Comment by AlexandrB
7 days ago
> Our debts would suddenly become existential because inflating our currency to pay for them could result in functionally not being able to import goods required to run our economy.
Can you elaborate on this? Every other country does not have the luxury of having its currency be the reserve currency but still manages to both inflate that currency when needed and import good just fine.
If America's reserve status goes, they will face the same constraints, except with way more debt and far less experience managing currency risk.
If India buys a widget off Brazil it will probably be paid in dollars. Therefore, people need to own dollars. Thus a demand for US debt. This lowers the potential interest rate. Other countries who's currency is not a need for people to buy, their debt is purchased by the attractiveness of its offering (i.e interest rate). If US dollar is no longer required than government bonds have to be attractive. Also, not all sovereign debt is issued in the home countries currency, which means that the printing press doesn't help. US debt is very large, interest repayment are close to military spending. Without the reserve currency that would get worse. Something like 68% of world holding is dollar 17% Euro, nothing else of note.
The other side is that as there is a demand for dollars. The value of the currency is higher than if it wasn't which increases the price of exports and reduce price of imports. Trump might want to weaken the dollar.