The modern Triffin Dilemma

[lifeanon269]

With Trump's tariffs in the news a lot, I've been doing a lot of reading on the Triffin dilemma and its role in today's modern economy. While the original thesis posited by Robert Triffin applied mainly to a US dollar backed by gold, I believe his general idea still holds true in our modern monetary economy.

The dilemma, for those unfamiliar with the Triffin Dilemma is this:

A world reserve currency (in this case the US Dollar), requires that the country supplying the world with reserves run continuous current account deficits. Since much of foreign reserves are filled via trade balances, the country supplying the world with these reserves must always run trade and budget deficit imbalances. However, as the rest of the world continues to develop and modernize, this puts the economy of the country supplying reserves are a continuous decline in the size ratio of its own economy relative to the rest of the world. This, combined with ever growing deficits means the the entire world will reach a tipping point where confidence in the reserve currency wains as the debt burden grows and economy backing the reserve currency diminishes.

From the perspective of the US dollar, the debt to GDP ratio continues to ride at all time highs and will almost assuredly rise from here over the next 5-10 years.

https://fred.stlouisfed.org/series/GFDEGDQ188S

Meanwhile, the amount of currency held by foreigners also continues to rise at all time highs.

https://fred.stlouisfed.org/series/FDHBFIN

The burden this places on the US economy and its currency is heavy. The US trade deficit continues to decline as it has for decades now.

https://tradingeconomics.com/united-states/balance-of-trade

The rest of the world is becoming more and more independent from the US in many ways and as the rest of the world continues to develop, the size of the US economy in relation to the outside world will diminish.

Trump is attempting to remedy some of this through the use of tariffs. The idea of tariffs here is economically sound, however, his unilateral approach to tariffs as well as other foreign policies has angered many of the US's biggest allies and thus, the efficacy of these tariffs in attempting to curb the Triffin dilemma will fail. The idea that tariffs can be paid for through currency valuation is sound. The costs of his tariffs in 2018-2019 to US consumers was largely paid for via the foreign exchange rate of US dollars. The stronger US dollar relative to foreign currencies meant that a vast majority of those tariff costs were paid for by foreign countries. It will remain to be seen how the tariffs play out this time, but I feel that due to the rest of the world being pissed off at the US, the same outcome as 2018-2019 will be less likely.

So I feel we're stuck back with the Triffin dilemma. While a modern monetary economy doesn't have the same tipping point as one that is backed by gold, there is still an unsustainable reality of a fiat based reserve currency funded by a singular nation. The US can't sustainably provide a modernizing world with continued currency reserves backed by an ever growing trade and budget deficit. It isn't sustainable for the US, nor will other nations be contiuously willing to place their growing reserves with a country's currency that becomes less and less stable and relevant.

But, there isn't really any other fiat currency that would even be capable of replacing the US dollar. No other nation would have the capability of running current account deficits in the way the US does in order to even supply other nations with the reserves they require. I feel in the short-term, this means we'll likely see a more multi-reserve currency world.

This is where I'm sure I'm going to lose 90% of readers in this forum...

Where does that leave us in the long term? I truly feel that the days of a global US dollar reserve currency are numbered. Just as Triffin predicted the sustainability of the Bretton Woods gold-backed US dollar reserve currency, I (and many others) believe that his dilemma still holds true under modern monetary theory. If no other fiat currency is ideal for replacing the US dollar, I believe it is only a matter of time for nations to turn to bitcoin for providing national reserves and facilitation global trade.

There is already foreign trade taking place with bitcoin today. Russia is now facilitating oil trades with China and India with bitcoin. More and more nations are looking at bitcoin as a potential reserve. We're beyond the thought that nations will look to ban bitcoin. The US is keeping its stock of bitcoin as a reserve and there are several bills in Congress that are looking to further solidfy bitcoin as a reserve for the US. There are multiple countries that hold bitcoin in varying stats of legal reserve status, including the US, China, UK, Bhutan, El Salvador, with many more pursuing it. Since the Triffin dilemma holds true for any nation that must fund the world with its currency, it makes sense that, from here, the world seeks out a currency that is truly independent from any singular nation and is free from this dilemma.

There would be much hardship for the global economy if it were to abruptly abandon the US dollar as a reserve currency, but there would be even more hardship for the US. The US has enjoyed "exorbitant privilege" of having reserve status for its currency. It has been able to fuel deficits with far lower rates than the rest of the world. This is why I feel a forward looking transition to bitcoin sooner for the reserve country would prove to be pivotal for this transition. If the US began its fueling its bitcoin stockpile sooner than other foreign nations, it would be able to offset some of the burden of its own currency losing reserve status. The appreciation of bitcoin from other nations funding their reserves with bitcoin means that the US would be able to offset more of its debt and interest burden from having its currency as a reserve and the potential crisis that would unfold if there were less global demand for US dollars. At its core, a play into bitcoin would be a hedge against the world seeking to move away from the US dollar as a reserve currency. This is why I feel that bitcoin and the US dollar are not at odds with each other, but can actually be strategically beneficial.

I am curious if anyone on this forum has thought about the Triffin dilemma. I did a search for it on these forums and only came across one singular post mentioning it in this regard and with no mention of bitcoin and it is almost 6 years old now. A lot has happened in these last 5-6 years:

https://forum.mrmoneymustache.com/investor-alley/the-usa-desperately-needs-to-lose-world-reserve-currency-status/msg2481827/#msg2481827

Certainly this isn't an overnight theory. But I feel given today's geopolitics, this idea is more pertinent than ever. I feel that things are setting up the world to gradually seek an alternative. You can absolutely see that countries are testing the idea of using something independent like bitcoin to facilitate trade and fund reserves. I think too many people are lost on the idea that bitcoin is for buying someone's daily coffee while missing the writing on the wall that it may truly end up becoming the world's most necessary facilitator of global trade that is free from a dilemma like Triffin's.

[ChpBstrd]

This is a great and timely conversation.

I will start by quibbling with a couple of assumptions:

A world reserve currency (in this case the US Dollar), requires that the country supplying the world with reserves run continuous current account deficits. Since much of foreign reserves are filled via trade balances, the country supplying the world with these reserves must always run trade and budget deficit imbalances. However, as the rest of the world continues to develop and modernize, this puts the economy of the country supplying reserves are a continuous decline in the size ratio of its own economy relative to the rest of the world. This, combined with ever growing deficits means the the entire world will reach a tipping point where confidence in the reserve currency wains as the debt burden grows and economy backing the reserve currency diminishes.

One issue here is that this concern could have been brought up in 1985, 1995, 2005, 2015, or 2025. How has the status quo persisted so long, against the reasoning presented by Triffin? I think a lot of the explanation has to do with the fact that the US economy is the largest in the world, comprising over 26% of world GDP. Plus, foreign countries only need USD for trade, debt, and foreign reserve purposes, not to support their whole economies.

If someone in Chile, for example, wants to buy a tanker of oil from Mexico, they must first trade something for US dollars because oil is priced in USD. But if they want to buy domestically produced items like food, housing services, etc, they can just use Chilean pesos because the seller accepts the local currency. So Chile, in this example, only needs access to as much of the reserve currency as is necessary for international trade. And then, not even all imports are traded in USD. Sometimes the seller will accept their local currency, and it is feasible to just trade currencies with a third party. This involvement of a third party currency dealer used to be costly and awkward in the pre-digital age, but may no longer be a limitation. We'll return to that.

62% of the world's GDP is international trade (the sum of all imports and exports), and 54% of that trade was conducted in USD. Thus, USD would be used for the US's own 26% share of the world economy, plus (0.62 * 0.54 =) another 33.5% of the world's GDP, minus the 27% of US GDP is accounted for by imports and exports to avoid double-counting. So (0.26 * (1-.27))+0.335 = 52.5% of world GDP.

According to these napkin calculations, half of dollars are still applied to domestic use even after all these decades, due to growth. If the US grows faster than the rest of the world's trade and savings demand, then more newly produced dollars will be applied within the US. If the US grows slower than ex-US dollar demand, then a greater percentage will be used as a currency outside of the US. Amazingly, the share of world GDP attributed to the U.S. has been in a stable range between roughly 25% and 30% since at least the 1970's. This sure looks like a stable system.

A small percentage of GDP growth in the massive US economy requires the production of many more dollars than much more rapid growth in, say, India or South Africa, because those smaller economies are starting at a much lower level. Thus, when the US grows 3% in a year, it must produce a lot more new US dollars for that reason than it needs to produce to support India's 6.5% GDP growth. Even less so when we consider that people in India only need dollars for certain reasons, like certain categories of imports or for government reserves and private savings demand. How many nominal dollars does that growth in demand require, as a % of US GDP? Not much.

An alternative to Triffen's Dilemma: The world's GDP growth has a brake on it, and the brake is the supply of US dollars. Thus the world as a whole cannot grow very much faster than the production of new USD. That's why the system has been so stable for so many decades. Yes, if it was possible for world GDP to grow much faster than the US's over a long period of time, then the US would face a Triffen Dilemma. But that cannot happen as long as the US keeps its ratio of GDP to world GDP in range.

From the perspective of the US dollar, the debt to GDP ratio continues to ride at all time highs and will almost assuredly rise from here over the next 5-10 years.

https://fred.stlouisfed.org/series/GFDEGDQ188S

Meanwhile, the amount of currency held by foreigners also continues to rise at all time highs.

https://fred.stlouisfed.org/series/FDHBFIN

The burden this places on the US economy and its currency is heavy. The US trade deficit continues to decline as it has for decades now.

https://tradingeconomics.com/united-states/balance-of-trade

The rest of the world is becoming more and more independent from the US in many ways and as the rest of the world continues to develop, the size of the US economy in relation to the outside world will diminish.

This is definitely a problem from the perspective of the U.S's trade partners, who are getting a raw deal trading the fruits of their labor for an ever-expanding pile of debt. For people in the U.S. though, it is a windfall. Foreigners want USD so badly they are willing to work harder for USDs than we are willing to work for them! This is why imports are so cheap.

As if that wasn't enough of a lotto ticket, international dependence on the USD creates a massive market for US treasuries, which means US taxpayers do not have to pay the full cost of their government. Demand for US debt is so high, that the rate of interest on treasuries usually hovers close to the rate of inflation, which means taxpayers are borrowing at near zero real rates!

So is it a problem? From the perspective of people in the U.S. these deficits enabled by the USD's reserve currency status should be seen as the golden goose.

The US can't sustainably provide a modernizing world with continued currency reserves backed by an ever growing trade and budget deficit. It isn't sustainable for the US, nor will other nations be contiuously willing to place their growing reserves with a country's currency that becomes less and less stable and relevant.

IDK. It's a system that has been sustained for many decades now. The U.S. has 4.1% unemployment, almost 3% GDP growth, ample liquidity, and until a few months ago was viewed as a safe haven of stability. What makes it an emergency now? Why are Americans convinced they should give up world reserve currency status, and the extreme privileges that come along with it?

Certainly, the system could unravel if the U.S. were to shoot itself in the foot and intentionally destroy its advantages.

One such scenario could involve a US spiral into economic depression after forgetting all the lessons our central banking and regulatory systems have learned over the years. Perhaps financial deregulation, a less-independent Fed, or tightening money supply in the face of falling aggregate demand would do the trick?

A second possibility might involve a failure to supply foreign users with sufficient currency, such as through extreme restrictions on trade. If a country cannot sell enough things to people in the US to meet its needs for US dollars, then that country would be forced to find other currencies with less liquid markets. Those less-liquid currency markets then become more liquid and suddenly you have an alternative to the dollar. Which brings us to the next point...

But, there isn't really any other fiat currency that would even be capable of replacing the US dollar. No other nation would have the capability of running current account deficits in the way the US does in order to even supply other nations with the reserves they require. I feel in the short-term, this means we'll likely see a more multi-reserve currency world.

This is where I'm sure I'm going to lose 90% of readers in this forum...

Where does that leave us in the long term? I truly feel that the days of a global US dollar reserve currency are numbered. Just as Triffin predicted the sustainability of the Bretton Woods gold-backed US dollar reserve currency, I (and many others) believe that his dilemma still holds true under modern monetary theory. If no other fiat currency is ideal for replacing the US dollar, I believe it is only a matter of time for nations to turn to bitcoin for providing national reserves and facilitation global trade.

There is already foreign trade taking place with bitcoin today. Russia is now facilitating oil trades with China and India with bitcoin. More and more nations are looking at bitcoin as a potential reserve. We're beyond the thought that nations will look to ban bitcoin. The US is keeping its stock of bitcoin as a reserve and there are several bills in Congress that are looking to further solidfy bitcoin as a reserve for the US. There are multiple countries that hold bitcoin in varying stats of legal reserve status, including the US, China, UK, Bhutan, El Salvador, with many more pursuing it. Since the Triffin dilemma holds true for any nation that must fund the world with its currency, it makes sense that, from here, the world seeks out a currency that is truly independent from any singular nation and is free from this dilemma.

There would be much hardship for the global economy if it were to abruptly abandon the US dollar as a reserve currency, but there would be even more hardship for the US. The US has enjoyed "exorbitant privilege" of having reserve status for its currency. It has been able to fuel deficits with far lower rates than the rest of the world. This is why I feel a forward looking transition to bitcoin sooner for the reserve country would prove to be pivotal for this transition. If the US began its fueling its bitcoin stockpile sooner than other foreign nations, it would be able to offset some of the burden of its own currency losing reserve status. The appreciation of bitcoin from other nations funding their reserves with bitcoin means that the US would be able to offset more of its debt and interest burden from having its currency as a reserve and the potential crisis that would unfold if there were less global demand for US dollars. At its core, a play into bitcoin would be a hedge against the world seeking to move away from the US dollar as a reserve currency. This is why I feel that bitcoin and the US dollar are not at odds with each other, but can actually be strategically beneficial.

Actually, there is an alternative emerging as a challenger to the USD as reserve currency. It's called BRICS Pay, and it's not so much a new currency as it is a blockchain-based standard for making cross-border payments and currency exchanges. This system would allow users in a country like Saudi Arabia to transact directly with users in a country like China without having to convert their local currencies to USD's or going through the SWIFT system. This would bypass US sanctions and regulatory rules, but without the disadvantages of cryptocurrencies. It is a technological solution to the problem developing countries face with having their growth limited by the availability of USD's, and always being forced to sell their labor to the U.S. for cheap in a desperate attempt to obtain USDs.

Unlike bitcoin, BRICS Pay already has 45.2% of the world's population on board, representing 36.7% of GDP. Thus, it has the scale to become a bigger payment system than the USD. It is still in testing phase, but is due to be rolled out soon. This system has the potential to dethrone the USD as world reserve currency, by making it unnecessary to have a world reserve currency. It could be the beginning of the end for the American middle class as we know it.

Bitcoin will never be used for international trade on a massive scale for the simple reason that its supply cannot be expanded sufficiently quickly to adapt to GDP growth. Thus it is supposed to be deflationary. But nobody in their right mind would ever go into debt in terms of a deflationary currency, or trade away their currency while it is going up in value. Thus, a true goods-and-services cryptocurrency economy has yet to be established, even 16 YEARS after bitcoin's introduction. Bitcoin's unsuitability for real-world trade or lending, and its limitation to facilitation of crime and speculative trading, are both stable attributes that have not changed in many years.

BRICS Pay, OTOH, does not rely on any one country's currency, can expand almost indefinitely, and could offer better terms of trade for non-US parties transacting with one another. Compared to bitcoin, it offers a method for cross-border transactions that do not require one to acquire a commonly-accepted currency resource prior to transacting. The fantasy that developing nations will buy bitcoins for the equivalent of millions of dollars should be put to rest.

So if we are very, very charitable to the intelligence and loyalty of the U.S. administration, they see BRICS Pay coming and are trying to prop up the role of the dollar in international trade by making it more scarce (weak dollar policy and tariffs), and by holding crypto assets. However, the economic brake caused by USD scarcity will only make more countries want to consider BRICS Pay. Also, BRICS Pay will eventually bypass whatever use case remains for cryptocurrencies held by people in the U.S.

The right thing to do, from the US perspective, would be to continue policies that expand its GDP at a rate close to world growth to keep the US share of world GDP stable, and to make USD's more transact-able by expanding the trade deficit while reducing the budget deficit. Such a policy would send a surplus of dollars into overseas investment and nip BRICS Pay in the bud by crowding it out of international commerce. It seems the U.S. is taking the opposite course of action, so BRICS Pay is likely to be a big hit. I privately speculate about the administration's true motives for making such boneheaded moves...

The USD's status as a reserve currency is why Americans can buy imports so cheaply, pay less in taxes, and keep inflation low. As BRICS Pay gains its share of world trade, the USD is likely to devalue in comparison with other currencies and the U.S. will likely face an economic headwind, if not a full fiscal crisis. Much of the USD's value is based on it being the exclusive reserve currency, so the arrival of competition will devastate its international value.

[vand]

People have talked about an end to the petrodollar for decades, and while I do feel the system is incredibly long in the tooth I don't necessarily see it suffering a sudden demise and something else rising up like phoenix from the ashes to replace it. Rather, I think there will just be more peer to peer trading between nations - something which is already happening.

As for how to invest, I mean, do I really have to spell it out? Make sure you are globally diversified and hold some shiny yellow stuff as a bare minimum.

You can speculate on cyptos if that's your jam, but one thing it certainly isn't is "digital gold"

[mistymoney]

disappointing.

haven't had much coffee. Thought the thread was the modern tribble dilemma and got really interested....ok i'll see what it is actually about...

oh. still wanting tribbles talk.

[lifeanon269]

One issue here is that this concern could have been brought up in 1985, 1995, 2005, 2015, or 2025. How has the status quo persisted so long, against the reasoning presented by Triffin? I think a lot of the explanation has to do with the fact that the US economy is the largest in the world, comprising over 26% of world GDP. Plus, foreign countries only need USD for trade, debt, and foreign reserve purposes, not to support their whole economies.

If we're getting picky, Robert Triffin brought up his dilemma regarding fiat reserve currencies in the 60's during the Bretton Woods period which lead to the eventual demise of Bretton Woods. No doubt people have long speculated how long the US will maintain its reserve currency status. Historically, however, reserve currencies have typically only lasted around 100 years or so. Whether it was the Portugal's Escudo, the Spanish Real, the Dutch Guilder, the Franc, the Pound and now the US Dollar. Each one lasting around 80-100 years. The US dollar as a reserve currency is now a little over 100 years old.

An alternative to Triffen's Dilemma: The world's GDP growth has a brake on it, and the brake is the supply of US dollars. Thus the world as a whole cannot grow very much faster than the production of new USD. That's why the system has been so stable for so many decades. Yes, if it was possible for world GDP to grow much faster than the US's over a long period of time, then the US would face a Triffen Dilemma. But that cannot happen as long as the US keeps its ratio of GDP to world GDP in range.

Since the 1960's, US GDP as a percentage of the world's GDP has fallen from 40% to about 14% when adjusted for PPP and it is expected to continue to fall in the future. Estimates are that by 2030, the US share of global GDP as a percentage is expecting to be about 11-12%. You admit that if the world GDP could outgrow US GDP over time, then it could face a Triffin dilemma. The data is showing precisely that, the world's GDP or production is growing faster than the US's. That's exactly why, as I showed, the US's trade deficit continues to grow because the US is importing more and more from other countries as it supplies the world more and more of its currency in foreign exchange.

https://www.imf.org/external/datamapper/PPPSH@WEO/EU/CHN/USA Adjusted here for PPP, which is important when discussing the state of the US's reserve currency status. If you're not adjusting for PPP, then currency valuation is going to mask the true decline in GDP or world's production.

This is definitely a problem from the perspective of the U.S's trade partners, who are getting a raw deal trading the fruits of their labor for an ever-expanding pile of debt. For people in the U.S. though, it is a windfall. Foreigners want USD so badly they are willing to work harder for USDs than we are willing to work for them! This is why imports are so cheap.

As if that wasn't enough of a lotto ticket, international dependence on the USD creates a massive market for US treasuries, which means US taxpayers do not have to pay the full cost of their government. Demand for US debt is so high, that the rate of interest on treasuries usually hovers close to the rate of inflation, which means taxpayers are borrowing at near zero real rates!

So is it a problem? From the perspective of people in the U.S. these deficits enabled by the USD's reserve currency status should be seen as the golden goose.

Yes, that is entirely the point. It is a golden goose for the US, or as it has been called by economists: "exorbitant privilege." But as you said it yourself, it is a bit of a raw deal for foreign nations in international trade. They're trading their goods for a currency that is going to pose greater risk as 1) the US's share of global GDP declines 2) It's debt to GDP ratio continues to climb higher posing more and more of a credit risk to creditors and 3) foreign relations falter as a result of attempting to correct these imbalances (eg, via tariffs).

There are also great risks to the US not mentioned here. Having a growing portion of the world's production outside of the US poses security risks to the US. The security of your nation depends upon having independence in production. Having diversified domestic manufacturing is of extreme importance for national security. This also plays part into the Triffin dilemma. In order to facilitate building out domestic production in sectors that are necessary for national security, it requires balancing trade. Balancing trade however requires a redirection of currency flows that impede the US's reserve status (ie, tariffs).

A good paper related to tariffs and the Triffin dilemma with regard to the US can be found here:

https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf

Actually, there is an alternative emerging as a challenger to the USD as reserve currency. It's called BRICS Pay, and it's not so much a new currency as it is a blockchain-based standard for making cross-border payments and currency exchanges. This system would allow users in a country like Saudi Arabia to transact directly with users in a country like China without having to convert their local currencies to USD's or going through the SWIFT system. This would bypass US sanctions and regulatory rules, but without the disadvantages of cryptocurrencies. It is a technological solution to the problem developing countries face with having their growth limited by the availability of USD's, and always being forced to sell their labor to the U.S. for cheap in a desperate attempt to obtain USDs.

Unlike bitcoin, BRICS Pay already has 45.2% of the world's population on board, representing 36.7% of GDP. Thus, it has the scale to become a bigger payment system than the USD. It is still in testing phase, but is due to be rolled out soon. This system has the potential to dethrone the USD as world reserve currency, by making it unnecessary to have a world reserve currency. It could be the beginning of the end for the American middle class as we know it.

BRICS Pay is more of a competitor to SWIFT as a payments rail/messaging system as opposed to something that would play a role in providing reserve assets for nation states. Russia, who is a strong backer of BRICS Pay, as I mentioned, is now using bitcoin to facilitate its oil trades with both China and India (two other BRICS nations). It is a small, but growing portion that I don't think should be ignored which is why I think it is naive to claim the following:

Bitcoin will never be used for international trade on a massive scale

BRICS Pay, OTOH, does not rely on any one country's currency, can expand almost indefinitely, and could offer better terms of trade for non-US parties transacting with one another. Compared to bitcoin, it offers a method for cross-border transactions that do not require one to acquire a commonly-accepted currency resource prior to transacting.

No, but it still requires the use of a local/fiat currency to facilitate the trade. We're then back to being left with the Triffin dilemma. Facilitating trade requires one party to accept the currency of another, which means that one party be left with holding the currency of another nation. When discussing reserve status, what other nation's currency do you choose to hold in reserve for your nation? Currently, no other nation really has the capability to replace the US dollar as a reserve. As I said, in the short-term, I think we're headed for a multi-polar world in this regard. But in the long term, I think nations will seek a truly independent reserve. Due to the inherent dilemma of holding a foreign nation's fiat currency as a reserve, nations will see the benefit of a currency that is truly independent from another nation, and thus free from Triffin's dilemma.

[roomtempmayo]

I think concepts like the reserve currency or trade balances are too macro for effective policy, projection, or prediction.  They capture too many moving parts without accounting for them.  Their hypersimplification opens up arguments - like modern monetary theory - that might be plausible on paper, but go down in flames when subjected to the forces of the real world.

[ChpBstrd]

If we're getting picky, Robert Triffin brought up his dilemma regarding fiat reserve currencies in the 60's during the Bretton Woods period which lead to the eventual demise of Bretton Woods. No doubt people have long speculated how long the US will maintain its reserve currency status. Historically, however, reserve currencies have typically only lasted around 100 years or so. Whether it was the Portugal's Escudo, the Spanish Real, the Dutch Guilder, the Franc, the Pound and now the US Dollar. Each one lasting around 80-100 years. The US dollar as a reserve currency is now a little over 100 years old.

The era Triffin was writing about was before the USD was a full fiat currency, so if the US was going to supply the world with its reserve currency using the existing monetary system, it would eventually have to mine impossible quantities of gold. Instead, the US went the full fiat route and the USD's role as world reserve currency continued for another half-century so far.

You are absolutely correct about how reserve currencies eventually fall, and I've read a lot of Ray Dalio's thoughts on this subject. In Dalio's model, the control of a reserve currency creates the irresistible temptation to exploit the world's dependency on your currency, and to take on massive amounts of debt essentially for free. Previous empires took on huge debts fighting wars and soaking their upper classes, which necessitated money-printing and devaluation, leading to reductions in the quality of key societal benchmarks like education or infrastructure, which led to national decline and the loss of reserve currency status. Dalio says the US is definitely a long way down this road, and foresees China taking over world economic leadership.

When will the Minsky Moment happen? It is hard to guess. We've had deficit scolds for 40 years warning about impending disaster, and yet here we are selling treasuries at <5% interest to a still-hungry world market awash in dollars.

Since the 1960's, US GDP as a percentage of the world's GDP has fallen from 40% to about 14% when adjusted for PPP and it is expected to continue to fall in the future. Estimates are that by 2030, the US share of global GDP as a percentage is expecting to be about 11-12%. You admit that if the world GDP could outgrow US GDP over time, then it could face a Triffin dilemma. The data is showing precisely that, the world's GDP or production is growing faster than the US's. That's exactly why, as I showed, the US's trade deficit continues to grow because the US is importing more and more from other countries as it supplies the world more and more of its currency in foreign exchange.

https://www.imf.org/external/datamapper/PPPSH@WEO/EU/CHN/USA Adjusted here for PPP, which is important when discussing the state of the US's reserve currency status. If you're not adjusting for PPP, then currency valuation is going to mask the true decline in GDP or world's production.

Yes, in PPP-adjusted terms, the US share of world GDP is much lower. This is to say, the gap between unadjusted GDP and PPP-adjusted GDP is large because a basket of economic goods and services sells for relatively more in the U.S. This reflects why US expats are amazed at how cheaply they can live in Thailand, Brazil, or even Italy, because it costs relatively less in USD terms to pay people to provide you with housing, food, clothes, transportation, services, manufactured goods, etc. USD are in extreme demand because of their utility for international trade and as a stable way to store value, so people in countries where it is impossible to earn USDs are willing to trade for USDs on very favorable terms.

In another sense, this gap represents the losses non-US users of USD's experience when they labor in factories, mines, farms, or transportation for only a few dollars per day, while in the US it's hard to fill jobs paying less than $20 per hour. The labor may be the same, but the purchasing power earned by the labor is vastly different in the US/USD than in most foreign currencies.

The relevant question is whether the US economy by either measure is big enough to supply the currency needed for a fraction of the world's trade, private savings, and foreign reserves. The second chart on your source shows the increase of China as a percent of PPP-adjusted world GDP coming at the expense of US and EU shares of PPP-GDP. So if we are only looking at PPP-GDP, the next question is whether the rise of China reduces the utility of the USD for foreign trade or as a way to store value.

So far, the rise of China has barely dented USD dominance, in part because China has currency controls in place and does not allow its currency to float in a free market. Doing so would deprive the CCP of control over the currency and make Chinese mercantilism a bit harder to manage. I think Ray Dalio has suggested it is only a matter of time before China floats a digital yuan, and in a sense, BRICS Pay would be that float, since the Chinese economy dwarfs all the others in the consortium.

As with any other reserve currency throughout history, the USD's reign will last for as long as it has it's shit together. The rise of China coupled by a debt default or currency devaluation in the US could end up looking a lot like how the USD took over reserve currency status from the British Pound after the Brits were financially devastated by WW2 and the end of colonialism.

There are also great risks to the US not mentioned here. Having a growing portion of the world's production outside of the US poses security risks to the US. The security of your nation depends upon having independence in production. Having diversified domestic manufacturing is of extreme importance for national security. This also plays part into the Triffin dilemma. In order to facilitate building out domestic production in sectors that are necessary for national security, it requires balancing trade. Balancing trade however requires a redirection of currency flows that impede the US's reserve status (ie, tariffs).

IDK. What if the US could afford to build 3 destroyers in a US shipyard, or could outsource 6 destroyers from Mexican, South Korean, and Japanese shipyards, for the same number of dollars? What if the US could afford 50,000 six-wheel drive trucks if domestically produced, but could afford 75,000 if the manufacturing was done in Canada or Mexico?

Certainly there are principal-agent and operational security problems to work through, but these are merely products, just like running shoes, mangos, or cars. Additionally, outsourcing creates powerful financial incentives for other countries to align with the US rather than China, because such countries can earn USD from their industries. The U.S. defense industrial complex that a country like China would have to attack might extend across North America and Europe, with outposts across Asia. In this view, the American empire is much bigger than the borders suggest.

Imagine, in contrast, a China-aligned Mexico or Canada, hosting Chinese warships, troops, bases, and defense production facilities. All while the U.S. muddles through trying to make less defense material than it could have made had it outsourced. Also imagine a Chinese-aligned US-bordering country participating in BRICS Pay using the Chinese currency they earned from their alignment. Such developments would raise questions about the future liquidity of the dollar, or the US's ability to pay its debts.

Military technological supremacy is something the U.S. can't buy from foreigners. Actually, the U.S. has done well in this area. It has generated a vast lead in electronics, satellites, drones, stealth, nukes, communications, and arguably AI. This lead was simply a result of military development budgets going to American companies for cutting-edge tech development. The U.S. will simply need to keep doing this to maintain technological parity with China, which is doing the same.

BRICS Pay is more of a competitor to SWIFT as a payments rail/messaging system as opposed to something that would play a role in providing reserve assets for nation states. Russia, who is a strong backer of BRICS Pay, as I mentioned, is now using bitcoin to facilitate its oil trades with both China and India (two other BRICS nations). It is a small, but growing portion that I don't think should be ignored which is why I think it is naive to claim the following:

Bitcoin will never be used for international trade on a massive scale

BRICS Pay, OTOH, does not rely on any one country's currency, can expand almost indefinitely, and could offer better terms of trade for non-US parties transacting with one another. Compared to bitcoin, it offers a method for cross-border transactions that do not require one to acquire a commonly-accepted currency resource prior to transacting.

No, but it still requires the use of a local/fiat currency to facilitate the trade. We're then back to being left with the Triffin dilemma. Facilitating trade requires one party to accept the currency of another, which means that one party be left with holding the currency of another nation. When discussing reserve status, what other nation's currency do you choose to hold in reserve for your nation? Currently, no other nation really has the capability to replace the US dollar as a reserve. As I said, in the short-term, I think we're headed for a multi-polar world in this regard. But in the long term, I think nations will seek a truly independent reserve. Due to the inherent dilemma of holding a foreign nation's fiat currency as a reserve, nations will see the benefit of a currency that is truly independent from another nation, and thus free from Triffin's dilemma.

Would the downsides of holding another nation's currency as a reserve currency outweigh the downsides of trying to use bitcoin for the same function? Bitcoin, for which at least 95% of transactions are wash sales and which has approximately 0% market share for actual trade in goods and services, is arguably less liquid than most third-tier national fiat currencies. That is to say, if a government actually tried to acquire billions of USD worth of bitcoin, they would dramatically run up the price on themselves, and that price would promptly collapse once their order was full. Similarly, if they needed to sell billions of USD worth of crypto, for example, to prop up their local currency, then they'd crash the price of their own asset.

A dive into the details revealed for me that BRICS Pay is more than an alternative SWIFT. It is a blockchain-based system for matching transactions in each nation's currency in three ways trades with currency dealers, so that if Brazil wants to buy Chinese goods, they can pay with Brazilian real and simultaneously arrange for a third party convert that to Chinese yuan, much like how crypto transactions processors get a cut. Or, China can just accept the Brazilian real for their reserves/savings or trade the real right back for Brazilian assets.

The important thing is that BRICS Pay allows participants to create large and efficient markets using a wide range of free-floating currencies, rather than relying on any one country's currency. They found a way to achieve the benefit you describe bitcoin providing, without having to use bitcoin or invent a new transnational currency. In doing so, they avoid the inefficiencies and loss of independence that comes from using the USD based system, while also avoiding paying the cryptobros $1M per bitcoin. Yea, that's not happening.

The fact that so many nations have signed on to participate suggests that there are real incentives for leaving behind SWIFT and the USD as a reserve currency. The question is whether the BRICS Pay countries can generate enough volume to create markets with similar liquidity as SWIFT-based markets, or at least enough volume so that bid-ask spreads are narrow and it is not cheaper to trade using the SWIFT/USD system.

The new US tariffs make it harder and more expensive for countries to obtain USD through trade, so they have an interest in making BRICS Pay work. Sanctioned countries like Iran, Russia, and arguably China have even more incentive to escape the USD reserve currency system, because the US is cutting them off from it.

In the end, I agree the USD's reign will end someday, maybe next year or maybe decades into the future. BRICS Pay will work well if properly implemented, especially since the US is creating the conditions for it to succeed. In 10 years, I think we'll have the multi-polar financial system you describe. I just don't see bitcoin or any currently existing crypto becoming the new world reserve currency. The factor keeping the USD on the throne for now is the world's most liquid markets. I.e. if you are buying a tanker of oil or a ton of wheat, you check the giant markets denominated in USD to make sure you are getting a good deal, and in any other market or currency you might not be getting the best deal available. If BRICS Pay can generate enough liquidity to get around this limitation, then the world will have its first real alternative to the USD-based system. Bitcoin, which has a real-world goods-and-services trading volume near zero, is near last place in terms of contenders to replace the USD. It's all about trade volume and liquidity of markets.

[lifeanon269]

The era Triffin was writing about was before the USD was a full fiat currency, so if the US was going to supply the world with its reserve currency using the existing monetary system, it would eventually have to mine impossible quantities of gold. Instead, the US went the full fiat route and the USD's role as world reserve currency continued for another half-century so far.

Yes, I acknowledge as such, that the original Triffin dilemma was in regards to the Bretton Woods era. That's why this thread is titled "The Modern Triffin Dilemma", referring to the idea that the Triffin dilemma still applies to a non-gold backed reserve currency due to other inherent risks of fiat reserve currencies such as credit risk and trade imbalances.

As with any other reserve currency throughout history, the USD's reign will last for as long as it has it's shit together. The rise of China coupled by a debt default or currency devaluation in the US could end up looking a lot like how the USD took over reserve currency status from the British Pound after the Brits were financially devastated by WW2 and the end of colonialism.

This is sort of the point. One of the biggest reasons the US dollar continues to maintains its reserve status in the world is because there aren't any other good alternatives. As you mentioned, China isn't an alternative due to their currency controls, but more so because they simply wouldn't be able to supply the world with their currency as a reserve due to the complete reversal of their trade balances that it would require. China is the world's factory and their trade surplus is key to keeping their economy functional. Europe is too fragmented and its share of global GDP is shrinking alongside the US, so it would be in the same boat. What fiat alternative is there?

IDK. What if the US could afford to build 3 destroyers in a US shipyard, or could outsource 6 destroyers from Mexican, South Korean, and Japanese shipyards, for the same number of dollars? What if the US could afford 50,000 six-wheel drive trucks if domestically produced, but could afford 75,000 if the manufacturing was done in Canada or Mexico?

The national security threat has nothing to do with the exchange rate of acquiring assets, but the feasibility of acquiring them in a world that suddenly becomes adversarial. You don't want to depend on another nation for manufacturing computer chips if suddenly that country is your adversary or that country is invaded by another country and you lose that supply chain. Many of these things aren't merely "products" like mangoes, but critical needs that our entire infrastructure and modern society depend upon. Yes, the US has many domestic companies that lead in the tech space, but almost none of them own the supply chains they depend upon to operate. So as I said, there are grave security risks in continuing to operate a current account/trade deficit the way the US is. If the entire backing of the US dollar comes from the military industrial complex and suddenly that complex is threatened through weakened supply chains and fractured trade relationships, then the entire trust inherent in that fiat reserve currency falters as well.

Would the downsides of holding another nation's currency as a reserve currency outweigh the downsides of trying to use bitcoin for the same function? Bitcoin, for which at least 95% of transactions are wash sales and which has approximately 0% market share for actual trade in goods and services, is arguably less liquid than most third-tier national fiat currencies. That is to say, if a government actually tried to acquire billions of USD worth of bitcoin, they would dramatically run up the price on themselves, and that price would promptly collapse once their order was full. Similarly, if they needed to sell billions of USD worth of crypto, for example, to prop up their local currency, then they'd crash the price of their own asset.

None of what you said for bitcoin just now is accurate. 95% of bitcoin txns are not wash sales. You've continued to throw out statistics based on no fact at all claiming the same tired arguments against bitcoins growing real-world usage. You say it is "arguably less liquid than most third-tier national fiat currencies". I am not sure what "third-tier" refers to, but bitcoin has over $2 trillion in market liquidity and the euro has about $4 trillion in liquidity, for comparison. That easily places it in one of the top ten currencies in the world. There is a massive amount of volume transacted with bitcoin daily that I don't think you're quite aware of is now taking place and it continues to grow.

A dive into the details revealed for me that BRICS Pay is more than an alternative SWIFT. It is a blockchain-based system for matching transactions in each nation's currency in three ways trades with currency dealers, so that if Brazil wants to buy Chinese goods, they can pay with Brazilian real and simultaneously arrange for a third party convert that to Chinese yuan, much like how crypto transactions processors get a cut. Or, China can just accept the Brazilian real for their reserves/savings or trade the real right back for Brazilian assets.

If you have a facilitator helping with foreign exchange of goods so that each participating party can transact with their domestic currency, then that means there is a middle-man and it is not a truly independent system like bitcoin. You'll still be subject to many of the shortcomings that transacting in fiat over today's rails is subject to.

while also avoiding paying the cryptobros $1M per bitcoin. Yea, that's not happening.

Ya, that doesn't make any sense. You don't pay someone for bitcoin if you're trading in it. You're trading for goods and accepting it in trade agreements just as you would any other currency in the world. It isn't any different. Currency valuations are arbitrary.

[ChpBstrd]

As you mentioned, China isn't an alternative due to their currency controls, but more so because they simply wouldn't be able to supply the world with their currency as a reserve due to the complete reversal of their trade balances that it would require. China is the world's factory and their trade surplus is key to keeping their economy functional. Europe is too fragmented and its share of global GDP is shrinking alongside the US, so it would be in the same boat. What fiat alternative is there?

There's nothing preventing a nation of manufacturers from developing a world reserve currency. The United States, for example, accomplished exactly this during its era of manufacturing dominance. So it's fair to ask, why doesn't China loosen currency controls, free float the yuan or digital yuan, and take the wheel? I think that's kinda what they're doing in the guise of BRICS Pay. Prior to BRICS Pay the explanation was that a free-floating yuan might rise uncontrollably as investors flocked to what they could expect would become the new reserve currency, or it would sink uncontrollably as Chinese holders tried to get their money out of the country and into worldwide investments. BRICS Pay, in theory, allows the government to control the inflows and outflows a little better than they could do if they simply opened the floodgates. China's currency can leave the country to pay for imports and enter as payments for exports, but a regular person is less likely to sell their yuan for Australian dollars or Yen like they could do in a fully open system. Plus, by floating the yuan with lots of cooperating countries, China increases the odds that it will be a success.

The national security threat has nothing to do with the exchange rate of acquiring assets, but the feasibility of acquiring them in a world that suddenly becomes adversarial. You don't want to depend on another nation for manufacturing computer chips if suddenly that country is your adversary or that country is invaded by another country and you lose that supply chain. Many of these things aren't merely "products" like mangoes, but critical needs that our entire infrastructure and modern society depend upon. Yes, the US has many domestic companies that lead in the tech space, but almost none of them own the supply chains they depend upon to operate. So as I said, there are grave security risks in continuing to operate a current account/trade deficit the way the US is. If the entire backing of the US dollar comes from the military industrial complex and suddenly that complex is threatened through weakened supply chains and fractured trade relationships, then the entire trust inherent in that fiat reserve currency falters as well.

Yes, I detected a shift in mindset in 2020 when China withheld lifesaving medical supplies from the U.S. in order to prioritize its own population. Could something similar occur with other products, such as electronics or rare earth elements? Those who could think 2 moves ahead saw China's ambitions to invade Taiwan, and thought about how China could essentially blackmail the U.S: Stay out of the Taiwan affair or we'll crash your economy. Within months, the CHIPS Act and Inflation Reduction Act were being drafted to provide massive subsidies to relocate defense-critical manufacturing to the U.S.

But could it be sustained? Even after learning the lessons of the pandemic, new production lines making N95 masks went out of business, for lack of the constant subsidies necessary to make up for their cost disadvantages. Similarly, a Foxconn plant planned for Wisconsin and funded with lavish government subsidies largely failed to meet expectations. American voters have opted for more tax cuts and a smaller military since the BRACA. If critical manufacturing isn't sustainable without massive, never-ending subsidies, and if voters consistently prefer tax cuts now over preparation for some far-off contingency, then how is this whole return-to-manufacturing thing supposed to work?

I predict we'll see more unsustainable symbolic gestures like the Foxconn plant. Hopefully the U.S. doesn't go all-in on such wishful thinking, and maintains some foreign capacity while the experiments play out.

Trump's shift toward tariffs could be seen as a way to shift away from cash-draining subsidies and toward cash-generating protective barriers. That means less defense production than we could have had by working with allies, but it is also consistent with an isolationist approach that assumes we won't need more defense capacity because we're no longer going to defend Europe, South Korea, Japan, the Philippines, the Middle East, etc. I'm very unclear on what these implications mean for the USD.

None of what you said for bitcoin just now is accurate. 95% of bitcoin txns are not wash sales. You've continued to throw out statistics based on no fact at all claiming the same tired arguments against bitcoins growing real-world usage. You say it is "arguably less liquid than most third-tier national fiat currencies". I am not sure what "third-tier" refers to, but bitcoin has over $2 trillion in market liquidity and the euro has about $4 trillion in liquidity, for comparison. That easily places it in one of the top ten currencies in the world. There is a massive amount of volume transacted with bitcoin daily that I don't think you're quite aware of is now taking place and it continues to grow.

I was unclear. Bitcoin's share of the worldwide market for rice is roughly zero. For steel, zero. For Adidas running shoes, zero. For cars, zero. For toys, zero. Natural gas, nada. For appliances, zero. Yes, massive numbers of bitcoins are traded every day back and forth for fiat currencies. But with very few exceptions nobody has switched over to crypto as a method to pay employees, buy groceries, transact for commodities, etc. Not even with PayPal and other services pushing it.

Almost all the non-wash activity is speculation. It's a gambling product and a method to move criminal proceeds, and that's all it's ever become after 16 years on the free market with nothing inhibiting it. Next year is probably not going to be the year you use bitcoin to pay for a soda, for all the same reasons last year wasn't the year. The credit card industry, in contrast, was a massive real-world payments phenomenon 16 years into its development.

The wash trading claim is not mine. It's research that can be easily found. I could invent a cryptocurrency on my desktop and wash trade a tiny percentage of the float with myself to make the price quote look like it's going up. Yet, something has happened to the people who've tried to actually use bitcoin or other cryptos for large purchases. The market's liquidity probably dried up as they attempted to transact at scale, or the transaction losses were worse than bank fees for fiat transactions, and they lost real currency. Had something like that not happened every time, you'd see more widespread real-world adoption.
 
All the day-trading and crypto ETFs are a cultural phenomenon, not a real currency emerging in real markets.

If you have a facilitator helping with foreign exchange of goods so that each participating party can transact with their domestic currency, then that means there is a middle-man and it is not a truly independent system like bitcoin. You'll still be subject to many of the shortcomings that transacting in fiat over today's rails is subject to.

With both cryptocurrencies and BRICS Pay, that middle-man is the servers keeping track of the ledger. I'm not sure how BRICS Pay will pay for the servers or who will run them, but there's a good chance they've sorted it out with either a government solution or a cryptocurrency-like private sector solution.

Even if there was a middleman, or even if China had control over the platform, I think BRICS Pay would still be preferable for countries like Iran and Russia, which are locked out of the USD based economy, or developing nations, which cannot export enough to obtain the USD needed to ever... develop. The countries which have signed up for BRICS Pay are a combination of both. And if your country's neighbor is using BRICS Pay, then probably it makes sense to join the network to maximize your country's ability to trade with them.

As the USD/SWIFT system illustrates, a system can be dominant while at the same time having many flaws, just as long as it has a lock on a LOT of liquidity and trading volume. Liquidity and volume are the important factors, not theoretical perfection.

while also avoiding paying the cryptobros $1M per bitcoin. Yea, that's not happening.

Ya, that doesn't make any sense. You don't pay someone for bitcoin if you're trading in it. You're trading for goods and accepting it in trade agreements just as you would any other currency in the world. It isn't any different. Currency valuations are arbitrary.
[/quote]
What I mean by this is that if countries had some incentive to use a cryptocurrency for their transactions, it would be much more economical for them to just invent a stablecoin backed by a basket of commodities or their own fiat currencies, than it would be to pay the cryptobros the equivalent of tens of thousands of USD per bitcoin. I.e. why start with the most expensive possible way to accomplish the goal, when the tech itself is free to copy? And then why get stuck with an inherently deflationary currency that no one in your economic system will be willing to borrow or owe to anyone else?

The answer is that such a crypto would be valuable if there was already a deep market of people transacting it for real-world goods and services (not wash sales or speculation trades). I.e. Bitcoin would be appealing if you as the recipient could spend the Bitcoin on a tanker of oil, a trainload of wheat, a ton of aluminum, a car, an apartment, some medicine, socks, etc. By this metric, Bitcoin has about the same worldwide liquidity as a new cryptocurrency made up out of thin air this afternoon. Most people if given a Bitcoin would immediately trade it for as many USD as they could get. 

[lifeanon269]

There's nothing preventing a nation of manufacturers from developing a world reserve currency. The United States, for example, accomplished exactly this during its era of manufacturing dominance. So it's fair to ask, why doesn't China loosen currency controls, free float the yuan or digital yuan, and take the wheel? I think that's kinda what they're doing in the guise of BRICS Pay. Prior to BRICS Pay the explanation was that a free-floating yuan might rise uncontrollably as investors flocked to what they could expect would become the new reserve currency, or it would sink uncontrollably as Chinese holders tried to get their money out of the country and into worldwide investments. BRICS Pay, in theory, allows the government to control the inflows and outflows a little better than they could do if they simply opened the floodgates. China's currency can leave the country to pay for imports and enter as payments for exports, but a regular person is less likely to sell their yuan for Australian dollars or Yen like they could do in a fully open system. Plus, by floating the yuan with lots of cooperating countries, China increases the odds that it will be a success.

I agree, that technically there is nothing stopping any country from aspiring to have their currency as a world reserve. It is more about whether the world would accept their currency as a world reserve and whether or not it would be beneficial. China, for example, you say could simply loosen their capital controls, but you say this while ignoring the massive ramifications of doing so. Capital outflows from China would completely collapse asset prices and with it their entire economy. The total debt in their economy exceeds 350% of GDP. Then you have the fact that China would need to shift to a net import country in order to facilitate supplying other countries with Yuan as a reserve. That goes against everything China's economy was built on.

This again leads us to the very same outcome that the topic of this thread is about; the Triffin Dilemma.

Almost all the non-wash activity is speculation. It's a gambling product and a method to move criminal proceeds, and that's all it's ever become after 16 years on the free market with nothing inhibiting it. Next year is probably not going to be the year you use bitcoin to pay for a soda, for all the same reasons last year wasn't the year. The credit card industry, in contrast, was a massive real-world payments phenomenon 16 years into its development.

Again, you keep spouting false information that isn't true. You say that bitcoin is only used for criminal proceeds, however Chainalysis, the predominant company that is used for tracking illicit activity with blockchains has the following to say:

At the time of this publication (January 25, 2025), we see a reduction in absolute value of illicit activity year-over-year (YoY); however, based on historical growth rates, we suspect that this number will eventually exceed last year’s total as our data attributions improve. In addition, our estimate for the share of all attributed crypto transaction volume associated with illicit activity, depicted below, also fell to 0.14% from 0.61% in 2023. Similarly, we expect this share to rise over time, although historically these rates consistently remain below 1%.

Illicit activity with bitcoin is consistently below 1% of all usage every year. This is in comparison with traditional finance where illicit activity is in the range of 2-4% of GDP. So the idea that bitcoin is predominantly used by criminals and attracts illicit activity is completely false. At worst illicit activity is on par with traditional finance and is likely well below that of traditional finance. The former CIA director conducted an analysis into whether the claim that bitcoin was predominantly used for illicit activity and had this to say:

https://www.thecipherbrief.com/report-an-analysis-of-bitcoins-use-in-illicit-finance

The wash trading claim is not mine. It's research that can be easily found. I could invent a cryptocurrency on my desktop and wash trade a tiny percentage of the float with myself to make the price quote look like it's going up. Yet, something has happened to the people who've tried to actually use bitcoin or other cryptos for large purchases. The market's liquidity probably dried up as they attempted to transact at scale, or the transaction losses were worse than bank fees for fiat transactions, and they lost real currency. Had something like that not happened every time, you'd see more widespread real-world adoption.

I can assure you that the liquidity didn't dry up as BlackRock, Fidelity, and other major firms acquired over 1 million in total bitcoin to back their ETFs with about $100 billion in AUM. I agree that there is a lot of concern with wash trading for certain cryptocurrencies and decentralized exchanges as well as some of the more unregulated exchanges. However, the industry has developed a lot over the years and is indeed now a fully regulated and well developed industry. A study that investigated wash trading found that regulated cryptocurrency exchanges were relatively free of any indicators of wash trading, similar to what you'd expect with other well regulated traditional financial markets:

Regulated exchanges pass all tests, and the trading history matches theories and patterns in traditional financial markets that are relatively free from wash trading.

https://cowles.yale.edu/sites/default/files/2022-11/cryptowashtrading040521-crypto-wash-trading.pdf

With both cryptocurrencies and BRICS Pay, that middle-man is the servers keeping track of the ledger. I'm not sure how BRICS Pay will pay for the servers or who will run them, but there's a good chance they've sorted it out with either a government solution or a cryptocurrency-like private sector solution.

Traditional finance and fiat requires traditional custodianship.

Even if there was a middleman, or even if China had control over the platform, I think BRICS Pay would still be preferable for countries like Iran and Russia, which are locked out of the USD based economy, or developing nations, which cannot export enough to obtain the USD needed to ever... develop. The countries which have signed up for BRICS Pay are a combination of both. And if your country's neighbor is using BRICS Pay, then probably it makes sense to join the network to maximize your country's ability to trade with them.

You're missing the point. Regardless of today's geopolitical alliances and national relationships, that doesn't change the inherent flaws and risks in a system like this that simply doesn't exist with an independent and completely decentralized system like bitcoin. Today's allies and enemies may be tomorrows enemies and allies. What might work because of those relationships today doesn't guarantee that it will work tomorrow. That's an inherent flaw in a system with a centralized governance model and BRICS Pay is no different.

...invent a stablecoin backed by a basket of commodities or their own fiat currencies, than it would be to pay the cryptobros the equivalent of tens of thousands of USD per bitcoin. I.e. why start with the most expensive possible way to accomplish the goal, when the tech itself is free to copy?

Again, you're missing the entire point as I've already explain above.

The answer is that such a crypto would be valuable if there was already a deep market of people transacting it for real-world goods and services (not wash sales or speculation trades).

I've already spoken to your false wash trading narrative, but just go look at any block explorer and watch the transactions go by.

https://mempool.space/

$15.32
$25.78
$1.86
$1.10
$24.29
.....and on and on....

Just watching the transactions for a few seconds will show you that there is a wide array of activity taking place that goes against the narrative that it isn't used for anything. I have first hand knowledge of such having been deeply ingrained in this industry for over 10 years now and seeing its usage grow. But again, don't take my word for it, just look at a block explorer and the transactions and try to convince yourself that all these minor dollar amount transactions are nothing but "wash trades" and money laundering and not just regular people using it to by innocuous everyday goods.

But all this talk about bitcoin is skirting the entire discussion about the main topic of this thread and I want to make one final point. There are people genuinely worried about some of these macro-economic trends we've discussed. Everything from national security, currency valuation, trade balances, etc. There are people like me that speculate my position on the matter all over the world and many of the thoughts that I've shared here you have to realize are shared by many across the world. This includes politicians. Many of the ideas on bitcoin and its potential to aid in these issues are also shared by many across the world. This also includes politicians. So my final point is that if these ideas aren't just my ideas alone and politicians also share some of these sentiments, then it stands to reason that we'll certainly see the potential for some politician in some country propose and enact policy in light of this. So completely disregarding the possibility that bitcoin won't become a reserve asset for some countries around the world is naive regardless of what you think about its usage and state today. Bitcoin's trend over the last 10+ years certainly speaks well to this thought and will continue to in the future, IMHO.

[MustacheAndaHalf]

One issue here is that this concern could have been brought up in 1985, 1995, 2005, 2015, or 2025. How has the status quo persisted so long, against the reasoning presented by Triffin? I think a lot of the explanation has to do with the fact that the US economy is the largest in the world, comprising over 26% of world GDP. Plus, foreign countries only need USD for trade, debt, and foreign reserve purposes, not to support their whole economies.

If we're getting picky, Robert Triffin brought up his dilemma regarding fiat reserve currencies in the 60's during the Bretton Woods period which lead to the eventual demise of Bretton Woods. No doubt people have long speculated how long the US will maintain its reserve currency status. Historically, however, reserve currencies have typically only lasted around 100 years or so. Whether it was the Portugal's Escudo, the Spanish Real, the Dutch Guilder, the Franc, the Pound and now the US Dollar. Each one lasting around 80-100 years. The US dollar as a reserve currency is now a little over 100 years old.

Did you mean 81 years old?  Before WWII the U.S. wasn't a significant power like it was afterwards.  Where your claim of "100 years old" suggests a quick change, at 81 years old, there is room to run.

"The dollar has been the world’s principal reserve currency since the end of World War II and is the most widely used currency for international trade."
https://www.cfr.org/backgrounder/dollar-worlds-reserve-currency

[lifeanon269]

Did you mean 81 years old?  Before WWII the U.S. wasn't a significant power like it was afterwards.  Where your claim of "100 years old" suggests a quick change, at 81 years old, there is room to run.

"The dollar has been the world’s principal reserve currency since the end of World War II and is the most widely used currency for international trade."
https://www.cfr.org/backgrounder/dollar-worlds-reserve-currency

You could argue that the US dollar was a reserve currency prior to that during WWI as well as many Allied nations abandoned the gold standard and the US was the lender of choice at the time. But yes, Bretton Woods solidified the US dollar and the primary world reserve currency that's for sure.

Regardless, whether it is 81 years old or 100, my point wasn't to insinuate that at any moment the US dollar has run its course and only has years to live. I don't think that and I've stated as such. I would actually be fearful of such a quick demise for the US dollar as it would mean some things went terribly wrong economically. I was merely making the connection that yes, world reserve currencies have historically lasted around a century and the US dollar is sitting around that mark. Although, to be fair, duration on its own is fairly arbitrary even if it is historically accurate.

[FireLane]

What I mean by this is that if countries had some incentive to use a cryptocurrency for their transactions, it would be much more economical for them to just invent a stablecoin backed by a basket of commodities or their own fiat currencies, than it would be to pay the cryptobros the equivalent of tens of thousands of USD per bitcoin. I.e. why start with the most expensive possible way to accomplish the goal, when the tech itself is free to copy? And then why get stuck with an inherently deflationary currency that no one in your economic system will be willing to borrow or owe to anyone else?

The answer is that such a crypto would be valuable if there was already a deep market of people transacting it for real-world goods and services (not wash sales or speculation trades). I.e. Bitcoin would be appealing if you as the recipient could spend the Bitcoin on a tanker of oil, a trainload of wheat, a ton of aluminum, a car, an apartment, some medicine, socks, etc. By this metric, Bitcoin has about the same worldwide liquidity as a new cryptocurrency made up out of thin air this afternoon. Most people if given a Bitcoin would immediately trade it for as many USD as they could get.

An important addendum to this is that bitcoin and other proof-of-work cryptocurrencies will never be able to provide this volume of liquidity. There are fundamental technical reasons why the bitcoin network is limited to something like 7 transactions per second, globally, across all users.

As long as you only use bitcoin as a coordination point for speculation (say, through ETFs that don't require any bitcoin to actually change hands), this isn't so much of a problem. If you tried to use it as an actual currency in any significant volume, the network would seize up and become unusable. To get your transaction processed, you'd either have to pay skyrocketing fees, or be prepared to wait for unknown but arbitrarily long periods of time.

You could, of course, use off-chain transactions without moving any bitcoins. But then that just reintroduces the problem bitcoin is supposed to solve, namely that some trusted third party has to be in charge of that.

This isn't even to mention the fact that bitcoin's decentralized design makes it intrinsically unattractive to every government. No treasury department or central bank is going to want to make transactions that they don't have the power to reverse in case of error, fraud or material dispute.

[lifeanon269]

An important addendum to this is that bitcoin and other proof-of-work cryptocurrencies will never be able to provide this volume of liquidity. There are fundamental technical reasons why the bitcoin network is limited to something like 7 transactions per second, globally, across all users.

The consensus mechanism used (ie, PoW) has nothing to do with transaction throughput.

You could, of course, use off-chain transactions without moving any bitcoins. But then that just reintroduces the problem bitcoin is supposed to solve, namely that some trusted third party has to be in charge of that.

Lightning transactions don't require trusting any third-party in order to transact and you're in full control of the keys to your bitcoin at all times.

This isn't even to mention the fact that bitcoin's decentralized design makes it intrinsically unattractive to every government. No treasury department or central bank is going to want to make transactions that they don't have the power to reverse in case of error, fraud or material dispute.

This is factually untrue. Not to mention the fact that governments around the world are already using bitcoin today, but even traditional finance operates with irreversible transactions with most settlements. The only reason why your credit card chargeback is reversible is because the money involved with that chargeback isn't leaving the institution that the transaction took place with and often isn't even fully settled within that institution for 30 days or so. So much money moves between institutions that general ledgers would be impossible to balance if reversals of transactions for money already spent elsewhere were possible. This is why 99 times out of 100 you can't reverse a wire transfer once it has been sent. Banks typically do a handful of batches a day, so your timing depends upon when their batches go out.

The FI I work with had millions of dollars worth of fraud losses last year. Believe me, if we could reverse those fraudulent transactions and get the money back, we would. We cover the losses for our customers, but once it leaves our institution, in almost all cases it is gone for good and it hits our bottom line.

The idea that central banks and governments won't touch a financial system that can't be reversed is faulty both based on the fact that they're already working with financial systems today that don't allow for reversals as well as the fact that many governments are already using bitcoin too.

[FireLane]

Lightning transactions don't require trusting any third-party in order to transact and you're in full control of the keys to your bitcoin at all times.

That reply was predictable. Lightning does nothing to solve bitcoin's throughput problem, because it still requires an on-chain transaction to set up the payment channel.

It's as if cash transactions were extremely slow and arduous for some reason, and to solve this problem, someone came up with an idea: just buy a preloaded gift card from every merchant you want to do business with. Then you can use the gift card to make multiple transactions at that merchant without going through the burdensome process of transferring cash.

The problem should be obvious: you still have to do the inefficient transactions to buy the gift cards.

N people (or organizations) who want to do business with each other have to do (N*(N-1))/2) on-chain transactions first. For a mere 1000 people, the size of a single small town, that's around half a million transactions - almost 20 hours at bitcoin's max throughput rate. For 10,000 people, it's around 82 days. And all that work is to set up a single person-to-person Lightning connection for each participant with an amount of money that's fixed at the time of creation. When the "preloaded gift card" runs out of money, or doesn't have enough money for the transaction you want to perform, you have to obtain another one.

The world has billions of people who want to buy and sell stuff with each other, and they won't be doing it in neat, predictable increments. Bitcoin still chokes.

(I know what you're going to say next: you don't need a complete graph of connections, because transactions can be routed over the Lightning network by finding a path through previously established channels. The only issue is that that's the traveling salesman problem, which most computer scientists will tell you is unsolvable.)

The idea that central banks and governments won't touch a financial system that can't be reversed is faulty both based on the fact that they're already working with financial systems today that don't allow for reversals as well as the fact that many governments are already using bitcoin too.

You're missing the larger point.

Whether or not a financial transaction can be reversed as a matter of software, it can certainly be reversed by the legal system. If a person is ordered by a judge to transfer money or property, and they don't cooperate, their assets can be seized. If a person dies, their assets can be distributed by a probate court, even if they never told anyone the password to their bank accounts.

Bitcoin - by design! - makes it impossible to do this. If you lose your private key because of computer crash or human error, your entire life savings becomes permanently inaccessible to everyone, including you. If you die without telling anyone your private key, same. If someone steals your private key (a mugger, a hacker who gets into your computer, a pig-butchering con artist, your country's minister of finance), they can drain your assets and there's nothing anyone can do to block or reverse it.

If a government wants to sanction someone who's, say, selling drugs to buy weapons to commit acts of terrorism against their people... well, bitcoin doesn't allow that. It doesn't allow fiscal stimulus programs to counter economic depressions. It makes tax auditors' jobs almost impossible by making it extremely easy to conceal assets (Bitcoin even comes with "mixers", which is a cute techy name for automatic money laundering programs to help criminals get away with crime).

And then there's the inevitability of nation-states getting into computing arms races to attempt 51% attacks on their rivals.

For governments to rely on bitcoin as a currency would require them to voluntarily give up enormous amounts of power. Regardless of your philosophical views on whether governments should have those powers, you should ask whether, as a pragmatic matter, they're likely to do that.

[lifeanon269]

That reply was predictable. Lightning does nothing to solve bitcoin's throughput problem, because it still requires an on-chain transaction to set up the payment channel.

It absolutely does. It reduces the on-chain burden for transactions by many orders of magnitudes. It is ridiculous to say otherwise and reality proves this.

(I know what you're going to say next: you don't need a complete graph of connections, because transactions can be routed over the Lightning network by finding a path through previously established channels. The only issue is that that's the traveling salesman problem, which most computer scientists will tell you is unsolvable.)

Are you just Googling things without fully understanding them? No, Lightning pathfinding is not the traveling salesman problem. The key differentiation is that with the traveling salesman problem, you need to find the shortest or most optimal path. That's not what pathfinding on the lightning network requires. It doesn't require the most optimal or cheapest route. It just needs to find a route that works. This immediately reduces the complexity of the problem and means it is not an NP-hard problem to solve. There are indeed many pathfinding algorithms today that can scale lightning network pathfinding well beyond what would realistically be needed for adoption.

It is similar to bitcoin mining. Technically, building the most economically optimal block of transactions that fit inside the block size limit is an NP-hard problem (the knapsack problem). But miners don't need to build the most economically optimal block of transactions. They just need to build any block of transactions. So again, similar to lightning pathfinding, this drastically reduces the complexity of it and takes it from being an NP-hard problem to solve to a relatively simple one.

You're missing the larger point.

I am not missing the point. I clearly and succinctly addressed it, but you're moving the goalposts on me. If the legal system could aid my FI in helping recoup some of our lost funds due to fraud, believe me, we'd take action to avoid millions of losses. We as the organization that "sent" the funds have no means on our own either to reverse the transaction from another FI.

This is not dissimilar to bitcoin in anyway. Since the sender themselves can't reverse the transaction, there is nothing stopping the legal system from forcing a company that received bitcoin to send the bitcoin back, like you're claiming with traditional finance. Legal entities (businesses, etc) are governed and regulated by the legal system and with bitcoin it is no different. So that is no different here.

Yes, for bitcoin self-custody, it does require personal responsibility. So in those instances you're responsible for your own bitcoin. But this is where you're moving the goalposts.

Again, at the end of the day you insinuate that "no one will use bitcoin", whether it is governments, businesses, individuals, yada yada despite the reality that all those groups are using bitcoin today.

And then there's the inevitability of nation-states getting into computing arms races to attempt 51% attacks on their rivals.

Wait, you say that governments will never use bitcoin but say governments would inevitably start mining bitcoin? Oh, and I'm sure you say that bitcoin uses too much power. More power than an entire nation! But where would any given government get more power than an entire nation (you'd need at least 75TW today) along with the number of ASICs required to utilize that power to even come close to conducting a continuous 51% attack? All this just to be able to double-spend? It would be pointless.

For governments to rely on bitcoin as a currency would require them to voluntarily give up enormous amounts of power. Regardless of your philosophical views on whether governments should have those powers, you should ask whether, as a pragmatic matter, they're likely to do that.

Since much of your conversation was completely off topic, I'll redirect you back to the entire discussion of the thread (the Triffin Dilemma). Governments will voluntarily adopt bitcoin mainly because it will solve a dilemma they're currently facing economically that is far more problematic that some of the problems you've presented.

[ChpBstrd]

Regardless of one's opinions about cryptocurrencies, any theory of what must happen next to dethrone the USD as the world reserve currency has to answer the following question: Why hasn't it happened already? The part of @lifeanon269 's OP that is critical to the question is the discussion of Triffin's assumptions:

A world reserve currency (in this case the US Dollar), requires that the country supplying the world with reserves run continuous current account deficits. Since much of foreign reserves are filled via trade balances, the country supplying the world with these reserves must always run trade and budget deficit imbalances. However, as the rest of the world continues to develop and modernize, this puts the economy of the country supplying reserves are a continuous decline in the size ratio of its own economy relative to the rest of the world. This, combined with ever growing deficits means the the entire world will reach a tipping point where confidence in the reserve currency wains as the debt burden grows and economy backing the reserve currency diminishes.

From the perspective of the US dollar, the debt to GDP ratio continues to ride at all time highs and will almost assuredly rise from here over the next 5-10 years.

https://fred.stlouisfed.org/series/GFDEGDQ188S

Meanwhile, the amount of currency held by foreigners also continues to rise at all time highs.

https://fred.stlouisfed.org/series/FDHBFIN

The burden this places on the US economy and its currency is heavy. The US trade deficit continues to decline as it has for decades now.

https://tradingeconomics.com/united-states/balance-of-trade

So the implicit theory here is that "confidence" in the USD has not yet waned because:

• Debt-GDP has not yet hit a critical level. For example, maybe the critical level is 140% and we're at 122%.
• The ratio of USD use in ex-US transactions to USD use in domestic transactions has remained above a threshold.
• The ratio of USD held as savings/reserves ex-US versus domestically has not exceeded a threshold.
• The U.S. trade deficit has not exceeded a threshold.

Regarding #1, the concern an international merchant or investor would have is that the issuing nation's debt/GDP would reach a point where the nation must "print money" to make payments. The issuance of vast sums of new currency units would flood markets and devalue the currency. That is to say, a unit of currency would buy fewer things than it used to buy, because the currency became more abundant while things maintained the same abundance, and markets are only so big. Examples of money printing leading to inflation/devaluation include Weimar Germany, Argentina, Zimbabwe, Venezuela, and Turkyie'. 

The problems with applying this concern to the U.S. are twofold. First, the U.S. dumped massive amounts of new currency onto markets after the GFC and after COVID, and suffered only minor devaluations each time. I.e. M2 doubled between December 2007 and June 2019, while nominal GDP only rose 45.4% across that timeframe. Yet, US policymakers struggled to keep inflation above 2%, suggesting that any proposed linkage between money printing and inflation, or GDP and money supply, was not simple. Post-COVID helicopter money may have contributed to the inflation of 2021-2022, but the rapid disinflation, which occurred before monetary policy could sufficiently react and while all that currency was still in markets, suggests a large component of the inflation was actually the "transitory" disruption of supply chains. If there was a relationship between money supply and inflation/devaluation, why did inflation fall so quickly after 2Q2022, while the Federal Funds Rate was playing catch-up, between 1.25% and 3%? At the very least, this relationship is not simple either.

Regarding #2 and #3, a key assumption of the Triffin Dilemma is that there is some upper limit to these ratios of international to domestic transactions and savings. Beyond this threshold, the system is destabilized. The reason it should become unstable is that the country issuing the currency becomes unable to keep up with international demand unless it chooses to overproduce its currency, leading to the issues discussed in #1. This represents a theoretical exploration of the implications of early monetarism - that economic theory which would run into so much counter-evidence in the following decades.

We must first establish that such ratios are actually increasing, and second, ask ourselves if the ratios increasing are a problem.

As I noted earlier, the U.S. share of nominal GDP has remained relatively stable for decades, but as @lifeanon269 pointed out, this is not the case if you use PPP-adjusted GDP. Which metric is the right one to use? I would argue that the nominal metric is the right one to use because:

• We want a metric that allows us to compare the percentage of goods/services transacted across countries, using a common denominator - such as the world reserve currency. While PPP-adjusted GDP is a better measure of the well-being of a population, it includes two factors - production and the differential effects of currency fluctuations. Visitors to China are often shocked by how cheaply they can buy things there. However, the USD buying a lot more in Shanghai than it does in New York City does not mean more of the world's GDP is being made there. That would be like saying the cheaper rents in Peoria, IL compared to New York City should mean that more apartments are being built in Peoria than in NYC. The more valid thing to conclude from the PPP-adjusted data is that US dollars buy much more apartment in Peoria than NYC.
• Monetarists tend to think about units of currency like one would think about shares of a company. The production of more shares dilutes existing shareholders' claim on a portion of the company's earnings, and likewise the production of more currency dilutes the value of the currency as a claim on a portion of the country's GDP. However, this metaphor breaks down when we consider that international agents transacting in or holding a reserve currency have more options than only buying products from the currency's issuer. An Egyptian, for example, could use their USD to buy goods from an Indian, and the Indian could then trade their USD with an Australian. A whole USD economy exists far outside the US. So maybe we should think of a world's reserve currency as being a claim on at least a percentage of world GDP instead of just the GDP of the issuing country. A smaller currency, for example the Iraqi dinar, could be thought of as a claim on the GDP of that one country, but currencies with deep and liquid international markets can be used to buy much more.

Regarding issue #4, perhaps we should think of the USD as a product in itself rather than as a claim on the exports of the U.S. (not to derail, but this is how people think of crypto - as a product in itself). The functions of a currency are to serve as a reliable medium of exchange, to serve as a standard of deferred payment, a store of wealth, and a measure of value. Foreigners do not prefer to trade or save in USD because they want to buy US exports. They prefer USD because it does a better job than any alternative at each of those four functions. China may export a lot more finished products, and Saudi Arabia may export a lot more oil, but their currencies lack the deep and liquid markets that make the USD a more attractive way to perform each of the 4 functions.

So what do the 4 functions have to do with trade deficits? Well, a trade deficit represents, in part, a country exporting its currency to the world. As the U.S. exports more and more USD to the world, it only makes USD easier for foreigners to obtain and use for the four functions. This increases adoption of the USD for the four functions and actually cements the USD's role as reserve currency. So the trade deficit is a net positive for the USD keeping its throne.

Additionally, the U.S. currency is more reliable because the U.S. has demonstrated the power to carefully manage it. In just the past 25 years, the U.S. has used its systems to successfully navigate a deflationary financial crisis, an inflationary pandemic, and various international crises. In each case, the U.S. took swift and appropriate action, suffered a lot less than other countries, and returned to growth within a matter of months. That's as bad as it gets for the U.S. Investors in US assets or USD's came out fine in the end, but investors in many other currencies ... not so much. This relative stability and self-righting character is part of the USD's appeal.

So I think all of Triffen's assumptions provide reasons to be skeptical. In terms of the question "why hasn't it happened yet?", I think the answer is something like "because there is something wrong with the paradigm that says it has to happen for these particular reasons."

How Problems Could Happen:
A problem would occur if there was a shortage of USD to use for international trade, perhaps due to the trade deficit being reduced or perhaps due to some other factor sucking USD out of international markets (such as quantitative tightening, widespread sanctions, or rapidly expanding government deficits). In that event, the cost of doing business in USD would increase and traders/savers would be incentivized to use other currencies like the Euro, Yen, or a newly floated Chinese yuan, to the extent the cost of doing business in those markets was exceeded by the cost of doing business in USD markets. Iran and Russia, for example, are often forced to transact in non-USD markets. They want sanctions relief not because they want to sell things to the US, but because they are paying a high cost for transacting in illiquid markets. This is much like how people trading penny stocks face large bid-ask spreads, and must limit volumes to avoid running the price up or down on themselves. 

I'm not saying the USD is immune and cannot lose its reserve currency status. The factors I list above could cut off the flow of USD to its "customers" and cause the development of deep, liquid alternative markets. Tariffs, sanctions, and massive government deficits are all factors that could suck USD liquidity out of world markets and force traders and savers to use alternatives.

The U.S. has been having its cake and eating it too for a long time, growing materially rich and enjoying low taxes. Supporting the world's reserve currency has not been a "burden"; it's been a tailwind, enabling people in the U.S. to buy more stuff, pay less in taxes, and enjoy higher growth. But because we perceive this status quo as a problem, we might just self-sabotage in the pursuit of political advantage and a nebulous concept of "balanced markets" where we have to make things for export like all the other countries instead of providing the world with its most liquid markets and most stable currency.

Reserve currencies come and go, but usually due to wars or imperial overreach. If the U.S. manages to dethrone its own currency, it might be the first case where a financial empire died from stupidity.

[lifeanon269]

The U.S. has been having its cake and eating it too for a long time, growing materially rich and enjoying low taxes. Supporting the world's reserve currency has not been a "burden"; it's been a tailwind, enabling people in the U.S. to buy more stuff, pay less in taxes, and enjoy higher growth. But because we perceive this status quo as a problem, we might just self-sabotage in the pursuit of political advantage and a nebulous concept of "balanced markets" where we have to make things for export like all the other countries instead of providing the world with its most liquid markets and most stable currency.

Reserve currencies come and go, but usually due to wars or imperial overreach. If the U.S. manages to dethrone its own currency, it might be the first case where a financial empire died from stupidity.

I think you're missing part of what makes the dilemma a dilemma. No one is denying the idea that the US dollar being a reserve currency for the world has been an "exorbitant privilege" for America.

The part of the dilemma that you didn't acknowledge in the above paragraph is that by continually running deficits (that are required to facilitate being a world reserve currency) you undermine confidence in that very currency. America wouldn't be self-sabotaging as you put it, but merely trying to navigate a "damned if you do, damned if you don't" situation. Continually running deficits to feed the world US dollars and the ever growing deficit and debt burden causes a lack of confidence in your currency. Try to course correct and reign in your deficits and you starve the world of liquidity and cause an world-wide economic crisis. I don't know where that line is drawn and claiming that US GDP has a lower bound for its share of the world's GDP is a crazy thing to suggest when even not accounting for PPP there is a down trend (see https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf).

That being said, I'm really just posting not to direct reply to your post but merely to add that I'm not the only one posing these questions. Larry Fink from BlackRock posted his annual Chairman's letter to investors and in it, he had this to say:

https://www.blackrock.com/corporate/investor-relations/larry-fink-annual-chairmans-letter

Can Bitcoin eat away at the U.S. dollar’s reserve status?

The U.S. has benefited from the dollar serving as the world’s reserve currency for decades. But that’s not guaranteed to last forever.

The national debt has grown at three times the pace of GDP since Times Square’s debt clock started ticking in 1989.57 This year, interest payments will surpass $952 billion—exceeding defense spending. By 2030, mandatory government spending and debt service will consume all federal revenue, creating a permanent deficit.58

If the U.S. doesn’t get its debt under control, if deficits keep ballooning, America risks losing that position to digital assets like Bitcoin.

It doesn't take a genius to realize something isn't sustainable and that people (individuals, investors, companies, nations, etc) will start looking for alternatives that aren't burdened by the same dilemma the US dollar is facing. The only thing that is truly free from that dilemma is bitcoin and a growing number of people will continue to realize this.

[ChpBstrd]

The U.S. has been having its cake and eating it too for a long time, growing materially rich and enjoying low taxes. Supporting the world's reserve currency has not been a "burden"; it's been a tailwind, enabling people in the U.S. to buy more stuff, pay less in taxes, and enjoy higher growth. But because we perceive this status quo as a problem, we might just self-sabotage in the pursuit of political advantage and a nebulous concept of "balanced markets" where we have to make things for export like all the other countries instead of providing the world with its most liquid markets and most stable currency.

Reserve currencies come and go, but usually due to wars or imperial overreach. If the U.S. manages to dethrone its own currency, it might be the first case where a financial empire died from stupidity.

I think you're missing part of what makes the dilemma a dilemma. No one is denying the idea that the US dollar being a reserve currency for the world has been an "exorbitant privilege" for America.

The part of the dilemma that you didn't acknowledge in the above paragraph is that by continually running deficits (that are required to facilitate being a world reserve currency) you undermine confidence in that very currency. America wouldn't be self-sabotaging as you put it, but merely trying to navigate a "damned if you do, damned if you don't" situation. Continually running deficits to feed the world US dollars and the ever growing deficit and debt burden causes a lack of confidence in your currency. Try to course correct and reign in your deficits and you starve the world of liquidity and cause an world-wide economic crisis. I don't know where that line is drawn and claiming that US GDP has a lower bound for its share of the world's GDP is a crazy thing to suggest when even not accounting for PPP there is a down trend (see https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf).

Then let's see what happens if we accept the assumptions of the Triffin Dilemma (bolded above).

Let's say a country issuing a reserve currency must supply sufficient, but not too much currency if it is to retain its role. Obviously, this doesn't have to be exact down to the dollar/pound/guilder or else any reserve currency would have a lifespan less than one second, as a certain ratio of country GDP to external users GDP (PPP adjusted if you like) was momentarily hit and then changed. So there must be some amount of play or wiggle room here. I think we're discussing the question "how much?" in terms of a measurement or ratio.

So far, the USD has been able to maintain its role as reserve currency through the wide range of metrics we discussed above, so we know the red lines demarcating too little or too much are not within these boundaries. We also know that the red lines are at least as far apart as these boundaries. So we should be able to agree that the reserve currency can work within a very wide range of circumstances, even if we have different levels of worry about where that upper line lies.

But we have another measurement issue. It's the difference between M1, M2, M3, and even broader ways of measuring money supply. The U.S. government controls the production of M1 - direct currency units - but most economists agree that broader measures better explain phenomenon like credit crises or inflation. Money supply is also produced by banks and shadow banks, which make leveraged loans. That is why M2 has historically grown so much faster than M1. So Triffen, after being informed about post-1960s developments, would need to answer whether his concerns were with M1 or M2 or M3 or some ratio.

Then we have an issue with the validity of counting GDP-contributing transactions that occur within a set of physical borders as contributing to public trust in a currency, but not transactions occurring outside the country - or in internet transactions between countries. If a Canadian bank sells $1M USD to a London bank that uses it to buy oil from Saudi Arabia, then shouldn't the presence of such markets increase foreigners' confidence in using USD at least as much as an evening's production at a US food plant or the annual production of one Midwest farmer? If we held a somewhat mercantalist/monetarist attitude that a currency is only useful for buying the GDP of the issuing country, we'd have to ignore the utility it serves for each party in the Canada-UK-Saudi Arabia example above, where GDP was created using the reserve currency outside the issuing country's borders.

What if Argentina adopted the USD and started trading and paying wages using the currency? Would that be any different than if the US's GDP as a % of world GDP suddenly increased?

What if tens of millions of people around the world were paid for their labor using USD? That second example is already the case. Similarly, if Ford sets up a plant in Mexico and sells cars from there for USD, why does that somehow not count toward confidence in the currency, but their other plant inside the US does? These are all measurement issues that raise questions about the validity of assumptions.

With regard to the Bitcoin alternative, what do you think about the issues raised by this economist?
https://www.youtube.com/watch?v=UVflys4loV0

[Telecaster]

I think you're missing part of what makes the dilemma a dilemma. No one is denying the idea that the US dollar being a reserve currency for the world has been an "exorbitant privilege" for America.

Lots of people deny it, most of them economists.   There are some advantages, no question.   But most of the claimed advantages aren't all that big, and some might not exist at all.   One advantage that for sure is real is that it gives the US power to sanction countries it doesn't like.   And those countries are eager to find ways to conduct business in something other than dollars.    Another advantage is that it makes it easier for US business to business internationally, for a number of obvious reasons.    One claim is that it lowers borrowing costs in the US.    Evidence of that is light.

There are two big structural headwinds to relacing the dollar with something else.   One is that there needs to be enough liquidity of whatever that thing is to facilitate global trade.  Currently, nothing fits that bill.    For example, BRICS is mostly a development bank.   Most of their loans are denominated in dollars because that's the currency available in the amounts they need.   

Another is that everyone already uses dollars.   If you want to do business internationally, for the most part you need dollars, because that's what everyone else is using.   

Finally, the Federal Reserve did a study on the dollar's role as a reserve currency and in international finance, and found that it has been remarkably stable since 2000.    By some metrics reliance on the dollar is even increasing.   So if the dollar is ending its reign as a reserve currency, evidence is not yet showing up in the data.   

A leading indicator though, will be US bond prices.    If global confidence in the dollar wanes, prices will drop.    Right now, prices are pretty dear.  So again, not showing up in the data.   

https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-us-dollar-post-covid-edition-20230623.html

[Telecaster]

Actually, there is an alternative emerging as a challenger to the USD as reserve currency. It's called BRICS Pay, and it's not so much a new currency as it is a blockchain-based standard for making cross-border payments and currency exchanges. This system would allow users in a country like Saudi Arabia to transact directly with users in a country like China without having to convert their local currencies to USD's or going through the SWIFT system. This would bypass US sanctions and regulatory rules, but without the disadvantages of cryptocurrencies. It is a technological solution to the problem developing countries face with having their growth limited by the availability of USD's, and always being forced to sell their labor to the U.S. for cheap in a desperate attempt to obtain USDs.

Unlike bitcoin, BRICS Pay already has 45.2% of the world's population on board, representing 36.7% of GDP. Thus, it has the scale to become a bigger payment system than the USD. It is still in testing phase, but is due to be rolled out soon. This system has the potential to dethrone the USD as world reserve currency, by making it unnecessary to have a world reserve currency. It could be the beginning of the end for the American middle class as we know it.

I'm pretty skeptical this has any legs.    India and China (and most everybody else) want to maintain control of their own currencies, so they won't use it domestically.   So it will only be good for international, and the BRICS don't trade that much with each other.     

[lifeanon269]

So Triffen, after being informed about post-1960s developments, would need to answer whether his concerns were with M1 or M2 or M3 or some ratio.

Triffin was already shown to be correct with his theory, which is the entire reason why we abandoned the gold standard/Bretton Woods entirely. His theory was related to the dilemma of having gold-backed currency acting as a reserve for an ever growing world. At some point you lack the necessary gold needed to back the currency you're using to facilitate the world's economy.

That theory is very different from the discussion we're having with today's modern monetary theory. It is why this thread is called the "modern" Triffin dilemma. It is analogous to the original dilemma Triffin presented, but not quite the same. I just want to make that clear here.

I feel like you're getting too far down into trying to find precise metrics as to when this modern dilemma would present itself rather than just simply looking at whether or not if our current system were to be taken to its logical end, does the dilemma arise?

Let's start with some things we know or trends we are seeing:

There is a clear trend of the US's share of GDP relative to the world's diminishing. That's true whether you adjust for PPP or not. Not adjusting for PPP, the US's share of world GDP has halved from 40% since the 1960s. There are certainly upticks since the GFC as US manufacturing has rebounded slightly (21%->26%), but don't let this mask the overall trend that is clear.

There is a clear trend of the US's debt to GDP ratio reaching historically high levels and no clear indication that it has or will peak.

Interest payments on that debt are reaching unsustainable levels and there is no indication those interest payments will ever go down given our current deficits.

US has flirted with credit rating downgrades over the last decade or so.

I don't think it is a stretch to say that confidence in the US dollar will wane when each of these things are extrapolated to their logical conclusions. If each of these are trends and none of them show any sign of changing course, what is your theory then that confidence in the dollar will actually strengthen? It is easy to sit here and provide all the metrics that you want to show that it hasn't happened yet. That isn't the argument I'm making though. It is like filling up a tub with water and then saying that because the tub hasn't overflowed yet, then everything is OK with continuing to let the faucet run. If it is trending toward overflowing, then why are we to think that continuing to let the faucet run will not result in this inevitability?

What if Argentina adopted the USD and started trading and paying wages using the currency? Would that be any different than if the US's GDP as a % of world GDP suddenly increased?

This doesn't really make any sense. Can you explain this more? GDP is a measure of production, not a measure of currency. If US production outpaces the rest of the world, then its share of the world's GDP would rise. But, generally that isn't the case when you're exporting your currency as a reserve asset since that typically means your exports are diminishing as you run current account deficits (imports from abroad are cheaper).

What if tens of millions of people around the world were paid for their labor using USD? That second example is already the case. Similarly, if Ford sets up a plant in Mexico and sells cars from there for USD, why does that somehow not count toward confidence in the currency, but their other plant inside the US does? These are all measurement issues that raise questions about the validity of assumptions.

More trade taking place with the USD certainly is confidence in the dollar. I'm not denying that. This isn't my argument, so I'm not sure what your point here is. Instead, I point you to my above previous trends that I ask you for what your perceived conclusion is if those trends continue.

With regard to the Bitcoin alternative, what do you think about the issues raised by this economist?
https://www.youtube.com/watch?v=UVflys4loV0

Honestly he makes a lot incomplete statements when you dig into it. He mentions that governments hold US dollars as a reserve so that they earn yield, but he ignores the fact that this yield is often negative in real terms. In one of his other videos, he mentions he's not in favor of quantitative easing, but not because of the risk of inflation but because of what it does to asset prices. Rising asset prices due to monetary expansion is [price] inflation! He also contradicts himself. For example, he claims that no central bank will want to use bitcoin (or gold) because of volatility. He then argues that bitcoin will always be volatile (despite its decreasing volatility over time) because gold has always been volatile even during times when it was the world's reserve.......wait, back up...so gold was volatile even when it was the world's reserve? Clearly the world managed gold's volatility as a reserve asset. This seems like a very big contradiction that he completely fails to acknowledge in his critique. His one final reasoning in favor of the US dollar was that of liquidity, but that's not something I'm arguing against. No one is making the claim that bitcoin has more liquidity that the US dollar. In fact, liquidity is probably the number one reason why there isn't a clear challenger to the US dollar as a reserve in the world.

But that brings me all the way back to my original point. The liquidity of the US dollar is completely dependent upon the US continuing its current account deficits, which as I've explained above is not something that is sustainable. We're back to our dilemma.

I think you're missing part of what makes the dilemma a dilemma. No one is denying the idea that the US dollar being a reserve currency for the world has been an "exorbitant privilege" for America.

Lots of people deny it, most of them economists.   There are some advantages, no question.   But most of the claimed advantages aren't all that big, and some might not exist at all.   One advantage that for sure is real is that it gives the US power to sanction countries it doesn't like.   And those countries are eager to find ways to conduct business in something other than dollars.    Another advantage is that it makes it easier for US business to business internationally, for a number of obvious reasons.    One claim is that it lowers borrowing costs in the US.    Evidence of that is light.

I should add (or correct myself) that the USD as world reserve currency status has been a privilege for the US, but that privilege is no longer as large as it was when it was first described as "exorbitant" in the 1960's. I agree its benefits are much more modest today. Its privilege has decreased precisely because of the dilemma faced when facilitating the world's economy with your currency. There is a big trade-off between export competitiveness and financial power projection. The US has broad financial power in the world due to its currency's status and can exert this power to achieve geopolitical gains. But this comes at the cost of export competitiveness due to declining domestic production as a result of cheaper foreign imports.

MGI has a paper that discusses today's modest benefits of the USD being a reserve currency.

And again I'll post this paper that describes the dilemma facing the USD today that provides a good backdrop to some of the reasoning for trade tariffs (even if they are unilaterally reckless).

[ChpBstrd]

So Triffen, after being informed about post-1960s developments, would need to answer whether his concerns were with M1 or M2 or M3 or some ratio.

Triffin was already shown to be correct with his theory, which is the entire reason why we abandoned the gold standard/Bretton Woods entirely. His theory was related to the dilemma of having gold-backed currency acting as a reserve for an ever growing world. At some point you lack the necessary gold needed to back the currency you're using to facilitate the world's economy.

That theory is very different from the discussion we're having with today's modern monetary theory. It is why this thread is called the "modern" Triffin dilemma. It is analogous to the original dilemma Triffin presented, but not quite the same. I just want to make that clear here.

I feel like you're getting too far down into trying to find precise metrics as to when this modern dilemma would present itself rather than just simply looking at whether or not if our current system were to be taken to its logical end, does the dilemma arise?

Let's start with some things we know or trends we are seeing:

There is a clear trend of the US's share of GDP relative to the world's diminishing. That's true whether you adjust for PPP or not. Not adjusting for PPP, the US's share of world GDP has halved from 40% since the 1960s. There are certainly upticks since the GFC as US manufacturing has rebounded slightly (21%->26%), but don't let this mask the overall trend that is clear.

There is a clear trend of the US's debt to GDP ratio reaching historically high levels and no clear indication that it has or will peak.

Interest payments on that debt are reaching unsustainable levels and there is no indication those interest payments will ever go down given our current deficits.

US has flirted with credit rating downgrades over the last decade or so.

I don't think it is a stretch to say that confidence in the US dollar will wane when each of these things are extrapolated to their logical conclusions. If each of these are trends and none of them show any sign of changing course, what is your theory then that confidence in the dollar will actually strengthen? It is easy to sit here and provide all the metrics that you want to show that it hasn't happened yet. That isn't the argument I'm making though. It is like filling up a tub with water and then saying that because the tub hasn't overflowed yet, then everything is OK with continuing to let the faucet run. If it is trending toward overflowing, then why are we to think that continuing to let the faucet run will not result in this inevitability?

Yes, you're raising some great points here. The USD's role as world reserve currency would definitely have ended had the US not gotten off the gold standard and gone full fiat. In a continued gold-standard world, the USD might have behaved like an over-leveraged bank had it tried to supply enough currency to keep up with US GDP growth, much less GDP growth across the capitalistic world. GDP growth would have been tied to the amount of gold that could have been hoarded in Ft. Knox or wherever. Businesses around the world who needed USDs to trade would have faced a scarcity of USDs, while deflation destroyed the domestic US economy. To be clear, that system changed because it had to.

By going full fiat, the supply of USD's were able to increase dramatically to supply a rapidly developing world, and the US was able to enjoy the exorbitant privilege of being able to run massive deficits.

My theory is that the world reserve currency is a product that has a price. Product benefits include the attributed mentioned by the Money & Macro channel: liquidity, stability, interest-bearing, speculative value, and safety from volatility or theft. With a sufficient stash of USD's, ex-US central banks can defend their own currencies or extinguish financial crises. The product's price is that one must trade something with someone else to obtain US dollars, and this is generally at disadvantageous terms for their local workers compared to workers in the reserve currency country. Consider how low the wages are for the workers who make the manufactured items sold at WalMart or Amazon, or how much labor and energy were spent trying to mine the metal used to make a car we'll scrap after 10 years. Yet this disadvantage is outweighed by the benefits of being connected to global markets, without which there might be few jobs at all.

So my description of a currency as a product is like the paradigm proponents use for bitcoin, and I only disagree with them on the relative value of the benefit propositions. The world is awash with cheap currencies from countries with more balanced budgets, but most of them won't buy you a freighter full of Australian iron ore, ten thousand Chinese televisions, or a kilogram of platinum unless the seller thinks they can convert the currency to USD and not lose their shirt in doing so. The question is "what does that come to in terms of dollars?" because dollars are the most liquid currency and the markets with the tightest bid/ask spreads are priced in USD, so anyone using some other currency pays their counterparty to make a currency trade and take a risk. This is kinda like network effects on social media. Because all your friends are using XYZ it was generally a waste of time to try the new social media service where nothing is going on.

So the decision of a trader or central bank to use USD has less to do with US policy than it has to do with the liquidity of markets. US traders comprise a big chunk of that market, and will continue to do so regardless of whether the US has a debt / currency crisis. But there is also a massive chunk of trade done by non-US traders using USD, and they are using it because their fellow traders and central banks are using it. For ex-US central banks, the accumulation of USD as reserves is more appealing than the accumulation of gold, because of the better liquidity and because they too want to avoid the disadvantages of basically being on a gold standard.

The last time the world's reserve currency changed, it was the massive and fast-growing US taking a bigger share of trade from the relatively tiny island that was the UK. But amazingly, the tiny UK managed the world's reserve currency for many decades, simply because London was where the most liquid markets were. It wasn't because of some ratio propping up or knocking down investor confidence. It was the more day-to-day issue of "how do I sell 100,000lbs of tea/wheat/iron/pork/corn/etc." Well, you can only go where the buyers are and accept their terms of trade.

Charles Dickens described a domestic British economy in squalor, at the peak of the pound's reign as reserve currency. Similarly, I don't think the US has to be doing particularly well for the USD to remain reserve currency. US dollars are not an investment in shares of a country, it's the easiest way to do business and defend other currencies. That might continue to hold true even if the US were to default or go into a depression.

What if Argentina adopted the USD and started trading and paying wages using the currency? Would that be any different than if the US's GDP as a % of world GDP suddenly increased?

This doesn't really make any sense. Can you explain this more? GDP is a measure of production, not a measure of currency. If US production outpaces the rest of the world, then its share of the world's GDP would rise. But, generally that isn't the case when you're exporting your currency as a reserve asset since that typically means your exports are diminishing as you run current account deficits (imports from abroad are cheaper).

What if tens of millions of people around the world were paid for their labor using USD? That second example is already the case. Similarly, if Ford sets up a plant in Mexico and sells cars from there for USD, why does that somehow not count toward confidence in the currency, but their other plant inside the US does? These are all measurement issues that raise questions about the validity of assumptions.

More trade taking place with the USD certainly is confidence in the dollar. I'm not denying that. This isn't my argument, so I'm not sure what your point here is. Instead, I point you to my above previous trends that I ask you for what your perceived conclusion is if those trends continue.

With regard to the Bitcoin alternative, what do you think about the issues raised by this economist?
https://www.youtube.com/watch?v=UVflys4loV0

Honestly he makes a lot incomplete statements when you dig into it. He mentions that governments hold US dollars as a reserve so that they earn yield, but he ignores the fact that this yield is often negative in real terms. In one of his other videos, he mentions he's not in favor of quantitative easing, but not because of the risk of inflation but because of what it does to asset prices. Rising asset prices due to monetary expansion is [price] inflation! He also contradicts himself. For example, he claims that no central bank will want to use bitcoin (or gold) because of volatility. He then argues that bitcoin will always be volatile (despite its decreasing volatility over time) because gold has always been volatile even during times when it was the world's reserve.......wait, back up...so gold was volatile even when it was the world's reserve? Clearly the world managed gold's volatility as a reserve asset. This seems like a very big contradiction that he completely fails to acknowledge in his critique. His one final reasoning in favor of the US dollar was that of liquidity, but that's not something I'm arguing against. No one is making the claim that bitcoin has more liquidity that the US dollar. In fact, liquidity is probably the number one reason why there isn't a clear challenger to the US dollar as a reserve in the world.

But that brings me all the way back to my original point. The liquidity of the US dollar is completely dependent upon the US continuing its current account deficits, which as I've explained above is not something that is sustainable. We're back to our dilemma.

My point with the examples was to show that GDP is a rather arbitrary number to use to evaluate a currency used worldwide because it arbitrarily only counts activities that occur within a set of lines in the dirt. US GDP does not count all the USD transactions that occur outside of the US, which create the highly liquid markets that prop up confidence in and demand for USD.

I.e. when Mexico sells oil to Columbia, or Australia sends iron ore to India, or Ethiopia buys wheat from Ukraine, or Japan buys components from South Korea, and they're all frequently using US dollars, then all of these transactions contribute to a worldwide market that is denoted in USD.

I could quibble with some of your critiques of the Money & Macro perspective.

• Negative real yields may be the safest bet available at a time when real yields are negative, compared to other options. E.g. lose 1% of purchasing power per year or gamble on the exchange rate of a smaller currency/asset?
• I think he's using "asset prices" to describe investments and real estate, and "inflation" to describe consumer staples, consumer discretionaries, wages, and other CPI components.
• Well, yes, gold was volatile when countries were on the gold standard. This volatility contributed to multiple depressions in the late 19th and early 20th centuries. That was the problem which led to fiat being seen as the preferred solution.

[lifeanon269]

Yes, you're raising some great points here.
...
That might continue to hold true even if the US were to default or go into a depression.

You wrote a lot without addressing any of the points I wrote about above.

If the idea that USD is the product is accurate (and in some ways that might be true), then that means it needs to have value that traders are seeking out. If you take the points I made above to their logical conclusion, then that value is greatly diminished. Another point/trend I failed to mention is the ever growing trade deficit that is one of the key factors in the dilemma. If that is also taken to its logical conclusion (the US has little to no exports), then effectively America's only export would be US dollars. How much value or trust would nations have in a currency who's national economy produces no value to the world aside from the currency they print out of thin air?

Currently, much of America's budget goes toward military expenditures, which effectively means that one of the largest American exports (that GDP doesn't account for) is military security. But again, this is another trend that seems to be reversing as other nations seek to not lean as heavily on the US for security. Sanctions are another double-edge sword. Yes, it can provide leverage for national security via sanctions, but too many sanctions can cause a weakened dollar as nations seek alternatives to avoid them.

The point I am making about declining US GDP relative to the rest of the world is that GDP is production. You talk about non-US trade being facilitated in US dollars as if that is relevant to this fact. Don't get me wrong, I don't think the success of a nation should be measured via GDP (GDP doesn't measure happiness, literacy, health, etc). But GDP is a measure of production and I think it is important to determine where production is in the world as that indicates where value is.

The US trade deficit continues to grow. The US's share of the world's GDP/production continues to decline. The US's debt to GDP ratio continues to climb and is at historic highs. Interest payments on that debt continue to grow (they're now surpassing our military expenditure costs). All these things are a trend that show no signs of reversing. If you take them to their logical conclusions, I am not sure what economist would argue that's a good thing.

If you say US dollars are a product, then people must value it and must desire it. Network effect isn't enough to maintain world reserve currency status. If it were, then there wouldn't have been any transitions from past reserve currencies. I ask then, what value would a country place on a currency whose nation's economy produces no value for the world and whose debt is unserviceable?

When entering a trade agreement, you're seeking value for the goods you produced. Yes, the USD is the most liquid currency in the world and is used for trade worldwide. But this figure is also declining along with the other trends I mentioned. About 40% of international trade is conducted in USD; a figure that has been steadily declining. About 58% of all foreign exchange reserves are in USD; another figure that has been steadily declining.

I'm just not sure how you can look at any of these trends that show no signs of reversing and say that it is good for the USD in the end. Again, I am not saying that the USD will be dethroned any time soon (mainly because there are no alternatives at the moment). But the writing is there on the wall for all to see in plain sight. To ignore the trends I've listed as well as other trends taking place with bitcoin around the world currently is a disregard for reality.

I could quibble with some of your critiques of the Money & Macro perspective.

• Negative real yields may be the safest bet available at a time when real yields are negative, compared to other options. E.g. lose 1% of purchasing power per year or gamble on the exchange rate of a smaller currency/asset?

I agree that the yield is relative to what's available in the market. But my point he and you both miss is that the yield generated from USD treasuries is not inherent to the dollar as a currency, where as the expansive inflationary aspect is. The yield comes from the debt obligation as there is always a cost to lending. In reality, the inflationary aspect of the US dollar is inherent to the fiat monetary policies that expand this money supply. In otherwords, the yield generated from lending the currency is not an inherent property of the currency itself where is the expansive monetary policies of fiat currencies that hide this yield in real terms is. Anyone ever with the power to expand a currency that has no "printing" limits has done so.

• I think he's using "asset prices" to describe investments and real estate, and "inflation" to describe consumer staples, consumer discretionaries, wages, and other CPI components.

He absolutely is, but again, that misses the point. Quantitative easing causes inflation in all scarce goods and assets just as any expansive monetary policy does. Sometimes it doesn't always show up in markets immediately. For example (not a QE example), the COVID stimulus that was provided to citizens didn't lead to asset price inflation immediately because most people saved that money at first. But eventually that money made its way into the economy which caused price inflation; and no, it was not transitory or supply chain driven (production had long returned to pre-covid levels). So yes, QE causes asset price inflation and not just for "investments" like real estate and stocks, but for all goods and scarce commodities.

• Well, yes, gold was volatile when countries were on the gold standard. This volatility contributed to multiple depressions in the late 19th and early 20th centuries. That was the problem which led to fiat being seen as the preferred solution.

Ironically, in the 20th century, almost all the volatility of the price of gold was due to the fact that gold was sought as a safe haven during economic crises or as a hedge against fiat monetary inflation. Also, most of the volatility in the 20th century came after 1971 when the price of gold was no longer restricted. Pretty ironic that volatility is a criticism here when that volatility was largely driven due to fears of inflation due to fiat monetary policy or people seeking safe haven from economic shocks (oil crises, pandemics, etc).

In reality, the volatility of gold is not a precursor to economic hardships, but a reactive result of such. Most of our economic hardships are a result of expansive monetary policy that leads to credit bubbles bursting. Almost every recession/depression over the last 150 years was primarily the result of expansive monetary policy and credit bubbles bursting that results in a downturn/correction. Both the GFC and Great depression were preceded by large credit bubbles that inevitably contracted.

Even the Long Depression, an era which saw a lot of price volatility in metals due to the end of the bimetallic standard was not seen as a root cause and by many metrics, the era does not meet some of the standard definitions of a true depression as the time period was marked with rising productivity which lead to falling consumer prices.

Volatility in gold is not what drove nations to move away from the gold standard nor had it played a role in causing economic recessions/depressions. That's a pretty big misrepresentation of history.

[ChpBstrd]

You wrote a lot without addressing any of the points I wrote about above.

I'll try again.

If the idea that USD is the product is accurate (and in some ways that might be true), then that means it needs to have value that traders are seeking out. If you take the points I made above to their logical conclusion, then that value is greatly diminished. Another point/trend I failed to mention is the ever growing trade deficit that is one of the key factors in the dilemma. If that is also taken to its logical conclusion (the US has little to no exports), then effectively America's only export would be US dollars. How much value or trust would nations have in a currency who's national economy produces no value to the world aside from the currency they print out of thin air?

If the value of a currency is related to the exports of its issuing country (i.e. what you can buy with it from the issuing country), then we can write off cryptocurrency as worthless right away, because cryptocurrency does not represent a country with exports or even GDP. The whole value proposition is that crypto might someday have utility as a vehicle for trade. My point here is that there might be zero relationship between the two variables: currency utility and a country's trade deficit.

To the extent precious metals were/are used as currencies, they do not represent a claim on any country's production. Rather, their value lies in their functional ability to perform the functions of a currency: measuring value, storing value for later use, liquidity and acceptance by others as a unit of trade, and as an option to earn income through lending or speculation. It's worth noting that we no longer trade in silver/gold coins because fiat money is more functional for our purposes.

Also, by definition, half the world's economy must have a net trade deficit and the other half a net trade surplus. Should we expect the surplus countries' currencies to dominate trade? It's a testable hypothesis.

An assumption of pre-Depression classical economics was that units of currency are like shares of stock, entitling their owners to a share in the issuing country's GDP on some timeframe. I.e. if you owned 1% of a country's currency, you could theoretically buy 1% of the stuff it produced across some timeframe. The production of more currency dilutes existing holders via inflation, and a reduction in money supply would be like share buybacks, causing deflation. This attitude was debunked during the Great Depression, when deflation took hold despite no decrease in government issuing of currency, and again in the Great Inflation of the 70's, when inflation took hold without a major increase in the issuance of currency, and again in the early 1980s when government attempts to restrict currency supply were offset by money supply creation from banks, and again in the 20-teens when rapid money supply expansion was accompanied by some of the mildest inflation in history.

These historical experiences are where we got concepts like the velocity of money, or stimulative/restrictive interest rate policy.

So I'm advocating a functional definition of currency value. I.e. a currency has value because of how it functions for people inside and outside of any particular country. This is in contrast to the classical economics understanding where currency value is tied to production. Not saying you're advocating Andrew Mellon's economics, but if we take things to their end conclusions, then we run up against the same assumptions that were violated again and again in the history of both gold standard and fiat US dollars. Namely, the assumption that a currency's value is directly tied to the GDP within the borders of the issuing country or its net exports.

The point I am making about declining US GDP relative to the rest of the world is that GDP is production. You talk about non-US trade being facilitated in US dollars as if that is relevant to this fact. Don't get me wrong, I don't think the success of a nation should be measured via GDP (GDP doesn't measure happiness, literacy, health, etc). But GDP is a measure of production and I think it is important to determine where production is in the world as that indicates where value is.

GDP and deficit numbers measure what's going on within a country's borders. The utility of a currency, however, extends beyond borders. Hence the foreigners (and US tourists) using USD to make exchanges that don't count toward the US's GDP or deficits because the exchanges didn't happen within a certain area of land.

A reserve currency is, by definition, traded around the world. So looking at only the production that occurs within a nation's borders is invalid in the same way as using a single state's GDP to measure against. In either case, we're ignoring a vast amount of usage and GDP, and applying the wrong denominator.

So I think the percent of worldwide trade done in US dollars is a more relevant measure, and US GDP or deficits are less relevant. When a trader in India uses US dollars to buy coffee from Kenya, he does not do so because he wants a slice of a US trade surplus or a share in the US's GDP growth. Actually, he gets neither of those things by holding or using dollars. He trades in dollars because that's how the largest, most liquid market for Kenyan coffee is denominated. His trades, and everybody else's trades (network effects) create that market and reinforce the utility of the currency.

If you say US dollars are a product, then people must value it and must desire it. Network effect isn't enough to maintain world reserve currency status. If it were, then there wouldn't have been any transitions from past reserve currencies.

I ask then, what value would a country place on a currency whose nation's economy produces no value for the world and whose debt is unserviceable?

You are right that a functional theory like I'm advocating must be able to explain the end of past reserve currencies such as the British Pound. My explanation is that they became less functional than the upcoming alternative. The British Pound became less liquid than the US dollar after British GDP/world GDP shrank and US GDP/world GDP grew during and after WW2. The Pound also underperformed at serving as a store of value, after several rounds of post-war devaluation. Finally, central banks around the world decided to hold USD reserves instead of Pounds because the US market was bigger / more liquid and therefore more useful to fight runs on their own currencies.

The USD will eventually be dethroned as world reserve currency when something else is more useful. I'll agree that massive government debts and trade deficits are a problem IF they can be tied to a reduction in the functional utility of the USD and IF there is a viable alternative without the same or worse disadvantages.

From history, we might expect such a situation to look like the British Pound's experience, where something happened that caused massive economic disruption (WW2, crushing debt to the US), creating conditions where another global superpower could borrow more cheaply and therefore grow faster, causing a vicious cycle where the new currency eventually represented more world trade, more foreign reserves, more liquid markets with tighter bid-ask spreads, etc.

This sounds a lot like the trajectory forecasted by proponents of Bitcoin! Again, with Bitcoin I think we're operating on the same paradigm (functionalism) but I just don't see Bitcoin as a particularly attractive product for international trade that is likely to accumulate network effects as quickly as the USD did in the years after WW2. It would be a contradiction to have a functionalist assessment of a crypto (currency value represents utility), but a classical economics assessment of a nation's fiat currency (currency value represents output). I say we go functionalism on both and debate the merits of the USD's challengers according to the standard functions of a currency.

When entering a trade agreement, you're seeking value for the goods you produced. Yes, the USD is the most liquid currency in the world and is used for trade worldwide. But this figure is also declining along with the other trends I mentioned. About 40% of international trade is conducted in USD; a figure that has been steadily declining. About 58% of all foreign exchange reserves are in USD; another figure that has been steadily declining.

I'm just not sure how you can look at any of these trends that show no signs of reversing and say that it is good for the USD in the end. Again, I am not saying that the USD will be dethroned any time soon (mainly because there are no alternatives at the moment). But the writing is there on the wall for all to see in plain sight. To ignore the trends I've listed as well as other trends taking place with bitcoin around the world currently is a disregard for reality.

I could read the above as being on the same page as my perspective. I.e. if a lower and lower % of world trade is conducted in USD, that bodes poorly for its future utility as a world reserve currency if a big competitor is taking market share. But for me, it represents the possibility, but not the indication, of a challenger becoming more useful / functional as a currency.

However, I fear the argument actually being made here is that the reserve status of a currency is directly tied to market share or GDP or deficits. If that's what is being said, I disagree.

Maybe the market share data merely represent the fast growth and development of markets like Malaysia, South Korea, Chile, or India more than they represent a reduction in the utility of the USD. For instance, if traders in the Philippines and Thailand increasingly make trades using one of their local currencies, which the counterparty quickly exchanges for their home currency, that increase in bilateral trade might not mean that the USD has lost any utility as a reserve currency. A hundred such bilateral relationships in 50 different currencies wouldn't stop the USD from being the most liquid/stable/useful. It doesn't necessarily mean that Germany or Canada or South Africa will start holding more of those currencies in their central bank reserves, because the forex markets for the Thai and Philippine currencies might still be too shallow for the currency to serve a role in the country's reserves (i.e. much less liquid than USD).

If it was this scenario, then we might wonder if technology and critical mass market sizes have enabled countries to bypass reserve currencies all together.

[lifeanon269]

You wrote a lot without addressing any of the points I wrote about above.

I'll try again.

If the idea that USD is the product is accurate (and in some ways that might be true), then that means it needs to have value that traders are seeking out. If you take the points I made above to their logical conclusion, then that value is greatly diminished. Another point/trend I failed to mention is the ever growing trade deficit that is one of the key factors in the dilemma. If that is also taken to its logical conclusion (the US has little to no exports), then effectively America's only export would be US dollars. How much value or trust would nations have in a currency who's national economy produces no value to the world aside from the currency they print out of thin air?

If the value of a currency is related to the exports of its issuing country (i.e. what you can buy with it from the issuing country), then we can write off cryptocurrency as worthless right away, because cryptocurrency does not represent a country with exports or even GDP. The whole value proposition is that crypto might someday have utility as a vehicle for trade. My point here is that there might be zero relationship between the two variables: currency utility and a country's trade deficit.

First, I'm not arguing about crypto, but Bitcoin which is very different.

Second, you continue to ignore all the points I've made above and instead seem to cherry-pick one singular point out of context of the rest. Sure, if a trade deficit was the only trend taking place for the US, I wouldn't see much of a long term risk for the USD as a reserve currency. But that's not the only trend I highlighted above, is it?

To the extent precious metals were/are used as currencies, they do not represent a claim on any country's production. Rather, their value lies in their functional ability to perform the functions of a currency: measuring value, storing value for later use, liquidity and acceptance by others as a unit of trade, and as an option to earn income through lending or speculation. It's worth noting that we no longer trade in silver/gold coins because fiat money is more functional for our purposes.

Totally agree. The world moved to informational ledger-based currency as opposed physical currency due to the speed and ease with which it can be transacted with. Physical gold is not made for global commerce.

Also, by definition, half the world's economy must have a net trade deficit and the other half a net trade surplus. Should we expect the surplus countries' currencies to dominate trade? It's a testable hypothesis.

An assumption of pre-Depression classical economics was that units of currency are like shares of stock, entitling their owners to a share in the issuing country's GDP on some timeframe. I.e. if you owned 1% of a country's currency, you could theoretically buy 1% of the stuff it produced across some timeframe. The production of more currency dilutes existing holders via inflation, and a reduction in money supply would be like share buybacks, causing deflation. This attitude was debunked during the Great Depression, when deflation took hold despite no decrease in government issuing of currency, and again in the Great Inflation of the 70's, when inflation took hold without a major increase in the issuance of currency, and again in the early 1980s when government attempts to restrict currency supply were offset by money supply creation from banks, and again in the 20-teens when rapid money supply expansion was accompanied by some of the mildest inflation in history.

These historical experiences are where we got concepts like the velocity of money, or stimulative/restrictive interest rate policy.

So I'm advocating a functional definition of currency value. I.e. a currency has value because of how it functions for people inside and outside of any particular country. This is in contrast to the classical economics understanding where currency value is tied to production. Not saying you're advocating Andrew Mellon's economics, but if we take things to their end conclusions, then we run up against the same assumptions that were violated again and again in the history of both gold standard and fiat US dollars. Namely, the assumption that a currency's value is directly tied to the GDP within the borders of the issuing country or its net exports.

GDP and deficit numbers measure what's going on within a country's borders. The utility of a currency, however, extends beyond borders. Hence the foreigners (and US tourists) using USD to make exchanges that don't count toward the US's GDP or deficits because the exchanges didn't happen within a certain area of land.

A reserve currency is, by definition, traded around the world. So looking at only the production that occurs within a nation's borders is invalid in the same way as using a single state's GDP to measure against. In either case, we're ignoring a vast amount of usage and GDP, and applying the wrong denominator.

I don't necessarily disagree with your comments regarding money and utility. In fact, many of those points you make are why I believe bitcoin to be a superior form of money compared with today's due to both the combination of utility and its scarcity. The bitcoin network provides censorship resistant, digital, P2P, trustless value transmission. While the monetary properties of it provide scarcity, verifiability, durability, fungibility, and immutability.

But I feel like you're ignoring one critical fact that separates fiat money from bitcoin. Fiat money is debt based money. This is true regardless of its utility and it is a property of fiat money that can't just be disregarded simply because of the utility it provides world commerce. In fact, worldwide commerce is entirely dependant upon the issuing country being able to pay its debts. It is one of the primary reasons why US Treasuries are sought out to begin with. The stability of the US economy and monetary policy is without a doubt the primary reason why the US dollar enjoys world reserve currency status. It's utility to facilitate trade is secondary simply because that utility is easily replaceable (it is just a number in a ledger, afterall). The stability that the US dollar provides markets is why it is sought after for reserves. This is why I disagree with your response here:

I ask then, what value would a country place on a currency whose nation's economy produces no value for the world and whose debt is unserviceable?

The USD will eventually be dethroned as world reserve currency when something else is more useful. I'll agree that massive government debts and trade deficits are a problem IF they can be tied to a reduction in the functional utility of the USD and IF there is a viable alternative without the same or worse disadvantages.

The utility of the money isn't why it is used as a reserve. It certainly helps facilitate trade worldwide, but it is used as a reserve because of the stability and reliability of issuing government to secure that money as a reserve. The government is capable of running deficits to fund and protect its reserve status while ensuring that these debts are payable through stable monetary policy. If this weren't true, you'd see more trade demanded in a currency where that is true. So the value of it as a reserve is the reason why it is used for the facilitation of trade, not the other way around as you seem to imply. The current status quo means that the US must run deficits to continue feeding the growing world monetary reserves, which paradoxically means it runs into a sustainability issue of being able to fulfill its debt promises. The US:world GDP ratio is merely a metric of how much more of a deficit the US must run in order to feed the world its currency for reserves. The debt to GDP ratio is how much of a burden that debt becomes to the the nation with that debt. The larger the debt burden relative to its GDP means that the interest payments on that debt become harder to pay relative to the revenues from production. This is the connection between all these things that I feel you've missed or ignored by only focusing on the percent of the world's GDP and the currency's utility.

Yes, certainly there needs to be alternatives to what a nation chooses to use as a reserve. So if despite all these negatives for the US dollar, there are no alternatives, then I don't see any change taking place (though certainly it would lead to economic hardships across the world). But the point here is that these are negatives that will be drive change to begin to take place. Alternatives typically aren't sought out unless there is a need for them and my point here is that there is a massive need for them given the dilemma the US dollar is currently facing. We're already seeing shifting attitudes globally.

You're continue focusing on just one singular facet of this discussion (% of world GDP) whereas the point I'm making was about the connection between all these trends that are the driving force between the dilemma facing the US dollar as I described above.

So I ask again, if a nation produces so little value for the world (increasing current account deficits leading to greater debt:GDP ratio) and its debt becomes unserviceable, why would a nation choose to seek out that nation's debt-based currency as a reserve instead of something more sound?

[ChpBstrd]

@lifeanon269 sorry if you feel I'm ignoring your points to focus too much on the US : World GDP issue. I suppose in your framework, this is just one of several factors, while in mine, this is the main factor. I think utility for trade comes before liquidity, which comes before usefulness as a reserve.

The rising US national debt level is a problem because it implies a greater risk of default or the necessity of the government to issue vast amounts of currency to cover its debts. Default could happen because of political standoffs, but assuming a functional government, the US can always print more currency to pay its obligations. However, printing currency has in other countries led to high inflation.

For a functionalist like me, either default or high inflation reduces the functional utility of a currency as a store of value, as a way of denoting prices, and as a way to earn or maintain value through interest. The yields of nominal treasuries are expected to usually offset the loss of purchasing power from inflation. So an investor or government holding US treasuries expects to store their wealth in a way that neither gains nor loses much purchasing power. The problem comes when investors have bought treasuries yielding 4% and then inflation rises to 10%. That kind of thing can happen occasionally, but when investors cannot know if they'll have a 0% real return or a -10% real return, the safe haven function is impaired. I believe this is what you mean when you say 

...(The USD) is used as a reserve because of the stability and reliability of issuing government to secure that money as a reserve. The government is capable of running deficits to fund and protect its reserve status while ensuring that these debts are payable through stable monetary policy. If this weren't true, you'd see more trade demanded in a currency where that is true. So the value of it as a reserve is the reason why it is used for the facilitation of trade, not the other way around...

So maybe this is a potatO / potAto kind of thing where we're basically on the same page and describing the same concept in different words. The stability and reliability you describe may be required to perform the functions I describe. E.g. Something cannot be a good store of value if it is not stable, and it cannot be useful as a unit of trade if it is not reliable.

Then again, what use is a currency if it is not often used for trade? The country with the lowest debt:GDP ratio in the world is Brunei, population 466k, which sports a debt only 2.3% of GDP and seems very stable. The Brunei dollar is not generally used in reserves, and is in fact pegged to another currency, because it is so small and illiquid. If we can explain why countries are not holding Brunei dollars, and can explain why Brunei dollars are not used in international trade, we can understand why the USD is used for such purposes, and when/if it might stop being used.

If we put ourselves in the shoes of a central banker from a moderate-sized country whose currency might require defending, Brunei dollars are unattractive because if you sold them to buy your own currency, you'd quickly consume all the liquidity in that market and collapse the value of Brunei dollars. USD are attractive, no matter how badly the US is doing, because you could liquidate hundreds of billions of them and it would be a drop in the bucket.

I take it to the functional level because I want to understand exactly when and why traders might abandon a particular currency and when and why they might switch to another. Narratives of US economic decline have been around since the era of Ross Perot. People have been talking for decades about the US's rising national debt, federal and trade deficits, "producing so little value for the world", and anxiety about dependency on foreign investors.

The narratives cannot explain why the USD is still the reserve currency after all these years, or when the long-hypothesized breaking point will occur. So the presence of narratives is insufficient. We need a model with better detail, such as taking into account various actors' interests. What would governments, traders, and investors do if no other currency in the world offered "stability and reliability" while the US became unstable and unreliable (by some definition of those two terms)? So I like the functional approach because it explains why the various narrative point matter.

Could the U.S. become a fiscal mess while the USD retains world reserve currency status? Arguably it already happened. When the USD overtook the Pound after WW2, and the US had a massive amount of debt to GDP. Maybe it could happen again if the US was the least-bad option.

Fiat money is debt based money. This is true regardless of its utility and it is a property of fiat money that can't just be disregarded simply because of the utility it provides world commerce. In fact, worldwide commerce is entirely dependant upon the issuing country being able to pay its debts.

The U.S. could always "pay its debts" by printing money. But it's this ability to pay debts that investors in the USD are worried about, because it could result in high inflation and a loss of purchasing power by anyone stuck holding treasuries. So in a sense, USD users are betting that the US won't attempt to pay down its debt in a dramatic way.

As the examples of other countries on the low-debt list illustrate, counties can maintain a fiat currency while also maintaining low debt. So all fiat currencies are not debt-based.

Likewise, there is nothing preventing people from going into debt with cryptocurrency. This was actually tried by those companies offering 7% interest on crypto balances a couple of years ago. They later went bust because they were just speculating on the rise of cryptos in a get rich or declare bankruptcy type business model.

Yes, certainly there needs to be alternatives to what a nation chooses to use as a reserve. So if despite all these negatives for the US dollar, there are no alternatives, then I don't see any change taking place (though certainly it would lead to economic hardships across the world). But the point here is that these are negatives that will be drive change to begin to take place. Alternatives typically aren't sought out unless there is a need for them and my point here is that there is a massive need for them given the dilemma the US dollar is currently facing. We're already seeing shifting attitudes globally.

I agree. If the US wanted to strengthen its status as a reserve currency, it would reduce sanctions, reduce tariffs, enforce rule of law and property rights by reducing corruption, and take similar steps to make it even easier to trade USD anywhere in the world, such as hosting 24/7 exchanges. It could also reduce its risk of runaway money-printing with smaller government deficits and shrinking its debt/GDP. Overusing sanctions and tariffs increases the cost foreign firms and governments must endure to obtain access to the most liquid markets, and tempts them to use alternative currencies/markets.

So we're arriving at the same point by different paths. Your path seems to be based on the mutual confidence of worldwide merchants and governments, which could crumble at some unknown point if the US keeps undermining its role as world reserve currency issuer. Mine seems to be based on asking "is the utility of the USD decreasing, relative to alternatives?".

Whereas your path highlights alarming, confidence-destroying moves, I see advantages and network effects that endure despite the US government's irresponsibility, and alternatives that are no more attractive. Whereas you see Bitcoin as the eventual way to escape the Triffin Dilemma, I see it as an experimental currency that has failed to gain traction in real international trade for 16 years, because almost nobody is paying money or accepting massive risks in exchange for solutions to 60 year old theoretical economics issues.

Regardless of inflation or the USD exchange rate, an Indian buying Australian iron ore, for example, can convert rupee into USD and use the USD to get the best price available at any given moment. The Australian miner can then trade the USD for anything in the world. This utility might endure if the USD lost half its value within a couple of years, if the US selectively defaulted on Treasuries owned by China, or if the US became a swamp of government corruption.

Heck, the Brits held the world reserve currency while fighting insurgencies on their own island and colonial rebellions around the planet, all while inspiring the hatred of most of the world and impoverishing most of their own people.

Maybe BRICS Pay will change that? IDK. I'm open-minded to the possibility. But Bitcoin is on year 16 of not changing it. If we can't explain why Bitcoin didn't already become the world's reserve currency or even get on a trajectory by, for instance, capturing 1% of worldwide trade or reserves by now, then we might also end up wrong about the USD being doomed within the next few years.

So I ask again, if a nation produces so little value for the world (increasing current account deficits leading to greater debt:GDP ratio) and its debt becomes unserviceable, why would a nation choose to seek out that nation's debt-based currency as a reserve instead of something more sound?

What does soundness look like? If zero trade deficits, then Triffin might say it can't continue as a world reserve currency. If a low national debt, then how low, and measured against what?

If a country did a massive devaluation or went through a bout of inflation, and its debt/GDP fell as a result, would that make its currency less attractive because of the lost confidence or more attractive because of the reduced debt load?

If a country took steps that made it harder to foreign firms or nations to obtain its currency (currency controls, tariffs) would that make its currency more attractive or less attractive to use for trade, investing, and foreign reserves?

Finally, for any definition of soundness, can we find a relationship where the more sound currencies are used more often or less often for trade, investing, or international treasury reserves?

[lifeanon269]

So maybe this is a potatO / potAto kind of thing where we're basically on the same page and describing the same concept in different words. The stability and reliability you describe may be required to perform the functions I describe. E.g. Something cannot be a good store of value if it is not stable, and it cannot be useful as a unit of trade if it is not reliable.

Then again, what use is a currency if it is not often used for trade? The country with the lowest debt:GDP ratio in the world is Brunei, population 466k, which sports a debt only 2.3% of GDP and seems very stable. The Brunei dollar is not generally used in reserves, and is in fact pegged to another currency, because it is so small and illiquid. If we can explain why countries are not holding Brunei dollars, and can explain why Brunei dollars are not used in international trade, we can understand why the USD is used for such purposes, and when/if it might stop being used.

I agree. But that's the flip-side of the dilemma. It is liquid because of the fact that they're able to run deficits and the world accepts those deficits because of stable and reliable monetary policies that has a track record of paying those debts. The dilemma is that the stability that allows for those deficits to provide the world with liquidity begins to break down due to the the unsustainable nature of it all. So I agree that Brunei would not make for an ideal reserve currency because they don't have the liquidity and would not be able to run deficits to the same amounts that the US can to provide the world liquidity. So while they may have a stable budget and currency, it doesn't make for an ideal reserve for the exact reason you mention; liquidity.

Could the U.S. become a fiscal mess while the USD retains world reserve currency status? Arguably it already happened. When the USD overtook the Pound after WW2, and the US had a massive amount of debt to GDP. Maybe it could happen again if the US was the least-bad option.

You're missing a massive part of that equation. The US had a large debt to GDP ratio after WW2, but they also had trade surplus up until the early 70's that allowed debt to be drawn down over that time frame. Want to know what happened in 1971?

Likewise, there is nothing preventing people from going into debt with cryptocurrency. This was actually tried by those companies offering 7% interest on crypto balances a couple of years ago. They later went bust because they were just speculating on the rise of cryptos in a get rich or declare bankruptcy type business model.

I would fully anticipate that in a "bitcoin world", there would also be fractional reserve banking and credit/debt would not go away. I'm not making that argument and credit is still a useful financial tool. The key difference is that with bitcoin, you can "opt-out" of that debt based system and ensure that the value of what you're holding cannot be debased. Whereas the debt inherent to the fiat monetary system is inherent to the currency. As you said, the US can always avoid defaulting on its debt by simply inflating it away, but by doing that the value of the currency declines for everyone holding it.

I see it as an experimental currency that has failed to gain traction in real international trade for 16 years, because almost nobody is paying money or accepting massive risks in exchange for solutions to 60 year old theoretical economics issues.

But Bitcoin is on year 16 of not changing it. If we can't explain why Bitcoin didn't already become the world's reserve currency or even get on a trajectory by, for instance, capturing 1% of worldwide trade or reserves by now, then we might also end up wrong about the USD being doomed within the next few years.

I feel like you hold extremely unrealistic success standards/criteria for bitcoin. I am not sure how you expect an entirely new technical concept and form of currency to be bootstrapped to anything other than where it is today faster than that. Governments aren't just going to adopt a nascent technology in just a few years time nor are markets going to understand the value of something immediately. Hell, even the first several years of its existence it didn't even have any value/price at all. Expecting worldwide trade to be conducted with bitcoin today is an unrealistic standard to hold bitcoin to and seems to me that it is just a meagre way of writing it off as a failure already.

[ChpBstrd]

I would fully anticipate that in a "bitcoin world", there would also be fractional reserve banking and credit/debt would not go away. I'm not making that argument and credit is still a useful financial tool. The key difference is that with bitcoin, you can "opt-out" of that debt based system and ensure that the value of what you're holding cannot be debased. Whereas the debt inherent to the fiat monetary system is inherent to the currency. As you said, the US can always avoid defaulting on its debt by simply inflating it away, but by doing that the value of the currency declines for everyone holding it....

I feel like you hold extremely unrealistic success standards/criteria for bitcoin. I am not sure how you expect an entirely new technical concept and form of currency to be bootstrapped to anything other than where it is today faster than that. Governments aren't just going to adopt a nascent technology in just a few years time nor are markets going to understand the value of something immediately. Hell, even the first several years of its existence it didn't even have any value/price at all. Expecting worldwide trade to be conducted with bitcoin today is an unrealistic standard to hold bitcoin to and seems to me that it is just a meagre way of writing it off as a failure already.

It may not be possible to print more bitcoin, after a certain point, but it remains possible for the value of bitcoin to fluctuate wildly, in terms of commodities and labor, with bouts of inflation and deflation. That's the way it was in the gold standard world, when dollars and pounds were essentially tokens representing ownership of a non-debaseable asset.

In a world of fractional reserve banking, the money supply can expand beyond the number of IOU tokens represented. E.g. Your bitcoin deposit at the bank counts as an asset to you and a liability to the bank, and the bank's loans to others represent assets they hold, and then their loans to others.... just like how today M2 is much bigger than M1, and the no-longer-calculated M3 is much bigger than M2. So we'd have a world where money supply and monetary velocity could be highly variable, just like the gold standard dollar or pound.

Inflation/deflation cycles wouldn't be eradicated, and bitcoin holders in no debt would not be immune to the effects.

The difference would be that governments would not be able to do as much about it. I.e. there'd be no more monetary expansion in crises like 2008 or 2020 and we'd just have depressions.

Regarding the adoption timeframe, the Euro was introduced in 1999 as a truly unique, multi-country currency. Two decades later, it represented a third of global transaction on the SWIFT network, and at least 9.4% of international transactions if we don't include transactions within the Eurozone (treating the Eurozone as one country, which it isn't).

IDK. If Bitcoin has all these benefits, why hasn't the world rushed to actually use the better mousetrap? What other electronic or software technology spent 16 years without being adopted for its intended purpose? If there are benefits, why isn't anybody arbitraging them, using Bitcoin to buy freighters full of goods for example?

[lifeanon269]

Inflation/deflation cycles wouldn't be eradicated, and bitcoin holders in no debt would not be immune to the effects.

The big difference is that the default risk is limited to the institutions running a fractional reserve. With the USD, there is no opting out. Any money printing is inherent to the value of the dollar itself. Whereas any fractional reserve or rehypothecation taking place is a risk to the institution itself. People have the capability to self-custody and thus hold a portion of the limited supply themselves. There is a far greater risk of bank runs and thus the capability of institutions to run zero reserves like banks do today is reduced. If you're holding physical dollars, the value of it can still be debased due to printing beyond just the debt-based fractional reserve system. It is inherent to the currency as I've said, since the governments ultimately control their supply.

The difference would be that governments would not be able to do as much about it. I.e. there'd be no more monetary expansion in crises like 2008 or 2020 and we'd just have depressions.

This comment doesn't make much sense and has little historical accuracy either. Yes, governments wouldn't have as many monetary tools at their disposal during economic downswings. But they also wouldn't be feuling economic bubbles to begin with either. Name a depression that wasn't preceded by a credit bubble that burst catastrophically. Instead of rapid expansion and collapse, we'd have slower growth, but also tamer downturns. One of the big drivers of economic instability in the past was wars and the decreased ability for governments to fund wars via the ability to print money would be a great boon for civilization. To put it another way, the world would be more "Mustachian". Less reckless credit based expansion of the economy leading to bubbles and more deliberate capital driven investment that can weather shorter periods of instability. You asked what "soundness" looked like, and this is what is meant by it. If people have cheap capital laying around, they're far more likely to make malinvestments with it. If capital is real, then you need to be far more cautious about what you invest in and perform far more due diligence. Growth would slower, but the likelihood of another GFC would be drastically reduced.

Regarding the adoption timeframe, the Euro was introduced in 1999 as a truly unique, multi-country currency. Two decades later, it represented a third of global transaction on the SWIFT network, and at least 9.4% of international transactions if we don't include transactions within the Eurozone (treating the Eurozone as one country, which it isn't).

IDK. If Bitcoin has all these benefits, why hasn't the world rushed to actually use the better mousetrap? What other electronic or software technology spent 16 years without being adopted for its intended purpose? If there are benefits, why isn't anybody arbitraging them, using Bitcoin to buy freighters full of goods for example?

The Euro is an apples to oranges comparison and not really a new technology either. I said "new technical concept and form of currency", not "or". The Euro was a self-implementation developed by the governments themselves, so of course it would see quicker adoption. It didn't have to be organically discovered.

Bitcoin is more akin to the internet where it required organic discovery by people, businesses and governments. In that comparison, bitcoin is actually outpacing the internet at this point in its life. Bitcoin is developed by mostly volunteers and was created from nothing from the ground up. Anyone hearing about bitcoin would need to discover it for themselves rather than having a government mandate passed down to them to push adoption. Bitcoin is also facing the greatest of all incumbents, fiat currency. Fiat money is one of the most entrenched incumbents to attempt to compete with, so expecting an overnight transition from something that is so ingrained in our daily lives is entirely unrealistic.

What does arbitraging mean here? That term doesn't really fit your statement. People are using bitcoin for economic transactions, despite your continued insistence they aren't. Even outside of economic transactions, holding bitcoin is still using it for its inherent properties. Being able to store value in something that is global, censorship resistant, permissionless, and can be hidden just about anywhere is of immense value to growing numbers of people worldwide.

[ChpBstrd]

Inflation/deflation cycles wouldn't be eradicated, and bitcoin holders in no debt would not be immune to the effects.

The big difference is that the default risk is limited to the institutions running a fractional reserve. With the USD, there is no opting out. Any money printing is inherent to the value of the dollar itself. Whereas any fractional reserve or rehypothecation taking place is a risk to the institution itself. People have the capability to self-custody and thus hold a portion of the limited supply themselves. There is a far greater risk of bank runs and thus the capability of institutions to run zero reserves like banks do today is reduced. If you're holding physical dollars, the value of it can still be debased due to printing beyond just the debt-based fractional reserve system. It is inherent to the currency as I've said, since the governments ultimately control their supply.

The difference would be that governments would not be able to do as much about it. I.e. there'd be no more monetary expansion in crises like 2008 or 2020 and we'd just have depressions.

This comment doesn't make much sense and has little historical accuracy either. Yes, governments wouldn't have as many monetary tools at their disposal during economic downswings. But they also wouldn't be feuling economic bubbles to begin with either. Name a depression that wasn't preceded by a credit bubble that burst catastrophically. Instead of rapid expansion and collapse, we'd have slower growth, but also tamer downturns. One of the big drivers of economic instability in the past was wars and the decreased ability for governments to fund wars via the ability to print money would be a great boon for civilization. To put it another way, the world would be more "Mustachian". Less reckless credit based expansion of the economy leading to bubbles and more deliberate capital driven investment that can weather shorter periods of instability. You asked what "soundness" looked like, and this is what is meant by it. If people have cheap capital laying around, they're far more likely to make malinvestments with it. If capital is real, then you need to be far more cautious about what you invest in and perform far more due diligence. Growth would slower, but the likelihood of another GFC would be drastically reduced.

With fiat currency, one can always opt out of the banking system by stuffing the mattress full of bills.

The risk to doing so is inflation, which governments intentionally manage to be slightly positive in order to discourage such malinvestment, and to avoid the danger of a deflationary spiral without too many economic frictions.

So cryptocurrencies like Bitcoin are a proposed solution to this problem, for the tiny minority of people who want to (1) stuff the mattress / USB stick and (2) store their purchasing power for free while (3) not trusting a counter-party like a government or bank, but fully trusting anonymous online "volunteers" and often sketchy trading platforms/wallets/services.

Unfortunately for bitcoin, that's exactly what people do with it*, and there is minimal interest in actually trading one's crypto for groceries, land, massages, or bicycles. Thus, bitcoin is in a deflationary spiral by design, destined never to be spent. If one truly believes that one is holding an inherently deflationary currency in one hand, and an inherently inflationary currency in the other hand, it will always make more sense to spend or borrow the inflationary currency. Fiat currencies function just fine for earning, spending, and lending; it is only the mattress-stuffing function they are not good for, and most people aren't even interested in that. We have a "currency" that nobody uses as a currency.

Thus we've gone 16 years since the introduction of bitcoin and still cannot fill our gasoline tanks or buy a dozen eggs or purchase a bank CD using crypto. There's apparently no market for it, because fiat currencies work best for these functions.

Claims that social vices are caused by the modern availability of credit and fractional reserve banking can be traced back to the rhetoric of gold bugs. They are contradicted by decades of rapid economic growth, rapid reductions in poverty, increased living standards and life expectancy, and reams of research showing that warfare and violence have declined in recent centuries/decades. Nobody who understands the history of "scarce" money or deflation wants to go back to it.

And if too much lending was a problem, governments could easily solve that problem by raising interest rates, raising the reserve ratio for banks, performing quantitative tightening, or adjusting bankruptcy and consumer protection laws to raise the disincentives for reckless lending. There's no need to reinvent currency to solve this issue, if it ever was an issue. 

*other than committing financial crimes and frauds like ransomware attacks.

Regarding the adoption timeframe, the Euro was introduced in 1999 as a truly unique, multi-country currency. Two decades later, it represented a third of global transaction on the SWIFT network, and at least 9.4% of international transactions if we don't include transactions within the Eurozone (treating the Eurozone as one country, which it isn't).

IDK. If Bitcoin has all these benefits, why hasn't the world rushed to actually use the better mousetrap? What other electronic or software technology spent 16 years without being adopted for its intended purpose? If there are benefits, why isn't anybody arbitraging them, using Bitcoin to buy freighters full of goods for example?

The Euro is an apples to oranges comparison and not really a new technology either. I said "new technical concept and form of currency", not "or". The Euro was a self-implementation developed by the governments themselves, so of course it would see quicker adoption. It didn't have to be organically discovered.

Bitcoin is more akin to the internet where it required organic discovery by people, businesses and governments. In that comparison, bitcoin is actually outpacing the internet at this point in its life. Bitcoin is developed by mostly volunteers and was created from nothing from the ground up. Anyone hearing about bitcoin would need to discover it for themselves rather than having a government mandate passed down to them to push adoption. Bitcoin is also facing the greatest of all incumbents, fiat currency. Fiat money is one of the most entrenched incumbents to attempt to compete with, so expecting an overnight transition from something that is so ingrained in our daily lives is entirely unrealistic.

What does arbitraging mean here? That term doesn't really fit your statement. People are using bitcoin for economic transactions, despite your continued insistence they aren't. Even outside of economic transactions, holding bitcoin is still using it for its inherent properties. Being able to store value in something that is global, censorship resistant, permissionless, and can be hidden just about anywhere is of immense value to growing numbers of people worldwide.

The World Wide Web was introduced in 1989. Sixteen years later was 2005, when Amazon, Ebay, WalMart, and dozens of others were selling billions of dollars worth of retail goods online. In that year, 3.9% of retail transactions (growing at 22% YoY) and 4% of selected services trade (growing at 14.9% YoY) was conducted online. A whopping 18.3% of wholesale trade and 26.7% of manufacturing trade was done through the web.

A similar 16 years after bitcoin... I guess you could technically use crypto on PayPal to buy things on Amazon, but it's just selling your bitcoin and transacting in dollars in the background. Of course, the intermediary takes a fat cut along the way in exchange of creating the illusion of a bitcoin transaction.

Goldbugs/preppers have been betting on the imminent collapse of the USD system for my entire lifetime. Their dogma is unfalsifiable, and each year that goes by fails to persuade them that they've been wrong. It only persuades them that the prophesied event must be even closer!

We don't have to think like them, repeating well-worn tribal slogans back and forth in internet debates. We can set commitments and say something to the effect of "if in the year 2020 inflation is less than 10%, I will reassess my belief that USD collapse and hyperinflation is imminent" or "if in the year 2035 I cannot buy either gasoline, shoes, or groceries using bitcoin directly, I will reassess my belief that it is the currency of the future."

I'll commit right now to accept that I will have been flat wrong about bitcoin if in the year 2030 I can buy gas, shoes, or groceries using bitcoin directly. I'll also be flat wrong if by 2035 there are stock, bond, or commodity exchanges operating at scale where people are using a currently existing cryptocurrency (not a digital dollar, digital yuan, or BRICS Pay type token) directly to trade assets. If either of these ever happen, I'll reassess my impressions about the USD's role as world reserve currency, the desirability of crypto's features, and the efficiency of blockchain.

[lifeanon269]

With fiat currency, one can always opt out of the banking system by stuffing the mattress full of bills.

I already mentioned as such, but as I said, that is not opting out.

So cryptocurrencies like Bitcoin are a proposed solution to this problem, for the tiny minority of people who want to (1) stuff the mattress / USB stick and (2) store their purchasing power for free while (3) not trusting a counter-party like a government or bank, but fully trusting anonymous online "volunteers" and often sketchy trading platforms/wallets/services.

I would suggest watching this documentary to see first hand accounts of people using bitcoin and the benefits they gain from it. Seems you're stuck in your head that bitcoin is not useful for you, therefore it isn't useful for anyone.

https://www.youtube.com/watch?v=oksraL7wN6Q

Claims that social vices are caused by the modern availability of credit and fractional reserve banking can be traced back to the rhetoric of gold bugs. They are contradicted by decades of rapid economic growth,

There is little doubt that such rapid expansion of our monetary system in the past has caused credit bubbles that burst catastrophically. See the Great Depression and Global Financial Crisis for two of the worst, but there are countless more.

rapid reductions in poverty, increased living standards and life expectancy, and reams of research showing that warfare and violence have declined in recent centuries/decades. Nobody who understands the history of "scarce" money or deflation wants to go back to it.

No doubt there have been great improvements to the quality of life and a decrease in violence in civilization. Don't let my critiques of our monetary system paint a picture that I'm pessimistic about our world today in contrast to where it has been in history. But this positive trend in humanity is true even before modern monetary theory began. In fact, I'd argue that since MMT (1971) there is been a massive increase in wealth inequality in the world that can be very much attributed to our current money system.

And if too much lending was a problem, governments could easily solve that problem by raising interest rates, raising the reserve ratio for banks, performing quantitative tightening, or adjusting bankruptcy and consumer protection laws to raise the disincentives for reckless lending. There's no need to reinvent currency to solve this issue, if it ever was an issue.

Too much credit is a problem (again, see Great Depression and GFC). Governments don't want to solve the problem because no politician wants to put in place austerity measures. They just want more money printing to keep GDP ever rising regardless of what it means for society. Fiscal responsibility isn't good for reelection.

*other than committing financial crimes and frauds like ransomware attacks.

You continue to spout tired remarks that are untrue that I've already debunked in this very thread:

Again, you keep spouting false information that isn't true. You say that bitcoin is only used for criminal proceeds, however Chainalysis, the predominant company that is used for tracking illicit activity with blockchains has the following to say:

At the time of this publication (January 25, 2025), we see a reduction in absolute value of illicit activity year-over-year (YoY); however, based on historical growth rates, we suspect that this number will eventually exceed last year’s total as our data attributions improve. In addition, our estimate for the share of all attributed crypto transaction volume associated with illicit activity, depicted below, also fell to 0.14% from 0.61% in 2023. Similarly, we expect this share to rise over time, although historically these rates consistently remain below 1%.

Illicit activity with bitcoin is consistently below 1% of all usage every year. This is in comparison with traditional finance where illicit activity is in the range of 2-4% of GDP. So the idea that bitcoin is predominantly used by criminals and attracts illicit activity is completely false. At worst illicit activity is on par with traditional finance and is likely well below that of traditional finance. The former CIA director conducted an analysis into whether the claim that bitcoin was predominantly used for illicit activity and had this to say:

https://www.thecipherbrief.com/report-an-analysis-of-bitcoins-use-in-illicit-finance

The World Wide Web was introduced in 1989. Sixteen years later was 2005, when Amazon, Ebay, WalMart, and dozens of others were selling billions of dollars worth of retail goods online. In that year, 3.9% of retail transactions (growing at 22% YoY) and 4% of selected services trade (growing at 14.9% YoY) was conducted online. A whopping 18.3% of wholesale trade and 26.7% of manufacturing trade was done through the web.

I said the internet, not the world wide web. The WWW is an application that runs on top of the internet.

Goldbugs/preppers have been betting on the imminent collapse of the USD system for my entire lifetime. Their dogma is unfalsifiable, and each year that goes by fails to persuade them that they've been wrong. It only persuades them that the prophesied event must be even closer!

We don't have to think like them, repeating well-worn tribal slogans back and forth in internet debates. We can set commitments and say something to the effect of "if in the year 2020 inflation is less than 10%, I will reassess my belief that USD collapse and hyperinflation is imminent" or "if in the year 2035 I cannot buy either gasoline, shoes, or groceries using bitcoin directly, I will reassess my belief that it is the currency of the future."

I'm not forecasting the imminent demise of the USD. I've stated this numerous times in this thread. In fact, I don't want that as it would cause a lot of pain for everyone, myself included. I'm merely pointing out that the trends that I've mentioned countless times (that you've not responded to countless times) are inarguably bad for the dollar and its status as a reserve currency. I have no idea how long the US dollar will last, but I do know that the situation it finds itself in is a precarious one. I am not thinking like a gold bug. I don't own any gold, so I could careless what they think and I don't follow any goldbugs to know what they think.

I'll reiterate what I've said:

The US's share of the world's GDP is shrinking which means if it wants the world to use the USD as a reserve currency and facilitate trade, it must continue to run current account deficits to feed the world liquidity.

These deficits continue to feed an unsustainable debt to GDP ratio. Our current rising interest payments on this debt is now exceeding even our defense spending. With current trade and budget deficits, there is no indication that this debt to GDP ratio will taper or reverse. The US's credit rating has been downgraded in the past and risks further downgrades and has a negative outlook status.

You don't have to be a goldbug to acknowledge that these things are bad for the US dollar. Regardless of whether bitcoin is ever a world reserve currency or not, it is already a success whether you want to admit it or not. You as an individual not finding it useful doesn't deny that others do.

I'll commit right now to accept that I will have been flat wrong about bitcoin

At this point we're sort of arguing the same things over and over. It is clear that you'll never admit certain things about bitcoin seeing as how even today you remark about things that aren't true about bitcoin (illicit activity use). So I have no indication you'll be unbiased about it in the future if you can't be today. That's OK though. We can simply agree to disagree on these things. I feel bitcoin will do a lot of good for the world and a growing number of people see the problems we have with today's money and agree on that. At the end of the day a global money that is free and open for all to use is a good thing, whether you find it useful for yourself or not. If it competes with the USD or not will remain to be seen, but even if it doesn't, the fact it exists for anyone to use wherever they see fit is a net benefit itself.

[ChpBstrd]

With fiat currency, one can always opt out of the banking system by stuffing the mattress full of bills.

I already mentioned as such, but as I said, that is not opting out.

Because you'd still pay the price of inflation, or for some other reason?

And if too much lending was a problem, governments could easily solve that problem by raising interest rates, raising the reserve ratio for banks, performing quantitative tightening, or adjusting bankruptcy and consumer protection laws to raise the disincentives for reckless lending. There's no need to reinvent currency to solve this issue, if it ever was an issue.

Too much credit is a problem (again, see Great Depression and GFC). Governments don't want to solve the problem because no politician wants to put in place austerity measures. They just want more money printing to keep GDP ever rising regardless of what it means for society. Fiscal responsibility isn't good for reelection.

Now this is interesting. If there is a problem, why can't democracy solve the problem, by having millions of voters realize that it is in their interests to elect fiscally responsible politicians?

The trade deficit has both negative and positive effects, such as making everything cheaper in terms of Americans' labor and earnings, in providing foreigners plenty of dollars they need to buy US treasuries which results in lower rates, and in pricing out US-made competition. The federal deficit's effects include much lower taxes than we'd have to pay with a balanced budget, economic stimulus effects, and an ever-growing debt load with an interest rate that can increase over time. To be clear, voters have consistently chosen these outcomes over the alternative, for at least half a century.

Does the case for bitcoin adoption require that we believe hundreds of millions of people, across multiple generations, are making decisions against their own best self-interest? Are we accounting for the tax savings, higher quality of life, higher savings, and multiplicative effects of government borrowing at the risk free rate and distributing that capital to consumers and businesses to earn returns and generate growth in the markets? Is it a statement that democracy cannot function, and that foolish voters simply run like lemmings to their economic destruction?

And if so, is bitcoin going to ride to the rescue, saving people from their own bad voting decisions by imposing a new form of currency that they'll have to adopt because it's the only one that makes sense (solving the Triffin Dilemma)?

Or are we saying the handful of people who were smart enough to see it coming will get rich, as the rest of the world will be forced to buy their ever-more-scarce bitcoin to conduct commerce? That was the old goldbug argument (not saying you're a goldbug, just that the argument was the same: USD weakening will prop up the alternative pseudo-currency).

I'll commit right now to accept that I will have been flat wrong about bitcoin

At this point we're sort of arguing the same things over and over. It is clear that you'll never admit certain things about bitcoin seeing as how even today you remark about things that aren't true about bitcoin (illicit activity use). So I have no indication you'll be unbiased about it in the future if you can't be today. That's OK though. We can simply agree to disagree on these things. I feel bitcoin will do a lot of good for the world and a growing number of people see the problems we have with today's money and agree on that. At the end of the day a global money that is free and open for all to use is a good thing, whether you find it useful for yourself or not. If it competes with the USD or not will remain to be seen, but even if it doesn't, the fact it exists for anyone to use wherever they see fit is a net benefit itself.

So I've made intellectual commitments that are specific, time-bound, falsifiable, and requires an admission of error on my part if the outcomes occur. Can you do the same about bitcoin or USD devaluation? If not, why?

[lifeanon269]

Because you'd still pay the price of inflation, or for some other reason?

Yes, inflation, but also because in order to spend it globally or digitally on the internet, you're right back to using the institutions you tried to opt-out from.

Now this is interesting. If there is a problem, why can't democracy solve the problem, by having millions of voters realize that it is in their interests to elect fiscally responsible politicians?
...
To be clear, voters have consistently chosen these outcomes over the alternative, for at least half a century.
 

Not to delve to much into politics, but do you really think the average voter puts even the slightest bit of forethought into any of the topics we've just discussed? Now realize that half of the population puts even less forethought in than the average. Also, your comments are very US-centric and that many outside the US might not see those same things as benefits themselves.

The federal deficit's effects include much lower taxes than we'd have to pay with a balanced budget

Do you think things come free because we can print money to fund those deficits? What a wild thing to say. Make no mistake, American citizens pay for the full budget, deficit and all, regardless of whether they're directly taxed on it or not. Personally I'd much rather be transparently taxed on what is in the US budget as opposed to being robbed a nebulous amount via inflation.

Does the case for bitcoin adoption require that we believe hundreds of millions of people, across multiple generations, are making decisions against their own best self-interest? Are we accounting for the tax savings, higher quality of life, higher savings, and multiplicative effects of government borrowing at the risk free rate and distributing that capital to consumers and businesses to earn returns and generate growth in the markets? Is it a statement that democracy cannot function, and that foolish voters simply run like lemmings to their economic destruction?

Tax savings? Again, just because the budget runs red doesn't mean that the red portion is suddenly free to American tax payers.

Again, people vote against their interests all the time. I don't think that's a shock to anyone in today's political climate.

Higher savings? The US savings rate has been on decline since the 70's aside from a short blip during the covid years.

Distributing that capital to consumers? Are you arguing for trickle down economics now? Again, as I mentioned earlier, wealth inequality has been exacerbated since the 70's and shows no signs of changing course. I feel like you're exaggerating some of my arguments with hyperbole rather than just simply keeping things to the simple facts that I've mentioned. I'm not making grandiose claims in the way that you're stating I am. I just state simple individual facts on their own and let those facts and trends speak for themselves. I am not a prophet or oracle predicting the future. I simply look at trends and do the best I can to place myself in a position to be better off in the future regardless of the outcome.

So I've made intellectual commitments that are specific, time-bound, falsifiable, and requires an admission of error on my part if the outcomes occur. Can you do the same about bitcoin or USD devaluation? If not, why?

Because I think making "time-bound commitments" like that to anonymous individuals on the internet is a pointless endeavour, especially on a forum that very well likely might not even exist in that time frame. The fact that I own bitcoin is far more skin-in-the-game than any comments made on an obscure internet forum.