Author Topic: US and reserve currency status  (Read 789 times)

kenmoremmm

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US and reserve currency status
« on: August 19, 2020, 06:12:44 PM »
if the US loses the reserve currency status of the world, what will this mean for the US? what will it mean for other countries? are there places that would benefit from such a shift?

NorCal

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Re: US and reserve currency status
« Reply #1 on: August 19, 2020, 06:31:58 PM »
"Reserve Currency" is a term used a lot in conspiracy theory circles.  IMO, it's mostly a waste of time to think about as something that will change in our lifetimes.  Maybe our children's lifetimes.

The USD being a reserve currency just means most other countries hold their currency reserves in USD.  Related, a lot of worldwide financial instruments are denominated in USD, even when the US is not part of the transaction.  For example, oil contracts are USD denominated, even if the contract parties are Saudi Arabia and Japan.

There's no governing body out there that declares USD as the reserve currency.  It's just what most countries choose to hold their reserves in because it is a stable and predictable currency.  There aren't any other choices out there with the same dependability.  Your conspiracy theory articles will usually point to the Yuan.  Nevermind that the Yuan was pegged to the USD until 2015, and it still isn't a fully convertible currency.  The euro also has some significant issues.

If something else were to take place of the USD, it would likely mean higher interest rates for the US and a weaker dollar.  The US would import less and export more.  Absent thermonuclear war, this is the type of change I would expect to happen over decades as countries slowly diversified their reserves.  It wouldn't be an overnight event that you could trade. 

Travis

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Re: US and reserve currency status
« Reply #2 on: August 19, 2020, 06:37:46 PM »
« Last Edit: August 19, 2020, 10:02:10 PM by Travis »

Buffaloski Boris

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Re: US and reserve currency status
« Reply #3 on: August 19, 2020, 09:35:43 PM »
"Reserve Currency" is a term used a lot in conspiracy theory circles.  IMO, it's mostly a waste of time to think about as something that will change in our lifetimes.  Maybe our children's lifetimes.

The USD being a reserve currency just means most other countries hold their currency reserves in USD.  Related, a lot of worldwide financial instruments are denominated in USD, even when the US is not part of the transaction.  For example, oil contracts are USD denominated, even if the contract parties are Saudi Arabia and Japan.

There's no governing body out there that declares USD as the reserve currency.  It's just what most countries choose to hold their reserves in because it is a stable and predictable currency.  There aren't any other choices out there with the same dependability.  Your conspiracy theory articles will usually point to the Yuan.  Nevermind that the Yuan was pegged to the USD until 2015, and it still isn't a fully convertible currency.  The euro also has some significant issues.

If something else were to take place of the USD, it would likely mean higher interest rates for the US and a weaker dollar.  The US would import less and export more.  Absent thermonuclear war, this is the type of change I would expect to happen over decades as countries slowly diversified their reserves.  It wouldn't be an overnight event that you could trade.

Good analysis and I mostly agree with it except the degree and timeline. I see the US becoming one of a few reserve currencies in coming years. The Yuan and Euro are certainly competitors but so are cryptocurrencies and PMs. I do think itís a good idea to be in non US assets.

Padonak

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Re: US and reserve currency status
« Reply #4 on: August 19, 2020, 10:00:54 PM »
"Reserve Currency" is a term used a lot in conspiracy theory circles.  IMO, it's mostly a waste of time to think about as something that will change in our lifetimes.  Maybe our children's lifetimes.

The USD being a reserve currency just means most other countries hold their currency reserves in USD.  Related, a lot of worldwide financial instruments are denominated in USD, even when the US is not part of the transaction.  For example, oil contracts are USD denominated, even if the contract parties are Saudi Arabia and Japan.

There's no governing body out there that declares USD as the reserve currency.  It's just what most countries choose to hold their reserves in because it is a stable and predictable currency.  There aren't any other choices out there with the same dependability.  Your conspiracy theory articles will usually point to the Yuan.  Nevermind that the Yuan was pegged to the USD until 2015, and it still isn't a fully convertible currency.  The euro also has some significant issues.

If something else were to take place of the USD, it would likely mean higher interest rates for the US and a weaker dollar.  The US would import less and export more.  Absent thermonuclear war, this is the type of change I would expect to happen over decades as countries slowly diversified their reserves.  It wouldn't be an overnight event that you could trade.

Can you elaborate on that? What significant issues does the Euro have?

kenmoremmm

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Re: US and reserve currency status
« Reply #5 on: August 19, 2020, 11:15:06 PM »
one of the conspiracy theories i've listened to during my WFH youtubing is that the fed will slowly introduce electronic/crypto currency that would eventually render actual dollars useless (a trend already occurring).

ctuser1

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Re: US and reserve currency status
« Reply #6 on: August 20, 2020, 07:50:04 AM »
All alternatives cited in this thread has huge problems. Unless they are resolved - USD is going to be here.

Crypto? Good luck appropriately expanding and contracting monetary supply with them when economic cycles demand it. You'll be back to a hypercharged gold standard with none of the good bits by all the bad bits if Crypto was to become a reserve currency.

Yuan, the actual one used inside China (CNY), can't even be traded. For that you are stuck with CNH. Plus - how are other countries supposed to get a hold of CNY/CNH unless China starts running deficits?

EUR - they have again imposed on them all the shortcomings of the Gold Standard. When Greece was contracting 25%, didn't they wish they could use the money supply as a lever? Germany controls the currency, and good luck asking them to run deficits if it was every to become a "reserve" currency.

In short - as of now AND in the foreseeable future there are no alternatives. It is possible some will emerge in future. However, that will first be preceded by some economic earthquakes that will reshape the world in ways that any predictions today are utterly futile. e.g. When China ages and becomes a consumer economy instead of the world's factory and starts running deficits - will they even want to become a reserve currency?