Comment by kornhole
2 years ago
A weak dollar is good if you own a company that relies on exports. For the rest of us who are paid in dollars and need to buy imports, a weaker dollar hurts.
That is one opinion. We can already see China and Japan selling off their US bonds and the BRICS countries are working on solutions to get off the dollar with high priority.
> A weak dollar is good if you own a company that relies on exports.
It depends on your exports. If your exports have cheaper alternatives, then a weak dollar is good.
If your exports are high utility and have no cheaper alternative, then a strong dollar is better.
Have you read the article? :)
Maybe this one will be more interesting https://www.noahpinion.blog/p/brics-is-fake
They were long reads, but thank you. They generally cover history and speculation on BRICS, but we will need to see how it works out. I have seen their meetings and open statements about intent to diversify away from the dollar for trade as a high priority. The articles don't really explain what happens if/when they do figure out international payment systems that avoid dollars. Think of this: You have a trillion dollars you printed floating around the planet. It didn't cost you much to print them, but you did get goods and services for them. If that trillion is halved to $500B, what happens?
Okay, so it's an especially hard topic, because the soundbites seem simple and dangerous (dedollarization, end of the dollar hegemony, BRICS will move off the dollar, the first signs of the beginning of the inevitable and long predicted extremely overdue fall of the West, etc.), but the prosaic technicality-dense details are simply long and turn out to be extremely anticlimatic.
Payment systems are already here that avoid the dollar. (From the extremely simple blockchainish digital-synthetic currencies like Ripple XRP to the classic SWIFT-like China's CIPS[1].) And these are already in use. After Russia got thrown out of SWIFT they are now basically using CIPS. (Of course they also have their own version, SPFS. "Coincidentally" its development started in 2014.)
However, on the CIPS wikipedia page you can notice that the important things needed for the actual settlement is a boring list of stuff about each member institution (account numbers, settlement procedure description, credit rating). And each member institution has its own rules about what transfers to accept. And of course in hard times trust is in low-supply, transfers start to get manually reviewed, tolerances start to decrease, everyone starts to hoard good money, thus only bad money remains.
All in all, the important thing is that there's no magic system that can handle payments without the usual institutional-societal framework. (Well, of course there are blockchainish things. For example Visa is doing something on Solana. And Solana is pretty fast and cheap. And a horror show to develop smart contracts on, but that's not really relevant now, and not important for Visa or Russia/China/banks, because they don't care much about the ethos of decentralization, they just want to have something quasi-trustless, fast, and cheap.)
> If that trillion is halved to $500B, what happens?
It depends, but, well ... nothing really. Most of money is already at rest. It represents exactly that stuff you got for it. It represents all the wealth created. It was printed to keep inflation around 1-2%. If it disappears in some computer system people will start to scratch their heads, but the ratios will remain mostly the same, so purchasing power and wages/salaries will not change.
That said if some bank decides to flood the market with cheap US Treasury bonds nothing happens. That's already in USD, the bank loses on the transaction a lot. And a lot of these reserves are in bonds.
Okay, what happens if that bank asks for the cheap bonds not USD, but let's say rubels? Okay, they will end up with a shitton of rubels. The exchange rate shifted, but nothing actually happened, sure the ratio of flow of goods and services will adjust as the overpriced rubels will be exchanged for a bit more goods and services than without this huge transaction. But what does this lead to? More exports from the typical exporters. It's not particularly good for anything that's hard to scale up, it will just result in price inflation. And then eventually the exchange rate will go back to reflect the actual flow of goods and services.
[1] https://en.wikipedia.org/wiki/Cross-Border_Interbank_Payment...
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