Is the American Dollar really going away?

[OldShooter]

... IMHO the US Dollar will remain the world's reserve currency as long as we have a stable, productive, innovative society coupled with sound and reasonable governance.

The biggest issue with the US$ losing reserve currency status is no other country wants it. At the risk of oversimplification, to be a reserve currency these 4 requirements must be met:

1) Have completely open capital markets with no restrictions on capital movements

2) Run a current account deficit and capital account surplus

3) Conduct a monetary policy that ensures global liquidity for the reserve currency, ensuring all legitimate global liquidity needs are fully satisfied.

4) The currency should hold a large share of global financial transactions.

China definitely does not meet any of the first 3 requirements, and its political system is not compatible with the first or third. The EU does not meet #2 and has no desire to do so. The oft mentioned SDR alternative meets none of the requirements.

In effect, the US will continue to be reserve currency until someone else steps up to bat and volunteers, and neither EU nor China have any incentive or desire to do so.

These are pretty objective statements, but I would argue that there is subjectivity to be considered as well. The biggest factor is that no nation likes dancing to the US's tune. We've seen this recently with the debtor nations who owe in US$ getting hurt by our increased interest rates. Another big factor is that few or no nations like our habit of using our banking system to punish people and nations that we don't like. Recent example is the oil and gas trade between Russia and China eschewing dollars in favor of (IIRC) the yuan.

I think at some point the world is headed towards a reserve basket similar to the IMF's Special Drawing Rights basket. (https://en.wikipedia.org/wiki/Special_drawing_rights) I am no macroeconomist but I do think that the confluence of the objective and the subjective factors means that change is coming. When? No idea. It will probably be gradual, but it will not be fun for us.

 

[RobbieB]

I give prepper sites as much attention as zombie sites.

 

[Sojourner]

I worry exactly zero percent about stuff off random paranoia blogs that don't load any faster than it takes me to write this sentence.

+1000

I would not give any credence whatsoever to anything posted on askaprepper.com, other than maybe the best method for storing dried beans for long term preservation.

 

[Markola]

So the world’s new reserve currency issued by the most rotten, corrupt, failed and authoritarian countries in the world will be embraced in 2023. Got it.

And who will issue this new BRICS currency, the Central Bank of the Bad Neighborhoods?

And what will this new BRICS currency be called? “Thug Coin?”

 

[sengsational]

^Michael's list was convincing, but I'm not informed enough to grok most of it. This is right where my head went when I read looked-up what BRICS meant.

 

[MichaelB]

The most important aspect of a reserve currency is not its use for trade or transactions. It’s what countries does with the foreign currency they earn.

Net exporting countries, such as Germany, Taiwan, Netherlands, Belgium, Switzerland, OPEC and China (to name a few), choose to repress their domestic labor and demand and not allow their export income to recycle into their local economy. Instead it’s transferred to the Central Bank, which uses those funds to buy US$ Treasuries and hood them as reserves. If they don’t do this their currencies will appreciate vs the US$ and eventually the trade balances will disappear. This works because the US has free and open capital markets, where foreign interests can invest in US government obligations and move their assets and holdings at any time without any restrictions.

The only way those countries can sustain trade imbalances is if their respective central banks buy the excess foreign currency and return it to the US in the form of Central Bank holdings.

If another country were to become the reserve currency, such a China, its currency would appreciate and would lose its trade advantage, which would lead to a loss of employment. It would also lead to a loss of control over capital movements. China will not do this.

Seizure and security are indeed concerns, as we have seen with N Korea, Iran, Russia, etc, but these are so far limited to bad actors and not leading to any change in global reserve currency. China will increase its holdings of Rubles, Rupees and gold to a point, but the bulk of their Central Bank reserves goes to US$, then Euros, and that’s not going to change until they decide they don’t need a positive balance of trade.

 

[Sojourner]

Net exporting countries, such as Germany, Taiwan, Netherlands, Belgium, Switzerland, OPEC and China (to name a few), choose to repress their domestic labor and demand and not allow their export income to recycle into their local economy. Instead it’s transferred to the Central Bank, which uses those funds to buy US$ Treasuries and hood them as reserves. If they don’t do this their currencies will appreciate vs the US$ and eventually the trade balances will disappear. This works because the US has free and open capital markets, where foreign interests can invest in US government obligations and move their assets and holdings at any time without any restrictions.

Just trying to understand here. You're saying that Germany, Netherlands, and Switzerland "repress their domestic labor [by not allowing] their export income to recycle into their local economy"? Could you elaborate on that?

 

[Go-NoGo]

+1000

I would not give any credence whatsoever to anything posted on askaprepper.com, other than maybe the best method for storing dried beans for long term preservation.

So I went to the Prepper website and had a look. Interestingly enough in the sidebar were a bunch of ads to buy "prepper stuff" including books.

I tried placing an order using using Yuan or SDR's - No go. They wanted USD.

 

[Midpack]

I give prepper sites as much attention as zombie sites.

+100. Not even worth reading...

 

[USGrant1962]

Just trying to understand here. You're saying that Germany, Netherlands, and Switzerland "repress their domestic labor [by not allowing] their export income to recycle into their local economy"? Could you elaborate on that?

Yea, me too. How is say Volkswagen’s export income transferred to the Central Bank? Doesn’t that income go to employees, suppliers and stockholders (after taxes of course).

 

[jazz4cash]

.



I tried placing an order using using Yuan or SDR's - No go. They wanted USD.

That’s all we need to know, LOL

 

[Koolau]

I guess the main issue that concerns me is that the US dollar is still on top because the US economy and economic system is not as bad as the other systems. Not what you want to place on your letter head. "We're not as bad as all the rest." It's true and it's useful and it keeps us on top. But it's not a ringing endorsement either. YMMV

 

[Sunset]

If OP wants to worry and prepare for something, consider natural disasters, especially the secondary effects.

Look at Turkey, the folks that survived the earthquake, will soon suffer from lack of electricity in freezing temps, no food, no water. The emergency workers are suffering the same as the people in the area, so they are of little help.

 

[HawkOwl]

So I went to the Prepper website and had a look. Interestingly enough in the sidebar were a bunch of ads to buy "prepper stuff" including books.

I tried placing an order using using Yuan or SDR's - No go. They wanted USD.

That’s funny!

 

[jebmke]

I worry about a lot of things. This isn't one of them.

I only worry about things I can control, which isn't much. Survival trick from my working life.

 

[aja8888]

Instead of worrying about whether or not the US holds on to the world's reserve currency status, I'm going to start working on my golf game as Spring is in the air.

 

[ShokWaveRider]

The problem is that 80% of the population potentially believe almost everything they read, rubbish or not. Probably why we are in the state we are.

 

[Jerry1]

The main currency will then become BRICS and hyperinflation will start in the US making our savings and cash worth pennys. They said you'll trade a bag of cash for piece of bread. China will be calling the shots and we will no longer be the world superpower. Millions people are without a job, making the Great Depression look like a prosperous time.

So I put on my common sense hat and I wonder - every other nation on earth is NOT the reserve currency and I don’t see their economies collapsing because of it. I’m not saying it wouldn’t be bad if it were to happen, but I think there’s a big gap from where we are to trading in a bag of money for a loaf of bread. If it were to happen, I’m sure we’d figure out a way to survive. Also, as we saw last year, inflation happens even when you are the reserve currency. There’s no reason we couldn’t screw things up all on our own even if we keep the reserve currency.

 

[harley]

The problem is that 80% of the population potentially believe almost everything they read, rubbish or not. Probably why we are in the state we are.

Plus, don't forget that 73.6% of statistics are made up.

 

[Markola]

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Net exporting countries, such as Germany, Taiwan, Netherlands, Belgium, Switzerland, OPEC and China (to name a few), choose to repress their domestic labor and demand and not allow their export income to recycle into their local economy. Instead it’s transferred to the Central Bank, which uses those funds to buy US$ Treasuries and hood them as reserves. If they don’t do this their currencies will appreciate vs the US$ and eventually the trade balances will disappear...If another country were to become the reserve currency, such a China, its currency would appreciate and would lose its trade advantage, which would lead to a loss of employment. It would also lead to a loss of control over capital movements.

This is a crucial point. For the precise reasons you state about net exporting countries, the US Dollar has, in contrast, been allowed to appreciate against other currencies, making us a net importer as a result.

We have a lot of benefits with the dollar as the world reserve currency but there is never a free lunch in economics. For example, one price we pay is that our strong dollar causes a massive trade deficit. Our recent petroleum boom has further exacerbated the strong dollar, giving us the “Resource Curse” (see https://en.wikipedia.org/wiki/Resource_curse)

Such a strong dollar has slowly wrecked our export economy, which is to say, our manufacturing sector. We like to blame China or Mexico or unions or corporate greed or the other party for the historic decline in US manufacturing and our export of jobs, but it’s mostly because the petrodollar system since the early 1970s, as discussed accurately in the article, keeps the dollar strong, makes imports cheap and hurts our exports. The petrodollar system also forces us to spend more on the military than the next 9 or so countries combined, siphoning away our ability to invest in America, unless we run up the national debt.

If you think about when the US manufacturing sector’s decline and our shift to a services economy started, it can be traced to the advent of the petrodollar system, just as the article explains. In our effort to manipulate the world via the dollar, we’ve cost ourselves a lot.

 

[pb4uski]

... IMHO the US Dollar will remain the world's reserve currency as long as we have a stable, productive, innovative society coupled with sound and reasonable governance.

If that is correct, then we are screwed.

 

[jim584672]

No.

 

[Badger]

The problem is that 80% of the population potentially believe almost everything they read, rubbish or not. Probably why we are in the state we are.

I think you are being kind with that assessment.

Cheers!

 

[Car-Guy]

Linky, no worky.

IMHO the US Dollar will remain the world's reserve currency as long as we have a stable, productive, innovative society coupled with sound and reasonable governance.

If that is correct, then we are screwed.

I'm going to give that a "plus one" although somehow we have always (in my lifetime) seem to keep our head above water and remain on top...

 

[frayne]

I'm going to give that a "plus one" although somehow we have always (in my lifetime) seem to keep our head above water and remain on top...

Reading about US/World history, the times we are living in are actually pretty good as compared to the past, not perfect by any stretch of the imagination but nonetheless pretty decent. Of course being inundated by the 24/7 news cycles of 95% bad and worrisome news does tend to skew one's view of reality, not to mention how warped social media is. That said, I still believe the United States best days are still ahead of us.