
Keynes's argument of the International Clearing Union and the associated Bancor was primairly concerned with the need to manually balance trade balances rather than rely on FX exchanges. That would be achieved via manually setting FX exchange rates to heavily punish surplus countries (which should be happening normally in FX but isn't for various reasons). The US chose to maintain a reserve USD pegged to gold instead back when they were running a massive trade surplus, but with the collapse of Bretton-Woods the situation in many ways has inverted. In any case, there is increasingly call by many in recent administrations, from Trump's policy advisors to Biden's Katherine Tao to return to the proposals of the ICU. While I don't think Trump's attempt to rebalance trade while still having the US reserve currency will work, I also don't think the Americans are that attached to that prestige to be willing to give it up in order resolve global trade balances and at home. It's not difficult to deal currency freezes with the right friends if you really wish, the real sting of US sanctions has always being barred access to the lucrative US market. Of course, in the event that the ICU emerges, it would greatly harm the interests of surplus economies like China, Europe, Vietnam, Japan, etc, hence why they largely support the status quo of the US reserve currency rather than changing it, because they've decided that the benefits of surpluses exceeds the benefits of a deficit as a reserve currency.
csomar 1y ago
The issue is that the US now wants to have the cake and eat it too. Trump wants the rest of the world to subsidize the US industry. It'll be interesting how this will pan out.
- epistasis 1y ago
  You say "interesting" but as a US resident, I say "terrifying." Biden showed a great way to subsidize industry and catalyzed the biggest expansion of building factories in generations, in forward-looking sectors that will reduce the cost of energy for all future generations in the US, providing us security and reducing the chance of another inflation spike like that caused by Russia starting wars that threaten the energy supply. All that nascent industry is at risk of being thrown away for being too "woke" all so that we can send all the fired NCI cancer research to factories for assembling iPhones. From pipetting to tiny screws may be slightly related job skills, but it's capturing the least possible value from a generation of highly trained workers...
nitwit005 1y ago
> No one else can manufacture USD's, so other countries have to acquire them by shaping their economies to supply goods and services demanded by the US. They can just buy dollars from the other countries that already bought dollars. A huge amount of trade is dollar denominated, so there's no need to directly sell to the US. > For the US, this is a simple trade off - gain massive political influence (and market intelligence - all USD transactions go through US institutions regardless of where those transacting partners are located), at the expense of hollowing out domestic industry and running a deficit in physical goods traded. That's just false. There's no magic mechanism to force transactions to flow through US banks.
fennecbutt 1y ago
Plus one thing that was never really mentioned during the tariff bs where many American republicans demonstrated a total lack of understanding of what tariffs are and how they work is: The fact that, yes, China makes iPhones and America has to import them. However that completely ignores the fact that China is making iPhones for _Apple_ and that whilst I'm sure the Chinese factories make a little profit, Apple's is making much much more on their huge mark up when selling iPhones across the world. Of course those iPhones are imported directly from China to place of sale, say the UK. But who sees the profit? An American company. _Even though_ those imports would not have counted against America's exports specifically as far as I'm aware.
- throttlebody 1y ago
  A lot of corporate US does not declare their earnings in the US, but in tax heavens, thus further skewing the figures.
- fennecbutt 1y ago
  Follow up: and Trump again today with the 'The president also threatened to impose a 25% import tax "at least" on iPhones not manufactured in America.' Lmao the profit from Chinese companies (or India, etc) manufacturing the iPhone is so, so much less than the profit that Apple makes selling the iPhone. Honestly just ridiculous. I was hoping he'd stick with the insane tariffs so I could watch Americans mob & oust him. But he's backpedaled as he is wont to do, the absolute cretin.
nilram 1y ago
>The solution is a non-national global reserve, calculated on a basket of national currencies. This was Keynes argument at Bretton Woods, but the US would not have it then, and does not want it now. But what does the US want now? It's government's actions are making it more difficult for other countries to trust it for the global reserve currency. If it really wanted manufacturing to return to it's shores, there's other ways to accomplish that without rewiring the global economy: carrots, not sticks.
materielle 1y ago
> At the expense of hollowing out domestic industry This doesn’t seem obvious to me. Trade happens because it mutually beneficial. The counter factual to reducing trade isn’t that we would manufacture the equivalent amount of goods here and be just as rich. It’s that we would be poorer. And certain goods would cease to exist, and all of us would have to learn to live with less because it’s simply infeasible to manufacture everything here.
- huevosabio 1y ago
  > The counter factual to reducing trade isn’t that we would manufacture the equivalent amount of goods here and be just as rich. > It’s that we would be poorer. And certain goods would cease to exist, and all of us would have to learn to live with less because it’s simply infeasible to manufacture everything here. This should be in billboards all over the US. I don't get what is so hard to understand. Globalization made us all richer and gave us the luxury to pursue new technology. Self-sufficiency points towards subsistence farming.
JackYoustra 1y ago
> running a deficit in physical goods traded This is not a disadvantage. By your own admission: we send dollars overseas in exchange for goods. We never have to actually send goods of our own. We effectively get them for the price of printing dollars, so effectively free.
- hahajk 1y ago
  some one really need to explain this in a way I understand, because this sounds very much like "free lunch". Matt Levine explained it as exporting debt ("The US is better than anyone at manufacturing financial instruments"). He also said we get computers in return for entries in a database. This sounds... untenable? too good to be true? a shakey foundation on which to build an economy?
  - AnIrishDuck 1y ago
    The entries in a database are IOUs. The US will have to return something at some point, but as we have complete control over our own currency, the terms of the deal are... very flexible on our side. It's effectively a bet on China's part that (1) it's worth it to build their own industrial base and (2) the US won't renege, at least severely, because of the consequences. Worth noting that the current proposals to further blow up the deficit may actually accelerate this dynamic, regardless of tariffs, because somebody has to buy these IOUs.
    - JackYoustra 1y ago
      It's a lot more than this, right. People want dollars because people want dollars, their motives we can guess at but don't know with certainty. With all likelihood it's to buy US G&S (which is very similar to investing in the US) but it could also just be to have dollars to trade amongst each other.
  - deadfoxygrandpa 1y ago
    it's called "exorbitant privilege" if you want to look it up
  - 1y ago
bobthepanda 1y ago
I mean, the SDR exists, and currency baskets are not new or unheard of. USD has mostly been where it is because the alternatives are a lot less appealing: * CHF - they explicitly would rather not be a strong reserve currency and threaten to print money whenever it starts strengthening * JPY - they also don't want a strong reserve currency because it would tank their export led economy, plus Japan's debt and economy make the US look very healthy in comparison * EUR - people remember the Euro crisis, and a lot of the fundamental issues with the currency were just papered over. It wouldn't ake a lot for a new Euro crisis to happen. * GBP - post Brexit, not that attractive, and not so long ago the whole Liz Truss debacle happened to the currency * CNY - China flirts with the idea of a reserve currency from time to time but would much rather have the ability to impose strict capitol controls quickly It's only in the last year or so that USD has started to look very wobbly.
- herbst 1y ago
  Compared to CHF and EUR the USD was on a downfall for a while now, more or less Corona or the last trump era. The new thing is that it's really getting worthless comparingly up to the point where it's not interesting anymore to keep any USD and no reason in sight to think it might get better
- sgjohnson 1y ago
  SDRs exist only on paper. Regular individuals or companies can’t deal in them.
  - bobthepanda 1y ago
    What is in the SDR is public information, so if you wanted to track them, it's not that hard. https://www.imf.org/external/np/fin/data/rms_sdrv.aspx https://www.imf.org/external/np/fin/data/rms_sdrv.aspx Part of the problem with a currency basket is figuring out which currency basket weighting you actually want to use, and maintaining it. USD just exists.
    - skissane 1y ago
epistasis 1y ago
It is utterly baffling to me that some Americans see the massive amount of free goods that they get as part of being the reserve currency with trade deficits, and somehow think "hollowed out manufacturing" rather than all that cheap stuff we get. The rest of those countries that are manufacturing things are far far poorer, and desperate to switch to industry higher up in the value chain, where the US is. And a half-analysis of the situation, and a halfwit in charge of the country that thinks the trade deficit is like a budget deficit, and the US is throwing away the heart of its economic powerhouse over half understanding of the economy. It's truly breathtaking. Like watching Brexit on repeat. Just utter economic suicide disguised as strength.
- deleted 1y ago
  [deleted]
- trade2play 1y ago
  Play it forward a half century. Physical productive capacity is gone. Your global competitor is the de facto production hegemon. Debt has ballooned, and you can’t fund welfare programs. A big chunk of your country’s assets are owned by foreign investors. But yes, you got a lot of cheap things before the music stopped.
  - epistasis 1y ago
    Play it forward half a century and the US has climbed on to the next generation of industry while all those holding our debt are still trying to catch up, our economy has grown so much that the "debt" seems small, and we are far far more productive than the rest of the world still. The US has massive productive capacity in things where there's not enough supply and for which we gain a huge profit margin. We do not have massive productive capacity in cheap commodities with very low margins. This is a good thing. Switching our absolutely massive productive capacity into less productive jobs is a huge self-own. If we have key industries, like food and computer chips, we subsidize them at a tiny tiny relative cost to the rest of the far more productive industries. A small chunk of our countries t-bills are owned by foreign investors, something like 25%, and the biggest holder, Japan, is something like 3%. We are not in danger of being owned by foreign controllers, especially as long as we keep outgrowing all the other countries by keeping our workforce in highly productive areas instead of less productive areas like sewing T-shirts or assembling consumer electronics. The biggest threat to our welfare programs, the biggest threat to the music stopping, is refocusing the workforce towards the industries of yesteryear. That's when we will stop outgrowing our debt and when we will face a world of hurt. And it's exactly where the masterminds in control are steering us right now.
tap-snap-or-nap 1y ago
The non-national global reserve suggested by Keynes was to be called Bancor, however Harry Dexter White's plan was pursued instead.
skybrian 1y ago
Rather than thinking of it as demand for dollars, you could think of it as demand for US investments in general. The US is one of the better places in the world to invest. Why foreigners want to buy US tech stocks (for example) shouldn’t be a mystery.
- deadfoxygrandpa 1y ago
  but it is a demand for dollars. if germany buys oil from saudi arabia and they have to use USD to buy the oil, that right there is a demand for us dollars and not us investments in general
  - skybrian 1y ago
    Ultimately those dollars will be either spent or invested.
deleted 1y ago
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seanmcdirmid 1y ago
This is also why China isn’t too keen on using the RMB yet in the same way, it is still not freely convertible. The question comes if the USA is insistent on giving up its top spot in the world economy, what currency will fill the void?
deaddodo 1y ago
> They can then use these earned dollars to transact with other countries, as the US itself insists they do. I feel like people who post this have no idea of the "eurodollar"[1] or the fact that it was London (and the EU, at the time, in general) that benefited from popularizing the USD as a reserve currency versus pegging one to their previously decentralized currencies or risking their own currency control. The US doesn't need to insist on anything. As you yourself stated in the paragraph previous to this, it's a natural side effect of being a large economy that everyone wants/needs to trade with. For the most part, the eurodollar has been a pain in the side of the US as it removes some control over their own currency. In some cases this has helped, as it's tempered certain recessive/depressive effects during downtimes (especially with Europe), but it's also caused inflationary issues that are outside the hands of the Fed. The US (like pretty much any nation minting their own currency) would prefer to have that control over some ephemeral benefits that very few can ever seem to articulate or meaningfully quantify. 1 - https://en.wikipedia.org/wiki/Eurodollar https://en.wikipedia.org/wiki/Eurodollar
kiitos 1y ago
> the expense of hollowing out domestic industry > Post WW2, US leadership [deliberately] traded the domestic manufacturing industry [capability] for national security, by making the US dollar the default international trade currency. [This] gave America benefits, but increased the value of the dollar astronomically, which made it impossible to manufacture anything locally ... the logic at the time was that Americans would up-skill en-masse, away from the menial manufacturing jobs [of history] -- but everyone is too much of a dumbass to stay in school [which is required for all of this to work] ... Let's Go Brandon!! https://www.youtube.com/shorts/SCUy3DrUZmw https://www.youtube.com/shorts/SCUy3DrUZmw
sgjohnson 1y ago
> all USD transactions go through US institutions regardless of where those transacting partners are located This is not true. See: Eurodollar - https://en.m.wikipedia.org/wiki/Eurodollar https://en.m.wikipedia.org/wiki/Eurodollar
RivieraKid 1y ago
Why does having a reserve currency status guarantee a trade deficit? For that to be true, (1) foreign-held dollar reserves would have to grow at a sufficient rate and (2) Americans would need to get increasingly indebted, which is a voluntary decision. The fact that foreign goods are cheap doesn't force Americans to get in debt in order to buy them.
trod1234 1y ago
This is not really accurate. National currency as the defacto reserve currency does not necessarily guarantee a trade deficit. It just happens that way in history quite often, but it is unsustainable throughout the currency lifecycle. > The solution is a non-national global reserve ... Keynes argument. Keynes was wrong about a great many things which weren't really recognized until after the 1970s. His depiction of Say's law (and the disproving caricature of it which meant nothing), as well as the related actual failures of monetary policy in low interest rate environments, where his theories indicate contradictory outcomes. I'd like to know why you think this would be a solution. It is not an obvious stance, and in fact the suggestion has been discounted in the past as impossible/intractable for a large number of reasons. First and foremost any system would be fundamentally unstable, and the risk of economic contagion unmitigated, there are cultural, sovereign, and other influences at the intersection of fiscal and monetary policy. Most of the issues under that proposal are caused by the lack of economic calculation being possible, and growing chaos, and its a problem where the indicators lag behind the wave, so it comes without warning, or possibility to react.
wkat4242 1y ago
> The solution is a non-national global reserve, calculated on a basket of national currencies. This was Keynes argument at Bretton Woods, but the US would not have it then, and does not want it now. The US is getting that now whether they want it or not. The financial confidence in them has been destroyed by the insane off-the-cuff trade tariff jumps and I don't think it will ever recover. The trust in the dollar is gone, it's just not so obvious yet because financial systems don't get changed in a day. It's a slow ship to turn but it's also slow to turn back. Europe is now working on replacing the Visa/MasterCard duopoly which currently backs all our payment cards. It'll take a while but when it's there it will never come back. Even consumer confidence (and affinity) is now gone and I see a lot of people proudly avoiding American products and services. Tariffs or not, this will only increase the deficit. You can't force people to buy your stuff, not if you so strongly advocate a free market. Even when there's hopefully a sane president again, the US has shown it's always possible there'll be another Trump out of the blue that screws things over again just from one day to the next. Financial markets can't handle that huge risk. The world is going to move on from trusting the US.

lotsofpulp 1y ago

The US isn’t forcing anyone else to use USD. People around the world use USD because they are confident it will help them buy products and services they want in the future.

kylebenzle 1y ago
[flagged]
- sorcerer-mar 1y ago
  > We literally murder people and bomb countries that even joke about not buying and using our worthless currency, Citation needed
  - lumost 1y ago
    There is a common thread in the 1991 gulf conflict that Iraq was going to sell oil in alternative currencies. The entire 1991 conflict is actually quite confusing, the majority western cold war apparatus moved to Saudi Arabia to fight the war. There aren't many reasons for why this was done.
    - sorcerer-mar 1y ago
      Seems at least equally probable (IMO far more) that was due to the whole invading Kuwait thing. Carter ten years prior: "Let our position be absolutely clear: An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force"
      - 20after4 1y ago
        It appears that the US mislead¹ Saddam Husein into believing that the we would not intervene in the border dispute with Kuwait. This was enough assurance for him to go ahead with the decision to attack Kuwait. That action was then used by the US as a pretext for the invasion of Iraq. 1. https://adst.org/2016/02/a-bum-rap-for-april-glaspie-saddam-and-the-start-of-the-iraq-war/ https://adst.org/2016/02/a-bum-rap-for-april-glaspie-saddam-...
        sorcerer-mar 1y ago
        What's the relevance?
        20after4 1y ago
        Just that they maybe were looking for an excuse and weren't genuinely that concerned about Kuwait.
        sorcerer-mar 1y ago
        It seems much more likely they were concerned about disruptions to energy which can immediately cripple an economy than some abstract vague mentions of using a different currency.
fatbird 1y ago
This. Fundamentally, the USD is the global reserve currency because the US is seen by the rest of the world as the most stable entity able to guarantee the future value of its currency: It's militarily powerful enough to guarantee its independence, and legally predictable as a "rule of law" nation and a stable democracy. If you want to park your assets anywhere, the safest bet is US treasuries. Everything else follows from that.
- herbst 1y ago
  Or because they designed they currency and economy to get there. Then one orange guy took about 3 months to break the trust they built into their currency for many many years.
throw_m239339 1y ago
> The US isn’t forcing anyone else to use USD. I disagree. The petrodollar is a thing.
- lotsofpulp 1y ago
  What kind of force is the US using to force oil sellers to only accept USD (assuming they only accept USD). Are Canada and Russia and Iran only accept USD for their oil sales? https://www.investopedia.com/articles/company-insights/082316/worlds-top-10-oil-exporters.asp https://www.investopedia.com/articles/company-insights/08231...
  - foobarian 1y ago
    > What kind of force is the US using to force oil sellers to only accept USD Ask Saddam Hussein, Hugo Chavez, or Muammar Gaddafi
- WrongAssumption 1y ago
  20% of oil is traded in currencies other than the US dollar.

Symmetry 1y ago

The US dollar was the global reserve currency in the 1960s but the US was running a trade surplus then.

hunglee2 1y ago
Nixon broke Bretton Woods by coming off the gold standard, leading to massive expansion of the money supply. Lyn Alden has good analysis of this process https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/
- franktankbank 1y ago
  The more I hear about this Nixon feller the less I like him. Seems like a real scoundrel.
  - HDThoreaun 1y ago
    Dumping the gold standard was one of the best moves nixon made. The gold standard was directly responsible for untold economic suffering in the country.
    - franktankbank 1y ago
      [flagged]
      - HDThoreaun 1y ago
        Second worst economic period in US history directly caused by the lack of fiat currency. https://en.wikipedia.org/wiki/Long_Depression https://en.wikipedia.org/wiki/Long_Depression Worst economic period in US history directly caused by the lack of fiat currency. https://en.wikipedia.org/wiki/Great_Depression https://en.wikipedia.org/wiki/Great_Depression Fiat currency is just below electricity and insulin as the greatest inventions of the recent centuries.
  - hunglee2 1y ago

codingbot3000 1y ago

Adam Smith already pointed out that a trade deficit is not really interesting, so I do not understand the American obsession about it ;) Also, the often-mentioned US-EU trade deficit is not that big if you count in services. Which I think should be done in the 21st century. Large parts of the US economy are focused on digital high-value services, and they are "exported" worldwide.

hunglee2 1y ago
yes indeed - it has been conflated with the decline of US manufacturing. Reality is the most significant export of the US is the USD itself - that is the trade good which everyone must have (at US insistence)
- ryandrake 1y ago
  Out of all the many industries out there, I don't understand why we keep glorifying and romanticizing manufacturing and trying to "bring it back." Depending on what you are manufacturing, it can be a very boring, stressful, stinky, physically taxing, or dangerous job. And it really doesn't pay well. It may have paid well 70 years ago, but it doesn't today, and you can't turn time back. A lot of customer service and telemarketing jobs have gone offshore. Nobody is romanticizing about bringing them back. Same with textiles and clothing. Nobody is calling for a return of sewing sweatshops. So why does manufacturing win elections?
  - parpfish 1y ago
    [flagged]
    - munificent 1y ago
      > some segments of American men really glorify their work. What should they glorify instead? Being valued by a community? Consumerism and mobility has fragmented communities such that most Americans aren't part of any meaningful social institutions anymore. Secularism (which I think is overall a good thing) has cut off church as another aspect of community. Being a good friend? Again consumerism and mobility has led to a massive loneliness epidemic with many men reporting they have zero close friends. Venturing into the unknown and discovering new resources to bring back home? The map is fully painted in. The exploring that's left to do is in the deep reaches of science that requires massive education investment in order to spend years in a lab making a tiny discovery. Going off to war and protecting the innocent against violent invaders? The last arguably justifiable war was nearly a century ago. It's hard world to find dignity and meaning in today, especially for men in the US, and especially for ones who by personality lean as much towards using their body as their mind. The US used to offer them form or factory jobs that were, yes, hard and dangerous, but (at least in our romanticized memory of it) enabled them to come home at the end of the day and feel they'd provided some value.

ta20240528 1y ago

>> all USD transactions go through US institutions regardless of where those transacting partners are located. Do they? It is my understanding that the (originally London based) Eurodollar market deals in USD without US treasury oversight. As will Hong Kong soon.

chollida1 1y ago
You are correct and the original poster is wrong in this specific regard. Infact one of the most interesting/scary incidents for the US dollar was China selling USD denominated bonds and getting almost the same rate as the US government gets, which essentially means China can compete for USD with US government. The implications of this is that if CHina wants, they now have another level to compete with the US. They can now issue USD denominated debt along the yield curve in areas where it would hurt the US hte most. In the short term that is the frond end of the yield curve(short term under a year) where the US has to roll about $8 Trillion in debt over the next year. With China competing by offering bonds here they will force up the interest rate the US has to pay pushing yields up with is the exact opposite of what Trump has publicly stated that he wants and making the US's already large fiscal deficit an even larger problem.
- hunglee2 1y ago
  appreciate the education
- tcgv 1y ago
  China certainly can issue dollar bills more cheaply than the US and it already does in small size, but scaling that up would concentrate currency, rollover and sanctions risk on Beijing while simultaneously reinforcing the dollar system it ultimately wants to escape. The trade-off is therefore asymmetric: the political sting to Washington would be modest and reversible, whereas the balance-sheet, legal and geopolitical liabilities for China would linger long after the bonds are sold.
  - ta20240528 1y ago
    > Its Western assumption that China wants to escape the USD reserve currency. Nah, they have a lot of them, they don't want their value to drop. What the world wants is to escape (at least in the medium term) is the US oversight that forces the USA's enemies to be everyone else's enemies. From what I can tell, they are going to use (are using) Hong Kong as a ex-USA location to price and trade USD - modeled on the Eurodollar. With a lot of trade-with-China being settled in their e-CNY CBDC. As a poster alluded to - the big loss for the USA is the insights into pricing and demand. Nascent, but that's the trend AFAICT.

mrtksn 1y ago

US doesn't just get political influence. It gets massive amounts of products and services enabling the US residents live well beyond their means. China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers. US is definitely not the victim here. There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes. It makes sense to be worried for such an eventuality but US is definitely not being taken advantage here. The situation is more like selling your startup at young age and live a lavish lifestyle with the money without working and studying and risk becoming penniless and unemployable by the 50s.

actionfromafar 1y ago
Even more sad that the US chose NOT to invest this surplus, for instance in infrastructure, education and a sensible health system.
- NoMoreNicksLeft 1y ago
  The surplus came with alot of responsibilities, like policing the world. And that had a hefty price tag... nearly $1 trillion annually. Wasn't much left over for public transit and free foot massages. I can entertain arguments that it was a bad bargain.
  - actionfromafar 1y ago
    IMHO that's a false dichotomy. The US has the worlds most inefficient health system, which is an incredibly large budget post, most of the money going to middlemen. Besides, it has also benefited from open shipping lanes as much as the rest of the world, if not more.
  - triceratops 1y ago
    "Policing the world" doesn't have to cost that much. Nearly $2tn spent just on the pointless Iraq misadventure. How much public transit and education could that have funded?

lurk2 1y ago

> all USD transactions go through US institutions regardless of where those transacting partners are located This isn’t true.

deleted 1y ago

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rax0m 1y ago

Another alternative to a non-national global reserve is of course gold (or dare I say the B asset which must not be named)

corimaith 1y ago

Keynes's argument of the International Clearing Union and the associated Bancor was primairly concerned with the need to manually balance trade balances rather than rely on FX exchanges. That would be achieved via manually setting FX exchange rates to heavily punish surplus countries (which should be happening normally in FX but isn't for various reasons). The US chose to maintain a reserve USD pegged to gold instead back when they were running a massive trade surplus, but with the collapse of Bretton-Woods the situation in many ways has inverted. In any case, there is increasingly call by many in recent administrations, from Trump's policy advisors to Biden's Katherine Tao to return to the proposals of the ICU. While I don't think Trump's attempt to rebalance trade while still having the US reserve currency will work, I also don't think the Americans are that attached to that prestige to be willing to give it up in order resolve global trade balances and at home. It's not difficult to deal currency freezes with the right friends if you really wish, the real sting of US sanctions has always being barred access to the lucrative US market. Of course, in the event that the ICU emerges, it would greatly harm the interests of surplus economies like China, Europe, Vietnam, Japan, etc, hence why they largely support the status quo of the US reserve currency rather than changing it, because they've decided that the benefits of surpluses exceeds the benefits of a deficit as a reserve currency.

csomar 1y ago

The issue is that the US now wants to have the cake and eat it too. Trump wants the rest of the world to subsidize the US industry. It'll be interesting how this will pan out.

epistasis 1y ago
You say "interesting" but as a US resident, I say "terrifying." Biden showed a great way to subsidize industry and catalyzed the biggest expansion of building factories in generations, in forward-looking sectors that will reduce the cost of energy for all future generations in the US, providing us security and reducing the chance of another inflation spike like that caused by Russia starting wars that threaten the energy supply. All that nascent industry is at risk of being thrown away for being too "woke" all so that we can send all the fired NCI cancer research to factories for assembling iPhones. From pipetting to tiny screws may be slightly related job skills, but it's capturing the least possible value from a generation of highly trained workers...

nitwit005 1y ago

> No one else can manufacture USD's, so other countries have to acquire them by shaping their economies to supply goods and services demanded by the US. They can just buy dollars from the other countries that already bought dollars. A huge amount of trade is dollar denominated, so there's no need to directly sell to the US. > For the US, this is a simple trade off - gain massive political influence (and market intelligence - all USD transactions go through US institutions regardless of where those transacting partners are located), at the expense of hollowing out domestic industry and running a deficit in physical goods traded. That's just false. There's no magic mechanism to force transactions to flow through US banks.

fennecbutt 1y ago

Plus one thing that was never really mentioned during the tariff bs where many American republicans demonstrated a total lack of understanding of what tariffs are and how they work is: The fact that, yes, China makes iPhones and America has to import them. However that completely ignores the fact that China is making iPhones for _Apple_ and that whilst I'm sure the Chinese factories make a little profit, Apple's is making much much more on their huge mark up when selling iPhones across the world. Of course those iPhones are imported directly from China to place of sale, say the UK. But who sees the profit? An American company. _Even though_ those imports would not have counted against America's exports specifically as far as I'm aware.

throttlebody 1y ago
A lot of corporate US does not declare their earnings in the US, but in tax heavens, thus further skewing the figures.
fennecbutt 1y ago
Follow up: and Trump again today with the 'The president also threatened to impose a 25% import tax "at least" on iPhones not manufactured in America.' Lmao the profit from Chinese companies (or India, etc) manufacturing the iPhone is so, so much less than the profit that Apple makes selling the iPhone. Honestly just ridiculous. I was hoping he'd stick with the insane tariffs so I could watch Americans mob & oust him. But he's backpedaled as he is wont to do, the absolute cretin.

nilram 1y ago

>The solution is a non-national global reserve, calculated on a basket of national currencies. This was Keynes argument at Bretton Woods, but the US would not have it then, and does not want it now. But what does the US want now? It's government's actions are making it more difficult for other countries to trust it for the global reserve currency. If it really wanted manufacturing to return to it's shores, there's other ways to accomplish that without rewiring the global economy: carrots, not sticks.

materielle 1y ago

> At the expense of hollowing out domestic industry This doesn’t seem obvious to me. Trade happens because it mutually beneficial. The counter factual to reducing trade isn’t that we would manufacture the equivalent amount of goods here and be just as rich. It’s that we would be poorer. And certain goods would cease to exist, and all of us would have to learn to live with less because it’s simply infeasible to manufacture everything here.

huevosabio 1y ago
> The counter factual to reducing trade isn’t that we would manufacture the equivalent amount of goods here and be just as rich. > It’s that we would be poorer. And certain goods would cease to exist, and all of us would have to learn to live with less because it’s simply infeasible to manufacture everything here. This should be in billboards all over the US. I don't get what is so hard to understand. Globalization made us all richer and gave us the luxury to pursue new technology. Self-sufficiency points towards subsistence farming.

JackYoustra 1y ago

> running a deficit in physical goods traded This is not a disadvantage. By your own admission: we send dollars overseas in exchange for goods. We never have to actually send goods of our own. We effectively get them for the price of printing dollars, so effectively free.

hahajk 1y ago
some one really need to explain this in a way I understand, because this sounds very much like "free lunch". Matt Levine explained it as exporting debt ("The US is better than anyone at manufacturing financial instruments"). He also said we get computers in return for entries in a database. This sounds... untenable? too good to be true? a shakey foundation on which to build an economy?
- AnIrishDuck 1y ago
  The entries in a database are IOUs. The US will have to return something at some point, but as we have complete control over our own currency, the terms of the deal are... very flexible on our side. It's effectively a bet on China's part that (1) it's worth it to build their own industrial base and (2) the US won't renege, at least severely, because of the consequences. Worth noting that the current proposals to further blow up the deficit may actually accelerate this dynamic, regardless of tariffs, because somebody has to buy these IOUs.
  - JackYoustra 1y ago
    It's a lot more than this, right. People want dollars because people want dollars, their motives we can guess at but don't know with certainty. With all likelihood it's to buy US G&S (which is very similar to investing in the US) but it could also just be to have dollars to trade amongst each other.
- deadfoxygrandpa 1y ago
  it's called "exorbitant privilege" if you want to look it up
- 1y ago

bobthepanda 1y ago

I mean, the SDR exists, and currency baskets are not new or unheard of. USD has mostly been where it is because the alternatives are a lot less appealing: * CHF - they explicitly would rather not be a strong reserve currency and threaten to print money whenever it starts strengthening * JPY - they also don't want a strong reserve currency because it would tank their export led economy, plus Japan's debt and economy make the US look very healthy in comparison * EUR - people remember the Euro crisis, and a lot of the fundamental issues with the currency were just papered over. It wouldn't ake a lot for a new Euro crisis to happen. * GBP - post Brexit, not that attractive, and not so long ago the whole Liz Truss debacle happened to the currency * CNY - China flirts with the idea of a reserve currency from time to time but would much rather have the ability to impose strict capitol controls quickly It's only in the last year or so that USD has started to look very wobbly.

herbst 1y ago
Compared to CHF and EUR the USD was on a downfall for a while now, more or less Corona or the last trump era. The new thing is that it's really getting worthless comparingly up to the point where it's not interesting anymore to keep any USD and no reason in sight to think it might get better
sgjohnson 1y ago
SDRs exist only on paper. Regular individuals or companies can’t deal in them.
- bobthepanda 1y ago
  What is in the SDR is public information, so if you wanted to track them, it's not that hard. https://www.imf.org/external/np/fin/data/rms_sdrv.aspx https://www.imf.org/external/np/fin/data/rms_sdrv.aspx Part of the problem with a currency basket is figuring out which currency basket weighting you actually want to use, and maintaining it. USD just exists.
  - skissane 1y ago

epistasis 1y ago

It is utterly baffling to me that some Americans see the massive amount of free goods that they get as part of being the reserve currency with trade deficits, and somehow think "hollowed out manufacturing" rather than all that cheap stuff we get. The rest of those countries that are manufacturing things are far far poorer, and desperate to switch to industry higher up in the value chain, where the US is. And a half-analysis of the situation, and a halfwit in charge of the country that thinks the trade deficit is like a budget deficit, and the US is throwing away the heart of its economic powerhouse over half understanding of the economy. It's truly breathtaking. Like watching Brexit on repeat. Just utter economic suicide disguised as strength.

deleted 1y ago
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trade2play 1y ago
Play it forward a half century. Physical productive capacity is gone. Your global competitor is the de facto production hegemon. Debt has ballooned, and you can’t fund welfare programs. A big chunk of your country’s assets are owned by foreign investors. But yes, you got a lot of cheap things before the music stopped.
- epistasis 1y ago
  Play it forward half a century and the US has climbed on to the next generation of industry while all those holding our debt are still trying to catch up, our economy has grown so much that the "debt" seems small, and we are far far more productive than the rest of the world still. The US has massive productive capacity in things where there's not enough supply and for which we gain a huge profit margin. We do not have massive productive capacity in cheap commodities with very low margins. This is a good thing. Switching our absolutely massive productive capacity into less productive jobs is a huge self-own. If we have key industries, like food and computer chips, we subsidize them at a tiny tiny relative cost to the rest of the far more productive industries. A small chunk of our countries t-bills are owned by foreign investors, something like 25%, and the biggest holder, Japan, is something like 3%. We are not in danger of being owned by foreign controllers, especially as long as we keep outgrowing all the other countries by keeping our workforce in highly productive areas instead of less productive areas like sewing T-shirts or assembling consumer electronics. The biggest threat to our welfare programs, the biggest threat to the music stopping, is refocusing the workforce towards the industries of yesteryear. That's when we will stop outgrowing our debt and when we will face a world of hurt. And it's exactly where the masterminds in control are steering us right now.

tap-snap-or-nap 1y ago

The non-national global reserve suggested by Keynes was to be called Bancor, however Harry Dexter White's plan was pursued instead.

skybrian 1y ago

Rather than thinking of it as demand for dollars, you could think of it as demand for US investments in general. The US is one of the better places in the world to invest. Why foreigners want to buy US tech stocks (for example) shouldn’t be a mystery.

deadfoxygrandpa 1y ago
but it is a demand for dollars. if germany buys oil from saudi arabia and they have to use USD to buy the oil, that right there is a demand for us dollars and not us investments in general
- skybrian 1y ago
  Ultimately those dollars will be either spent or invested.

deleted 1y ago

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seanmcdirmid 1y ago

This is also why China isn’t too keen on using the RMB yet in the same way, it is still not freely convertible. The question comes if the USA is insistent on giving up its top spot in the world economy, what currency will fill the void?

deaddodo 1y ago

> They can then use these earned dollars to transact with other countries, as the US itself insists they do. I feel like people who post this have no idea of the "eurodollar"[1] or the fact that it was London (and the EU, at the time, in general) that benefited from popularizing the USD as a reserve currency versus pegging one to their previously decentralized currencies or risking their own currency control. The US doesn't need to insist on anything. As you yourself stated in the paragraph previous to this, it's a natural side effect of being a large economy that everyone wants/needs to trade with. For the most part, the eurodollar has been a pain in the side of the US as it removes some control over their own currency. In some cases this has helped, as it's tempered certain recessive/depressive effects during downtimes (especially with Europe), but it's also caused inflationary issues that are outside the hands of the Fed. The US (like pretty much any nation minting their own currency) would prefer to have that control over some ephemeral benefits that very few can ever seem to articulate or meaningfully quantify. 1 - https://en.wikipedia.org/wiki/Eurodollar https://en.wikipedia.org/wiki/Eurodollar

kiitos 1y ago

> the expense of hollowing out domestic industry > Post WW2, US leadership [deliberately] traded the domestic manufacturing industry [capability] for national security, by making the US dollar the default international trade currency. [This] gave America benefits, but increased the value of the dollar astronomically, which made it impossible to manufacture anything locally ... the logic at the time was that Americans would up-skill en-masse, away from the menial manufacturing jobs [of history] -- but everyone is too much of a dumbass to stay in school [which is required for all of this to work] ... Let's Go Brandon!! https://www.youtube.com/shorts/SCUy3DrUZmw https://www.youtube.com/shorts/SCUy3DrUZmw

sgjohnson 1y ago

> all USD transactions go through US institutions regardless of where those transacting partners are located This is not true. See: Eurodollar - https://en.m.wikipedia.org/wiki/Eurodollar https://en.m.wikipedia.org/wiki/Eurodollar

RivieraKid 1y ago

Why does having a reserve currency status guarantee a trade deficit? For that to be true, (1) foreign-held dollar reserves would have to grow at a sufficient rate and (2) Americans would need to get increasingly indebted, which is a voluntary decision. The fact that foreign goods are cheap doesn't force Americans to get in debt in order to buy them.

trod1234 1y ago

This is not really accurate. National currency as the defacto reserve currency does not necessarily guarantee a trade deficit. It just happens that way in history quite often, but it is unsustainable throughout the currency lifecycle. > The solution is a non-national global reserve ... Keynes argument. Keynes was wrong about a great many things which weren't really recognized until after the 1970s. His depiction of Say's law (and the disproving caricature of it which meant nothing), as well as the related actual failures of monetary policy in low interest rate environments, where his theories indicate contradictory outcomes. I'd like to know why you think this would be a solution. It is not an obvious stance, and in fact the suggestion has been discounted in the past as impossible/intractable for a large number of reasons. First and foremost any system would be fundamentally unstable, and the risk of economic contagion unmitigated, there are cultural, sovereign, and other influences at the intersection of fiscal and monetary policy. Most of the issues under that proposal are caused by the lack of economic calculation being possible, and growing chaos, and its a problem where the indicators lag behind the wave, so it comes without warning, or possibility to react.

wkat4242 1y ago

> The solution is a non-national global reserve, calculated on a basket of national currencies. This was Keynes argument at Bretton Woods, but the US would not have it then, and does not want it now. The US is getting that now whether they want it or not. The financial confidence in them has been destroyed by the insane off-the-cuff trade tariff jumps and I don't think it will ever recover. The trust in the dollar is gone, it's just not so obvious yet because financial systems don't get changed in a day. It's a slow ship to turn but it's also slow to turn back. Europe is now working on replacing the Visa/MasterCard duopoly which currently backs all our payment cards. It'll take a while but when it's there it will never come back. Even consumer confidence (and affinity) is now gone and I see a lot of people proudly avoiding American products and services. Tariffs or not, this will only increase the deficit. You can't force people to buy your stuff, not if you so strongly advocate a free market. Even when there's hopefully a sane president again, the US has shown it's always possible there'll be another Trump out of the blue that screws things over again just from one day to the next. Financial markets can't handle that huge risk. The world is going to move on from trusting the US.