Comment by noduerme
7 days ago
People trade in USD because the US is the largest of large economies. Everyone trading in USD understands already that the US can manipulate its own currency. But they take a low-risk bet that it probably would have far less incentive or inclination to do so than an authoritarian state like China or a small economy like Argentina. Capital flows to the US because the dollar has been "safe"... it inflates, but predictably slower. The Chinese regime is more than capable of opening the illusion of free markets and making 50-year promises not to interfere with free trade and capital, tempting foreign investment, only to break those promises with an iron fist.
Regardless of the response from China, America is showing that it is irrationally willing to cede its incredible advantage for no decipherable reason beyond that some logarithmic curve of population idiocy has crossed the already absurd hockey stick of its own national wealth. It's a realtime lesson in the ancient rule dating back to the fertile crescent, that civilizations destroy themselves from within before they're conquered from without.
That doesn’t matter. In modern forex markets you can convert 50 million yen to USD. Do a trade with another country for EUR or whatever. Then convert it back to USD the same day.
These markets are extremely liquid and the longer term trends of the USD value are irrelevant because players can move in and out so quickly. They can even preemptively take short positions or buy options on futures markets to completely derisk an event while holding USD.
This is why “petrodollar is good” analysis in modern forex is completely off-base. At this point it’s become a great flag to indicate someone who doesn’t understand forex and trade at all.
Of all of the things valuable to the US, the petrodollar is about as far down as renaming the Gulf of Mexico the gulf of America.