Opinions regarding the future of US dollar as World Reserve currency

[cooch96]

The people that post here have all got heavy bets on a stable financial system with the US in the lead. We bought into it and can't even think of the system leaving us hang out to dry. So if any other idea comes-up other than "it will be stable forever", the cognitive dissonance that arises is too much to bear, and the discussion goes to loading-up on food and ammo. There's a lot of room between something other than the stability we've enjoyed and food riots, but that middle ground never seems to be discussed.

Well put, Seng.

I think real estate will be a decent hedge for many of the scenarios between the status quo and mass vagrant uprisings. Only an investment if you have and can keep tenants. I instinctually like the idea of acquiring durable goods, but with ongoing world industrialization, goods should just continue to deflate in real cost.

And as others have pointed out, if things get so bad that you wish you had bought beans, bottled water, and bullets. . . Well, appropriately hedging against the USD will be among the least of our worries.

 

[Senator]

Not to downplay the US here, but things are changing and reasonably fast. Australia, New Zealand, Canada and Europe all see tangible things happening with the rise of China. From property prices to corporate takeover and tourism.

Chinese Yuan will never be the reserve currency. We cannot even trust that the baby formula and medications are safe, how can we trust their currency.

Now if there was a war, and the Chinese mandated their currency, that would be different.

 

[rayvt]

• The Chinese economy is already about the same size as the US: 21 trillion (PPP) vs. 19 trillion; in nominal terms 11 trillion vs. 19 trillion

At current growth rates with a modest reduction China will surpass the US within 10 years in nominal terms.

Wow, there are actually some people who think that financial data coming from a Communist government has any relationship to the truth?

 

[PhrugalPhan]

There's a lot of room between something other than the stability we've enjoyed and food riots, but that middle ground never seems to be discussed.

Wouldn't buying stock in multinational companies be a reasonable middle ground? If the USD loses traction, these companies should still be earning good money in whatever the new reserve currency will be, right? At least that's my hope and one reason why I like investing in them.

 

[Texas Proud]

Just a pedantic remark (sorry):

• Population US vs. China is roughly x4: 320 million vs. 1360 million
• The Chinese economy is already about the same size as the US: 21 trillion (PPP) vs. 19 trillion; in nominal terms 11 trillion vs. 19 trillion

At current growth rates with a modest reduction China will surpass the US within 10 years in nominal terms. Still means the average china person has a factor x4 to go (GDP per capita). That may never happen or take a very long time.


Not to downplay the US here, but things are changing and reasonably fast. Australia, New Zealand, Canada and Europe all see tangible things happening with the rise of China. From property prices to corporate takeover and tourism.

No problem.... I did not look it up and just threw out a number for population....


But, there are some sites that say China is already larger than the US... but I still do not see the Yuan becoming the world reserve currency as long as it stays a Communist country.... people have to trust that the value they place in the currency will be there when they need it...

I will go against myself a bit... I looked at PPP per capita and the US is between 9th and 13th per Wiki (different lists).... but the countries that are ahead of us are small... heck, Texas (or California) has a bigger economy than any of them (maybe even all of them combined)....

IMO it comes down to trust.... do you trust the stability of the gvmt and the economy that backs the currency or not... it also matters as to the size of the economy... IOW, I think most people would trust Switzerland, but there just is not enough Swiss Francs to go around for the whole world...


Heck, I could be wrong.... I would bet that most people 70 years ago would think that Japan and Germany would be close allies to the US...

 

[Totoro]

Wow, there are actually some people who think that financial data coming from a Communist government has any relationship to the truth?

Just about the same as any other government.

Here be dragons? China's economic data may not be all bad

Browsing shadowstats.com, one will find that president Lyndon Johnson would review the gross national product (GNP) reports before their release and if he did not like it, would keep sending the estimates back to the Commerce Department until they got the numbers "correct”. And under the first Bush administration, a senior member of the Executive Branch approached a large computer company with a request to exaggerate computer sales in its report to the Bureau of Economic Analysis

Slight fudging is to be expected. The overall picture however has to be accurate - too many others are watching.

 

[Letj]

One has only to go to China to realize that there is no way in hell that Yuan would become the reserve currency. Outside of major cities, the Chinese people are largely rural and poor with crumbling to little infrastructure. Corruption is rampant and people can feel like they're living in a big prison. Being a communist country there's a lot of restrictions on movement and freedom in general. Hell the authorities can even bull doze your house without even going to court. If China allowed free movement of money out of the country, all of it will be flowing to the West and the US in particular. The government is cracking down on all the pooling of money to buy property overseas si the market is cooling in CA with the reduced flow of money from China.

 

[Totoro]

Chinese Yuan will never be the reserve currency. We cannot even trust that the baby formula and medications are safe, how can we trust their currency.

I'm not saying that. Never mind that every country has its own oopsies. Germany / emissions scandal, just to throw a recent one out there.

Like sengsational said, this isn't black and white. There is no such animal as "the" reserve currency. The closest you'll get are the IMF special drawing rights, and that's a multi-currency basket. With the USD as dominant component.

And guess what: the Yuan was recently added. Its weight likely will increase, that's all.

 

[Texas Proud]

I'm not saying that. Never mind that every country has its own oopsies. Germany / emissions scandal, just to throw a recent one out there.

Like sengsational said, this isn't black and white. There is no such animal as "the" reserve currency. The closest you'll get are the IMF special drawing rights, and that's a multi-currency basket. With the USD as dominant component.

And guess what: the Yuan was recently added. Its weight likely will increase, that's all.

I think you are looking at this wrong... it has zero to do with special drawing rights or anything else to do with gvmt.... it has to do with what ordinary folks on the ground will accept for a transaction....

I have been to at least 30 countries and not a single one has refused to accept dollars.... heck, in some countries you can even get US dollars from their ATMs.... I have never seen any other currency dispensed from an ATM except the local currency and the US dollar.... now, not all will dispense dollars, just saying that if there were two currencies one was the dollar....

I do not think you can say that with the Yuan.... maybe the Euro would be accepted... have never tried it... but have not seen them in ATMs outside of Europe....

 

[DJRR]

At the risk of being boring "Who Cares?" All the other countries in the world have not been the reserve currency since WWII and they have not collapsed into anarchy.

Seems to me that the other advantages of the US outweigh the benefit we receive from being the reserve currency and the transaction costs we save by not having to hedge oil transactions, etc. are a drop in the bucket compared to the desire to invest in the US and access our market.

 

[Totoro]

it has to do with what ordinary folks on the ground will accept for a transaction....

I do not think you can say that with the Yuan.... maybe the Euro would be accepted... have never tried it... but have not seen them in ATMs outside of Europe....

Ah ok. Well in that case: I can get Euros accepted easily pretty much everywhere these days, from South America to Egypt. Has been that way since a few years after the Euro was introduced. Especially the 50 euro note.

I haven't see a dollar ATM outside the US personally, nor a euro one. Except in major airports.

Same thing here though in my opinion: wouldn't surprise me if in twenty years people will start accepting yuan in touristy places. Or Africa in big cities. with a strong Chinese presence.

 

[rayvt]

Ah ok. Well in that case: I can get Euros accepted easily pretty much everywhere these days, from South America to Egypt. Has been that way since a few years after the Euro was introduced. Especially the 50 euro note.

I haven't see a dollar ATM outside the US personally, nor a euro one. Except in major airports.

Does anyone seriously think that the Euro will even still be around 10 years from now?

Yeah, I've seen foreign ATMs that will dispense US dollars. For one, in Cozumel up and down the main tourist street. Cosumel is a special case, granted, since 8000-10,000 Americans a day visit there from cruise ships.

Same thing here though in my opinion: wouldn't surprise me if in twenty years people will start accepting yuan in touristy places. Or Africa in big cities. with a strong Chinese presence.

Why would this happen? The only reason to accept a non-local currency is if there are a horde of tourists comeing to spend money locally and they only have their own currency. We've cruised to dozens of countries, and even very touristy spots like Florence, Pisa, Venice, Malta the stores & shops will only take their own money, not US currency. And there are a lot more American tourists (*rich* tourists with lots of money who are buying lots of stuff) than there will be Chinese tourists.

Heck, when we were in Split, Croatia they wouldn't take either Euros or US dollars. Blew my mind -- here they are sandwiched between two large EU countries and they wouldn't take Euros.

 

[rayvt]

But a reserve currency and touristy currency are two different things.

A reserve currency is for huge million- and billion-dollar purchases. And for that, what matters is the availablity and the exchangability and the stability of the reserve currency.

 

[gerntz]

At the risk of being boring "Who Cares?" All the other countries in the world have not been the reserve currency since WWII and they have not collapsed into anarchy.

"All" is too strong a word. A good number have collapsed or are doing so: USSR, Yugoslavia, Iraq, Syria, Libya, South Sudan, East Timor, Yemen, South Yemen, Venezuela, etc.

 

[Totoro]

And there are a lot more American tourists (*rich* tourists with lots of money who are buying lots of stuff) than there will be Chinese tourists.

You may want to rethink that assumption.

There are 120 million Chinese outbound tourists in 2015, and growing rapidly.

Meanwhile: Including Mexico and Canada, 6.3 million U.S. travelers took international trips in September for nearly 61 million outbound trips year-to-date. So under 100 million likely for the full year.
https://skift.com/2016/12/06/u-s-outbound-tourism-snapshot-for-september-2016/

And Chinese spend _more_ than the americans, $200 billion in fact last year which is the biggest by far.
Chinese tourism spending soars 53% to record $215 billion - Mar. 21, 2016

This source has less spending, but still it's China #1 by a large margin:
https://www.weforum.org/agenda/2015/12/which-countrys-tourists-spend-the-most-money/

The thing with lots of Chinese tourists is that you don't see them - they tend to travel in large secluded groups, or rent entire cruise ships.

 

[VFK57]

Wow, there are actually some people who think that financial data coming from a Communist government has any relationship to the truth?

This data comes from IMF which has included Chinese Yuan in official world reserve currency status on October 1, 2016. Also you can find same data on Wikipedia what is most trusted site for this kind of info. I think that US$ is still going to be a leading reserve currency for a foreseeable future but slowly giving it's leading status from current SDR -IMF reserve currency basket (US$ 41.73%, Euro 30.92%, Yuan 10.92%, Yen 8.23% and Pound Sterling 8.09%). Some people advocate for a Bitcoin yet if hackers can penetrate most secure military / Government sites it will be hacked as well. Gold / Silver is another alternative but only in case of loss of confidence in paper currencies what is also not on the horizon (unless another QEs series resumes). Also PMs are highly volatile, it could be kept in small amount as insurance in case of high inflation but in no way it is an investment or US$ replacement in a near future.

 

[audreyh1]

You may want to rethink that assumption.

There are 120 million Chinese outbound tourists in 2015, and growing rapidly.

Meanwhile: Including Mexico and Canada, 6.3 million U.S. travelers took international trips in September for nearly 61 million outbound trips year-to-date. So under 100 million likely for the full year.
https://skift.com/2016/12/06/u-s-outbound-tourism-snapshot-for-september-2016/

And Chinese spend _more_ than the americans, $200 billion in fact last year which is the biggest by far.
Chinese tourism spending soars 53% to record $215 billion - Mar. 21, 2016

This source has less spending, but still it's China #1 by a large margin:
https://www.weforum.org/agenda/2015/12/which-countrys-tourists-spend-the-most-money/

The thing with lots of Chinese tourists is that you don't see them - they tend to travel in large secluded groups, or rent entire cruise ships.

I see them. I've been in several places in Europe that were overrun by Chinese tourists.

 

[VFK57]

Very worrisome article in Business Insider what directly relates to the US$
China is dumping US Treasuries to prop up the yuan - Business Insider

 

[Texas Proud]

Very worrisome article in Business Insider what directly relates to the US$
China is dumping US Treasuries to prop up the yuan - Business Insider

Does not change much on what has been posted in the thread....


Just means interest rates will go up a bit.... heck, if Greece can sell bonds into the market the US can...

 

[Chuckanut]

Fear of China is messing up our economy.

 

[VFK57]

Fear of China is messing up our economy.

I could be wrong, but if no foreign country buys our Debt while our own Federal Reserve holds the largest chunks of our National Debt, about $2.5 trillions or more than 2 largest foreign US Debt foreign holders (Japan and China) combined, it tells me of a future of US$ as a major world reserve currency.

 

[gauss]

So if the USD value were to crash and goods and services became much more expensive in the US, would stocks/mutual funds also increase accordingly and be a natural hedge to this?

I haven't thought through these scenarios in a while.

-gauss

 

[rayvt]

I could be wrong, but if no foreign country buys our Debt... it tells me of a future of US$ as a major world reserve currency.

Yeah, you are wrong here. One has nothing to do with the other.


In addition, there's more going on that you are recognizing, it's much more complex than that.
For example, you can look on it as two ways:
1) Foreigners buying US treasuries.
or
2) Foreigners putting their money in a safe place.

I think that if you look at historical money inflows, the 2nd is very strong.

 

[Senator]

So if the USD value were to crash and goods and services became much more expensive in the US, would stocks/mutual funds also increase accordingly and be a natural hedge to this?

I haven't thought through these scenarios in a while.

-gauss

It isn't going to happen, we are raising interest rates and the USD will get even stronger. But, if it did happen, here is what would take place.

Stock would raise as the value of the assets would also rise. With stocks, you buy current potential, future potential, and get paid for a risk premium.

Once bonds/lower risk assets yields over take the risk premium that is inherent in stock, people switch to the lower risk assets.

So, as long as the USA is strong, and the country is firing on all cylinders, inflation will have a positive impact on stocks.

 

[Senator]

I could be wrong, but if no foreign country buys our Debt while our own Federal Reserve holds the largest chunks of our National Debt, about $2.5 trillions or more than 2 largest foreign US Debt foreign holders (Japan and China) combined, it tells me of a future of US$ as a major world reserve currency.

Most of our debt that the federal reserve owns can be eliminated with a swipe of a pen, and it would not make one iota of a difference.

Social Security debt can be eliminated now and it would not matter at all. It is a pay as you go system now and will always be. The debt owed to SS is imaginary. The money to pay it back, so it can be paid to people, comes from the people.

It's like you owing yourself money. Sure, there is a line item in your books, but the money can't be taken out without getting new money. And that can be taxed, or printed. And it doesn't matter the source of it to the recipient.