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World reserve currency status follows the leader in manufacturing and trade. Maintaining dollar hegemony was never going to be feasible after de-industrializati

World reserve currency status follows the leader in manufacturing and trade. Maintaining dollar hegemony was never going to be feasible after de-industrialization, but short-sighted decisions like weaponizing SWIFT have accelerated its decline. As the dollar is gradually shunted out of world trade, the US will be less able to export its inflation abroad. The implications won’t be pretty.

Nevermark 1y ago
Yes, letting the Ukraine related sanctions chronically fester is a tremendous strategic error. The benefits of leverage are dramatically maximized and reinforced by using them as little as possible, on the fewest targets as possible, for the shortest intervals possible, to obtain the most decisive results as possible. Helping an ally interminably not lose on the battlefield (instead of supporting a win), is also a leverage destroying strategic error. There goes significant deterrence. And to triple down, the US has expanded its sanctions (er, tariffs) to all its enemies (uh, trading partners), giving everyone strong signals that no relief is coming, other than to back away from the US. Leverage that took a couple centuries to achieve is hemorrhaging. And we are living in a Kurt Vonnegut novel.
lisbbb 1y ago
You're so defeatist. The US could turn things around and in fact, is. The problem with China is that you can't trust anything there--their bonds are garbage, their equities, same.
- arunabha 1y ago
  The issue is, the current administration seems to be hell bent on speed running the course to a similar destination. The overt attempts to politicize the Fed and key govt institutions has sown the seeds to distrust in US govt data and monetary policy. Whether we water and fertilize the seeds, or let them dry and wither will decide the level of credibility we get in the future. Strong institutions are absolutely critical for long term economic success. Enforcement of the rule of law, accurate data and credible monetary policy are the bedrock on which long term economic prosperity is built. Right now, we seem to be taking a jackhammer to that foundation.
atonse 1y ago
For all of its current very high profile issues of uncertainty in the US, who would actually trust China in any way shape or form as an alternative? It’s a totalitarian state who has been jailing its wealthiest businesspeople on a whim, causing many to flee, and it’s about to embark on an invasion of its peaceful neighbor. Which part of any of that screams “that currency will be a stable place to store my money?”
- mertbio 1y ago
  > who would actually trust China in any way shape or form as an alternative? Most of the Asian countries (except South Korea, Japan and Taiwan) and African countries. They’re already getting tons of investments and loans from China.
  - atonse 1y ago
    Getting investments isn’t the same as adopting a currency as a reserve for its stability.
    - mertbio 1y ago
      The US dollar lost ~10% of its value this year. It is expected to lose another 10%. Which stability are we talking about? Also, here you can see the change in the foreign exchange reserves by currency: https://en.macromicro.me/charts/116488/global-official-foreign-exchange-reserves-by-currency-share https://en.macromicro.me/charts/116488/global-official-forei... US Dollars: 71% -> 58% Chinese Yuan: 0 -> 2%
      - spwa4 1y ago
        As opposed to China, who will probably invade pretty much every Asian country, and the only big unknown is the order. Western China is annexed. Nepal is Annexed. Hong Kong is annexed. Mongolia is 100% under Chinese control. Northwest Pakistan is 95% under Chinese control. Parts of Russia, Afghanistan, Tajikistan and other countries are under Chinese control to a greater or lesser extent, and all those countries have zero hopes of defending against China, and sure as hell can't count on anyone's support. Certainly not their neighbors, or the gulf states, and not the US. The South China sea (including Phillippine, Japanese, Taiwanese territory) is under Chinese control. And the countries' only hope for maintaining independence is the US. China is an empire. It cannot survive except through expansion so betting it will expand is like betting a person will breathe tomorrow. Accepting Chinese currency is like France buying Nazi bonds in 1939 (which France and most European countries did, btw). It seems like, in fact it is, the height of stupidity, but it's amazing what a little bit of promised money can make people do. This is figuratively, and potentially literally, paying for the bullets that will end up lodged in your skull, because the shooter promises 10% return. Which of course, these states will gladly do.
tnt128 1y ago
Would you care to elaborate? Why does it have to follow the leader in manufacturing? shouldnt the world reserve currency also be the most available? If it’s not dollar then what’s the alternative? Yuan isn’t an open currency, impossible for it to replace dollars as the world reserve currency.
- arisAlexis 1y ago
  This can be replaced by the most dominant in AI maybe
PeterStuer 1y ago
World reserve currency is backed by massively outsized military spending and forever wars againdt anyone treathening the hegemony. The only way out is to actually start creating and exporting something else besides war, weapons or weapon backed 'IP', or 'credentials' (degrees). The credibility of the credentials has gone down the toilet. To get the world to actually buy real stuff from you, you have to produce goods they actually want. Not sure the US is actually ready to re-uptake 'manufacturing' of products at a quality and price point the rest of the world sees as good value.
maxglute 1y ago
Leader in tech (by existential margin) -> manufacturing -> trade. US got reserve currency because they had (more or less monopolized) peak tech stack, and also happen to be only manufacturing superpower post war. Only way to develop to modern standards is to have what US had (hence existential), and only US can make it at scale. Over time the tech gap (well MIC gap) = US can leverage for petro dollar, i.e. like saying you can only buy water in USD. Then virtuous cycle of overwhelming accumulated liquidity for dominant reserve currency + FED policy functionally guaranteeing US will eat Triffin shit if investors kept propping up USD with favourable ROI. And IMO investors will continue to until US realize Triffin not worth it. Meanwhile PRC not entertaining being reserve because eating Triffin shit / be global lender of last resort retarded. What PRC does offer is selling entire tech stack to get 90% modern at 30% cost. At least PRC fine for short/medium term if investors run to US to watch line go up (at the expense of US debt -> domestic drama), while industry runs to PRC to for material goods that keep their country running. It's a degree first/second order leverage (indispensable tech/industry to supply indispensable tech) that builds reserve currencies, having goods no one else has, in PRC case, having goods at affordable prices no one else can match, and in many ways bypass downsides of Triffin, as long as PRC can convince enough countries to settle in RMB for transactions relevant to PRC interest.

Nevermark 1y ago

Yes, letting the Ukraine related sanctions chronically fester is a tremendous strategic error. The benefits of leverage are dramatically maximized and reinforced by using them as little as possible, on the fewest targets as possible, for the shortest intervals possible, to obtain the most decisive results as possible. Helping an ally interminably not lose on the battlefield (instead of supporting a win), is also a leverage destroying strategic error. There goes significant deterrence. And to triple down, the US has expanded its sanctions (er, tariffs) to all its enemies (uh, trading partners), giving everyone strong signals that no relief is coming, other than to back away from the US. Leverage that took a couple centuries to achieve is hemorrhaging. And we are living in a Kurt Vonnegut novel.

lisbbb 1y ago

You're so defeatist. The US could turn things around and in fact, is. The problem with China is that you can't trust anything there--their bonds are garbage, their equities, same.

arunabha 1y ago
The issue is, the current administration seems to be hell bent on speed running the course to a similar destination. The overt attempts to politicize the Fed and key govt institutions has sown the seeds to distrust in US govt data and monetary policy. Whether we water and fertilize the seeds, or let them dry and wither will decide the level of credibility we get in the future. Strong institutions are absolutely critical for long term economic success. Enforcement of the rule of law, accurate data and credible monetary policy are the bedrock on which long term economic prosperity is built. Right now, we seem to be taking a jackhammer to that foundation.

atonse 1y ago

For all of its current very high profile issues of uncertainty in the US, who would actually trust China in any way shape or form as an alternative? It’s a totalitarian state who has been jailing its wealthiest businesspeople on a whim, causing many to flee, and it’s about to embark on an invasion of its peaceful neighbor. Which part of any of that screams “that currency will be a stable place to store my money?”

mertbio 1y ago
> who would actually trust China in any way shape or form as an alternative? Most of the Asian countries (except South Korea, Japan and Taiwan) and African countries. They’re already getting tons of investments and loans from China.
- atonse 1y ago
  Getting investments isn’t the same as adopting a currency as a reserve for its stability.
  - mertbio 1y ago
    The US dollar lost ~10% of its value this year. It is expected to lose another 10%. Which stability are we talking about? Also, here you can see the change in the foreign exchange reserves by currency: https://en.macromicro.me/charts/116488/global-official-foreign-exchange-reserves-by-currency-share https://en.macromicro.me/charts/116488/global-official-forei... US Dollars: 71% -> 58% Chinese Yuan: 0 -> 2%
    - spwa4 1y ago
      As opposed to China, who will probably invade pretty much every Asian country, and the only big unknown is the order. Western China is annexed. Nepal is Annexed. Hong Kong is annexed. Mongolia is 100% under Chinese control. Northwest Pakistan is 95% under Chinese control. Parts of Russia, Afghanistan, Tajikistan and other countries are under Chinese control to a greater or lesser extent, and all those countries have zero hopes of defending against China, and sure as hell can't count on anyone's support. Certainly not their neighbors, or the gulf states, and not the US. The South China sea (including Phillippine, Japanese, Taiwanese territory) is under Chinese control. And the countries' only hope for maintaining independence is the US. China is an empire. It cannot survive except through expansion so betting it will expand is like betting a person will breathe tomorrow. Accepting Chinese currency is like France buying Nazi bonds in 1939 (which France and most European countries did, btw). It seems like, in fact it is, the height of stupidity, but it's amazing what a little bit of promised money can make people do. This is figuratively, and potentially literally, paying for the bullets that will end up lodged in your skull, because the shooter promises 10% return. Which of course, these states will gladly do.

tnt128 1y ago

Would you care to elaborate? Why does it have to follow the leader in manufacturing? shouldnt the world reserve currency also be the most available? If it’s not dollar then what’s the alternative? Yuan isn’t an open currency, impossible for it to replace dollars as the world reserve currency.

arisAlexis 1y ago
This can be replaced by the most dominant in AI maybe

PeterStuer 1y ago

World reserve currency is backed by massively outsized military spending and forever wars againdt anyone treathening the hegemony. The only way out is to actually start creating and exporting something else besides war, weapons or weapon backed 'IP', or 'credentials' (degrees). The credibility of the credentials has gone down the toilet. To get the world to actually buy real stuff from you, you have to produce goods they actually want. Not sure the US is actually ready to re-uptake 'manufacturing' of products at a quality and price point the rest of the world sees as good value.

maxglute 1y ago

Leader in tech (by existential margin) -> manufacturing -> trade. US got reserve currency because they had (more or less monopolized) peak tech stack, and also happen to be only manufacturing superpower post war. Only way to develop to modern standards is to have what US had (hence existential), and only US can make it at scale. Over time the tech gap (well MIC gap) = US can leverage for petro dollar, i.e. like saying you can only buy water in USD. Then virtuous cycle of overwhelming accumulated liquidity for dominant reserve currency + FED policy functionally guaranteeing US will eat Triffin shit if investors kept propping up USD with favourable ROI. And IMO investors will continue to until US realize Triffin not worth it. Meanwhile PRC not entertaining being reserve because eating Triffin shit / be global lender of last resort retarded. What PRC does offer is selling entire tech stack to get 90% modern at 30% cost. At least PRC fine for short/medium term if investors run to US to watch line go up (at the expense of US debt -> domestic drama), while industry runs to PRC to for material goods that keep their country running. It's a degree first/second order leverage (indispensable tech/industry to supply indispensable tech) that builds reserve currencies, having goods no one else has, in PRC case, having goods at affordable prices no one else can match, and in many ways bypass downsides of Triffin, as long as PRC can convince enough countries to settle in RMB for transactions relevant to PRC interest.