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> the role of reserve currency today is larged hoisted by the rest of the world onto the USA > Unfortunately the USA is playing a necessary systemic role here

by sho 1y ago

> the role of reserve currency today is larged hoisted by the rest of the world onto the USA > Unfortunately the USA is playing a necessary systemic role here that nobody else wants to do Well. I know what you're trying to say, but it's not like the USA just does nothing to maintain the system. The military, the middle east bases, the petrodollar - none of this is free. The economy is larger than oil, of course - but at the end of the day, most countries still need oil, most oil is still paid for in USD, and will continue to be as long as the USA is the final underwriter of security in that region (and asian, and europe.. until recently). That's always been the deal. The USA provides the security at the end of the day, and everyone else agrees to use its currency. The unwritten promise part is that the US government won't allow too much inflation, keeps an independent central bank, and the debt it offers is to be considered risk-free. The US military isn't going away but the security guarantees which were such an important part of the compact are fading, and inflation - serious inflation - seems to be coming into view. It won't happen overnight but it does smell a bit like the beginning of the end. > EU/China) dosen't want that role either, lest they end up deindustrialising like USA I don't actually think there's any law of nature that reserve currency status == de-industrialization. The UK didn't do so when it wore the crown and I don't think there's any reason the EU or PRC would inevitably do so either should they step up. I think it just happened to overlap - plenty of rich countries also de-industrialized without being the USA! I think/hope that it will eventually be the EU that steps up but it obviously won't happen quickly and they aren't exactly covering themselves with glory over the current crises. There would need to be a lot of changes needed on their side, not least of which the mechanisms and mandate to issue a much, much larger amount of debt. But if the USA sees 5% inflation for a year or two - I think the opportunity would be there.

corimaith 1y ago
>That's always been the deal. This is a bit of popular myth on sites like this but isn't supported by economists, historians or people in finance. The total volume of oil trade is small fraction of total global trade or capital flows. Like I said, the USD is the reserve partly because it's beneficial to these surplus economies to have somebody else holding the bags, but also because there aren't viable alternatives because anybody else who can do it dosen't want to. And given there are 180^180 possible exchanges, a reserve currency will exist for practical reasons. >I don't actually think there's any law of nature that reserve currency status == de-industrialization. A currency that assumes reserve currency status will strengthen due to increased demand, thus making their exports more expensive and thus uncompetitive on the international stage. Which is incompatible with the export-driven strategies of the EU, China or Japan, all the main contenders for alternative reserve currencies. If you look at the behaviour of their central banks, when they receive capital inflows, they in turn buy assets elsewhere to offset the appreciation to maintain the value of their currency. But the Fed cannot and dosen't do that.
- munksbeer 1y ago
  > Which is incompatible with the export-driven strategies of the EU, China or Japan, all the main contenders for alternative reserve currencies. If you look at the behaviour of their central banks, when they receive capital inflows, they in turn buy assets elsewhere to offset the appreciation to maintain the value of their currency. But the Fed cannot and dosen't do that. Late reply. Could you supply some source material to look into this. What "assets elsewhere"?
- insane_dreamer 1y ago
  But that is counter-balanced by being able to issue debt in your own currency at low interest rates. So while yes you do run a deficit, you are in control of your own destiny so to speak, with the ability to print your way out of it (providing you do so wisely so as not to trigger runaway inflation), rather than being at the mercy of lenders due to foreign-currency issued debt (i.e., South America and the IMF).
  - corimaith 1y ago
    Well clearly America has decided that costs of the reserve currency outweight\ the benefits conferred. Many other countries after all manage large debts but also confer the advantages of a surplus economy. >mercy of lenders due to foreign-currency issued debt (i.e., South America and the IMF). Countries come to the IMF when nobody else want to lend to them. It's that or national insolvency. That obviously means some harsh and politically unpopular reforms need to made with spending if they want to restore confidence with everyone else. The IMF is a useful scapegoat that diverts the heat from government to make the actions it needs to make. Nobody is forced to go the IMF, yet despite all the critique, people are still going to them today. In fact the alternatives like China are alot harsher now in their debt relief terms when they realised how many of their lending projects were failing. It's a bit ironically actually when they realise themselves why debt to troubled countries tends to come with stipulations.
    - insane_dreamer 1y ago
      > clearly America has decided that costs of the reserve currency outweight\ the benefits conferred The Trump admin has decided this; that's not necessarily the consensus among economists. Bessent seems capable, but otherwise it's not like this admin is staffed with the best and the brightest by any means, given that the number one criteria is abject loyalty to Trump and his agenda.

by sho 1y ago

corimaith 1y ago

>That's always been the deal. This is a bit of popular myth on sites like this but isn't supported by economists, historians or people in finance. The total volume of oil trade is small fraction of total global trade or capital flows. Like I said, the USD is the reserve partly because it's beneficial to these surplus economies to have somebody else holding the bags, but also because there aren't viable alternatives because anybody else who can do it dosen't want to. And given there are 180^180 possible exchanges, a reserve currency will exist for practical reasons. >I don't actually think there's any law of nature that reserve currency status == de-industrialization. A currency that assumes reserve currency status will strengthen due to increased demand, thus making their exports more expensive and thus uncompetitive on the international stage. Which is incompatible with the export-driven strategies of the EU, China or Japan, all the main contenders for alternative reserve currencies. If you look at the behaviour of their central banks, when they receive capital inflows, they in turn buy assets elsewhere to offset the appreciation to maintain the value of their currency. But the Fed cannot and dosen't do that.

munksbeer 1y ago
> Which is incompatible with the export-driven strategies of the EU, China or Japan, all the main contenders for alternative reserve currencies. If you look at the behaviour of their central banks, when they receive capital inflows, they in turn buy assets elsewhere to offset the appreciation to maintain the value of their currency. But the Fed cannot and dosen't do that. Late reply. Could you supply some source material to look into this. What "assets elsewhere"?
insane_dreamer 1y ago
But that is counter-balanced by being able to issue debt in your own currency at low interest rates. So while yes you do run a deficit, you are in control of your own destiny so to speak, with the ability to print your way out of it (providing you do so wisely so as not to trigger runaway inflation), rather than being at the mercy of lenders due to foreign-currency issued debt (i.e., South America and the IMF).
- corimaith 1y ago
  Well clearly America has decided that costs of the reserve currency outweight\ the benefits conferred. Many other countries after all manage large debts but also confer the advantages of a surplus economy. >mercy of lenders due to foreign-currency issued debt (i.e., South America and the IMF). Countries come to the IMF when nobody else want to lend to them. It's that or national insolvency. That obviously means some harsh and politically unpopular reforms need to made with spending if they want to restore confidence with everyone else. The IMF is a useful scapegoat that diverts the heat from government to make the actions it needs to make. Nobody is forced to go the IMF, yet despite all the critique, people are still going to them today. In fact the alternatives like China are alot harsher now in their debt relief terms when they realised how many of their lending projects were failing. It's a bit ironically actually when they realise themselves why debt to troubled countries tends to come with stipulations.
  - insane_dreamer 1y ago
    > clearly America has decided that costs of the reserve currency outweight\ the benefits conferred The Trump admin has decided this; that's not necessarily the consensus among economists. Bessent seems capable, but otherwise it's not like this admin is staffed with the best and the brightest by any means, given that the number one criteria is abject loyalty to Trump and his agenda.