Dollar losing it's reserve status: An ET Roundtable

Quote from trefoil:

Reserve currency status is a byproduct of being a AAA rated country, first, that, secondly, is the dominant economic power.
You get to borrow money at lower interest rates, and that's because your bonds are considered risk-free. You can basically issue as many as you like as long as you don't go completely crazy, and they will be bought.
Also, you get to issue them in your own currency. This isn't exclusive to having the reserve currency though.
As Mundell noted, as increasing amounts of a currency are used as a reserve, your inflation rate stays lower than it would otherwise be because the currency is valued more highly than would otherwise be the case, so the cost of imported goods is lower than it is for countries with weak currencies. There are some things that are assigned to having the reserve currency that are actually the result of having the dominant economy: oil being priced in dollars is only important because the US was the dominant consumer of oil, so it set the price and others had to take that price.
China is now the largest consumer of a lot of commodities, and that means they are now setting the price for these commodities, regardless of the fact the yuan is not a reserve currency.
The cost to having a reserve currency is the flip side of the above: since others will take as many bonds as you can issue, you can wind up with interest rates that are too low to provide the proper macroeconomic feedback into your economy, resulting in asset bubbles like the recently demised one in real estate. Also, of course, it results in a currency that is chronically overvalued because demand for assets backed by it - government bonds - is higher than it would otherwise be because its used as a reserve asset by other countries, which results in chronic current account deficits.
More...


Lets look at how many works.

I suspect money has a supply demand curve as well.

If the fed kept money supply tight - Mundell would be right.
If the fed made money loose - there would be so many dollars they would become worth less.

Mundell showed the massive unprecedented inflation since the establishment of the federal reserve.

Would not that massive unprecedented inflation likely have come from fed the fed monkeying around with the supply of the so called reserve currency?

Didn't that massive inflation screw american savers up until the 60s... and contribute to the real estate asset bubble recently which caused us to transfer trillions of dollars to the insolvent banks?

Doesn't inflation screw those subject to progressive taxation.

Doesn't it take to full time workers to achieve the standard of living it once took one? (I know its not all because of progressive taxes... but..
 
The Global Economic Asymmetry caused by ''$'' is now facing the toughest challenge ever, therefore, I ratiocinate that this economic evolution of "$" ain't only bound to happen but contemporarily occurring. Generalizing the non-rogue states stocked with US is not that justifiable enough to prove the stable status of ''$'' reserves in the coming years. In this view, I've empirically posted two links that comprehend; not only Bilateralism (where the nations adopt direct exchange trading substituting dollar) beating the "$" http://bbs.chinadaily.com.cn/thread-728918-1-1.html but Multilateralism (then such substitution banging the head of dollar hegemony) establishing asphyxiating pressure http://blog.alexanderhiggins.com/20...ereign-international-reserve-currency-106291/ To add further, the talks of furnituring the 'Bretton Woods 2.0' have incepted for which direct confrontation between US and China is not fundamental in the era of non-traditional security, as the conclusion of the currency/foreign trade war between them will succinctly determine the outcome before 2020.
 
Quote from trefoil:

Obviously you live someplace warm.
I often have wondered what the posts on here would have looked like in late 1971 when the dollar went off gold, or late 1979, when gold shot up.
Now I know.
Just because it looks like doomsday doesn't necessarily mean that it is. Currencies make for great headlines because of all the politics that surround them, but really, how many of you even know that the pound devaluation of November 1967 was at the time thought to be a massive, earth-shattering event?
Don't worry if you haven't even heard of it; by November 1968 not even the British were excited about it anymore.
More...

lol...you do understand that the pound USED to be the reserve currency of the world right? The dollar replaced it, over time so it wasn't at one point or another, but the very devaluation you're talking about could be thought of as the nail in the coffin for the pound being the reserve currency of the world.
 
Quote from jem:


I just want one person to tell me a benefit of being a reserve currency....
More...
"Give me control of a nation's money supply, and I care not who makes its laws." --Rothschild
 
Quote from plyka:

lol...you do understand that the pound USED to be the reserve currency of the world right? The dollar replaced it, over time so it wasn't at one point or another, but the very devaluation you're talking about could be thought of as the nail in the coffin for the pound being the reserve currency of the world.
More...

You're ignorance has no bottom to it, apparently.
Read something, anything, besides mises.org, and then come back and try to say something that's at least less stupid.
 
Quote from plyka:

lol...you do understand that the pound USED to be the reserve currency of the world right? The dollar replaced it...
More...

The pound-sterling was the reserve currency (in the context of its times) when coal was king.

The dollar became the reserve currency when oil overtook coal in importance.

Money doesn't matter.
 
Quote from Random.Capital:

The pound-sterling was the reserve currency (in the context of its times) when coal was king.

The dollar became the reserve currency when oil overtook coal in importance.

Money doesn't matter.
More...

No, a reserve currency is determined by use: as the US transacts trillions in export/import, and has trillions invested overseas, and other countries have trillions invested in the US, the dollar winds up as the intermediary in most fx transactions. The latter part, investments, is a function of confidence: everyone knows they can get their money in and out of the US freely, with no hint of having to worry about capital controls.
Hence, reserve currency status.
The international market for goods, services and (frequently left out but of at least equal importance ) investments, not any one commodity, determines reserve status.
 
Quote from trefoil:

Reserve currency status is a byproduct of being a AAA rated country, first, that, secondly, is the dominant economic power.
You get to borrow money at lower interest rates, and that's because your bonds are considered risk-free. You can basically issue as many as you like as long as you don't go completely crazy, and they will be bought.
Also, you get to issue them in your own currency. This isn't exclusive to having the reserve currency though.
More...

Japan has the same and is not a reserves currency. The reason "all the bonds are bought " is because the FED, the Treasury and primary dealers coordinate auctions so they don't fail. Making sure their are enough reserves in the banking system.

Also with a non convertible floating currency. Bonds aren't used to finance government spending it is done by crediting bank accounts. Bonds are used to give an interest earning alternative to reserves and to drain reserves to maintain the target rate.

spending increases reserves and taxes, bonds sales take them away.



The Treasury pays the government’s bills out of its account at the Fed. Those payments inject new reserves of base money into the banking system. Since the increase in reserves would interfere with the Fed’s ability to implement monetary policy, the Treasury compensates as follows:

(1) As the Treasury spends, it replenishes its Fed account with equal transfers from its commercial bank accounts where it deposits its receipts from taxes and bond sales. This removes the reserves of base money created by its spending. Aggregate reserves of the banking system therefore remain unchanged on average, thereby allowing the Fed to make small adjustments in reserves as needed to maintain control of the Fed funds rate.

(2) The Treasury replenishes its commercial bank accounts with the receipts from taxes, and from the sale of bonds when there is a shortfall in tax revenues. If tax revenues exceed its spending, it removes the surplus by net redeeming its securities. In this way it minimizes disturbances to the aggregate bank deposits of the private sector.

this is not exclusive to a "reserve currency" Japan has double the debt and near 0 rates
 
Quote from trefoil:


The international market for goods, services and (frequently left out but of at least equal importance ) investments, not any one commodity, determines reserve status.
More...

That's backwards.

Access to the most base of commodities is what drives the ability to spread your currency in the first place. It starts and ends with energy.

The rest is a convenient, generally useful, but derived fiction.
 
You must log in or register to reply here.
Back
Top