Whenever I see headlines like this, I ask: what happened in 1994?
It was post-Cold War and central banks were trimming USD reserves to test alternatives.
Then, crises hit (tequila, Asian, Russian, dot com) and the world reconsolidated around USD, thanks to the immense strength of the Federal Reserve and IMF.
Similarly now, reserve share is falling as countries hedge sanctions and geopolitics, yet dollar usage in trade, debt, and crisis funding remains dominant, and unless a true full-stack alternative (liquidity, safety, yield, and crisis response) emerges, history will repeat.
Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
Dollars are currently only in demand for short-term use in transactions.
Most of the world still relies on dollars for transactions, because that is what all the banking and payment infrastructure uses.
But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
It's a game of hot potato where everyone is forced to hold equities, commodities or other assets by default in order to preserve their wealth, and then convert to dollars to transact.
The days of savings accounts are over, and everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world.
Meanwhile, the big players in the current financial system are trying to figure out how to continue playing the current game without resetting everyone's progress.
They don't want to lose their hard won position to pay for bad decisions by American voters.
It's a coordination problem, and the shelling point looks like it is still gold, same as it has been for thousands of years.
> Dollars are currently only in demand for short-term use in transactions
This is all currencies. You store value in debt. You spend in the hot currency.
> no one wants to hold them because they devalue and will continue to do so at an accelerating rate
Literally what Treasuries are for.
> everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world
One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
But in today’s economy, you generally can find checking accounts with pay around inflation. And if it really worries you, you can buy TIPS.
> But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
Devalue against what is the main question though, isn't it? The real longer term issue is that the USD is devaluing against the Euro, but even that has serious issues for Europe's export oriented economies [1].
No, this is an artifact of Russian reserves getting frozen in 2022 and autocracies the world round getting more careful about having all their eggs in that basket.
The PRC’s SAFE is selling dollars and buying gold in a very covert but absolutely massive fashion, and most likely, so are many other countries in a smaller way.
India has also been quietly bringing back its gold reserves stored abroad. NATO west made a very bad call by freezing, and then publicising their threat to also seize, Russia's foreign reserves in their country.
2 Star Trek tv shows airing and one in development and a movie came out. West coast grunge scene in full effect. Kurt cobain died. MLB baseball strike after a killer Montreal expos team and then no World Series. OJ trial. Friends debuted. Channel tunnel opened. Mandela elected. PlayStation debut. Amazon founded. Yahoo founded. Netscape founded. USA World Cup. NAFTA. QR code invented. The Downward Spiral. Justin Bieber born. Shohei ohtani. Born. Nixon died. Jackie Kennedy died. Senna died. Ukraine gave up its nukes. Guantanamo reopened. Kim Il-sung Died. Forrest Gump.
No, each pushed alternative is just worser. The euro could take over, but europe just revealed itself as a "lawful" player with no plan and no pants (security-wise) - so the euro is just defacto tied to the dollar value wise. For without the us guarding europe, the euro is just loaded with invisible gigantic security and pension debts.
BRICs is dealing in store credits and raw-materials. Every other empire and kingdom is not to be trusted or only to be trusted as long as the town power-drunk world-police-man does his job. He may be the towns drunk, mumbling "Screw you guys, im going home!" but he is also the only one so far doing a decent job as sheriff.
You can grasp how unreliable the other actors are, by how one of the hostile actors (russia) recently complained about the (world-police) doing what its proxies in yemen and ukraine are constantly doing (piracy) to venezuella. They complained about the break-down of maritime safety- to the us. Yep, its that bad.
Everyone knows what’s going on. Europe is slowly reacquiring pants (too slowly for my taste).
The US has this ridiculous belief that Europe has no military ability. The truth is that Europe is far too skilled at war, and collectively disarmed after the Second World War and let the US make the decisions and pay for it all because that was the only way to achieve a lasting peace. European armed forces aren’t ready for war, but they are skeletons on which wartime forces can be reconstituted.
Now that the US is dropping its responsibilities it’s also losing its privileges, but everyone is moving quietly so that the amateurs in the White House don’t cotton on. The world doesn’t need a sheriff; it’s just going to have a bunch of players looking after their own interests. The historical attitude to war already prevails: ‘it’s fine as long as it doesn’t affect us.’
Those words hit harder when you've an executive that isn't beholden to Russia or threatening to fucking annex part of an ally, and a Europe that isn't investing heavily into rearmament.
Something like the brics can challenge that. Having a safe currency vehicle that can sustain itself much like the dollar that the world will trust is all the momentum you need. Much like why the dollar is. You have a big player now like China backed by other large populated countries etc brazil.
Brics is nothing but a meeting, conversation and PR arena. It is not an Union of any kind, not military, not scientific, not political, not trade, not cultural.
BRICS having it own separate currency and a central bank is as far from reality as the samw thing happening to the qualifying countries in Mundial.
Yes, but global reserves are the domestic total foreign debit, and the government does not control that one. (I mean, it can weight in how it grows, but it's not the one that makes it.)
Okay, only 4 surplus years. 10% uptake of GLP1s, okay, they'd be in surplus. 100% uptake, it would be a deficit.
Any number of things could have happened. This was just one thing that definitely was completely in control of people - it was in the control of Pfizer's commercialization team - it wasn't some unforeseeable crisis.
My point is, the little HN takes here and there like yours, better to not make them, because frankly you don't know anything about the budgeting process or governance, so why say anything at all?
> The dollar’s share had already been below 50% before, in 1990 and 1991, after a long plunge from the peak in 1977 (share of 85.5%). This plunge accompanied a deep crisis in the US with sky-high inflation and interest rates, and four recessions over those years, including the nasty double-dip recession.
Or, in other words, at 1991 the US started recovering from the Oil Crisis and the subsequent fuckery. There's a dip in that number around the time the USSR felt, but it's just a small acceleration to the trend.
> Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
Do you think the world is relatively "stable" right now?
Oh, and I'd check the data before believing usage in trade debt and crisis funding are going strong. Two of those are constantly making headlines for how they are decreasing, and "crisis funding" is basically another name for "reserve currency".
The dollar's share hit a historical bottom around 45-46% in the early 1990s (specifically hitting roughly 45.8% in 1991 and remaining in the high 40s/low 50s through 1994). By the end of 1994 and into 1995, the share began to rise again, eventually peaking at over 70% in 2001.
Another factor was that the 1990's was the Pre-Euro Era, the peak of the "multi-polar" reserve system. Before the Euro was launched in 1999, global reserves were split among many more national currencies (the French franc, the Dutch guilder, etc.), which naturally diluted the dollar's total share more than the current "USD vs. Euro" system.
> Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
No. Its the result of the US, UK and the EU stealing Venezuelan and Russian state and private dollar funds and every country on the planet realizing that they could get the same treatment if they are at odds with any of them at any point.
Seems interesting that cryptocurrency has suddenly been bolstered with legislation. A secondary market might become important were the dollar not to recover.
I'm not sure I'd call our current geopolitical status stable in any way. Multiple major wars, historic superpowers losing their absolute minds, fascism rising, even discontent in the EU.
This is an artifact of the instability of our current times. USD reserves are falling because the US is no longer a stable country offering a stable currency. Plus we keep demanding more tarriffs in effect reducing the real value of a US dollar.
Stability would appear as more confidence in USD, not less.
I'm not an economist so someone please correct me / expand on this;
I'm guessing this is kind of a "It's not a problem until it's a crisis" situation? So far other central banks haven't begun selling treasuries, they've just stopped buying them. But once one starts selling it could become self reinforcing?
What could replace it? There doesn't seem to be any new hegemonic power on the same level. Could we enter a world where all central banks hold a mix of currencies and nobody benefits from being the reserve?
Its only really a crisis for people who are dependent on the US for protection. The whole compact is that you use the dollar, and the US will look after you (ie House of Saud, Europe, taiwan, south korea, etc) But that isn't really certain anymore.
You need to make tributes to the suntan king, and he is most capricious and likley to tariff the fuck out of you. So alternative destination for your goods is a necessity
Also the markets are not convinced that the fed is in good hands. The whole point of the fed is that they are far enough away from the meddling in Washington so that you can rely on the dollar. The fed is being steadily erroded, with the new chair being selected soon. The problem is that present administration is hell bent on loyalty over competence.
Printing dollars to get out of domestic budgetary problems was never a thing (excluding QE, but thats different, nominally) was never an option in the US. but that doesn't seem so far fetched now.
The printing of dollars by the Fed comes with a secondary effect - the dollars are not evenly distributed amongst the population. They are printed via market action, and the ones who are closest to the market action are free to capture as large of a share as markets allow.
Over time, it's natural that actors will optimize the above system to capture as many dollars from the printer as they can.
This is more of a go out with a whimper rather than a bang type thing. Being the world reserve currency (as well as the largest consumer market in the world) previously enabled the US to do things like relatively easily export inflation in spite of relatively reckless monetary policy. Now that inflation is sticking around far more persistently, even long term bonds have gone from 1-2% to 4%+, and so on. Stagflation is a conceivable longer term outcome.
The replacement will probably be a multinational currency with strictly controlled quantity tied to some sort of physical asset(s). Basically Bretton Woods 2.0, except with the learned experience of not just granting a single country immense power and having them pinky swear not to default on their obligations and then abuse that granted power. China's probably betting that that asset will be gold.
> The replacement will probably be a multinational currency with strictly controlled quantity tied to [...] probably [...] gold.
This is econolibertarian fan fiction. Literally no one wants that except people already involved in speculating[1] on gold. Are there bad externalities to relying on a unlitaterally controlled reserve currency? Yes. Are they made better by handing financial control over to a bunch of fucking mine and vault operators? Let's be real, here.
Basically this idea appeals to people who've convinced themselves they can get rich betting on financial policy and stay rich by burying their loot in their metaphorical backyard.
[1] The very fact that such speculation even exists should be a triple exclamation point red flag on any argument about hard currency, but alas no.
US Treasuries have terms, if you aren’t refreshing your treasury buys, it is the same as selling them. US treasuries and by extension USD was useful because it could soak up billions of dollars of savings (debt for America) without taking a huge inflation hit (treasury rates were often less than inflation, so you still take some hit).
As for where that money is going now? Other currencies and saving instruments probably..
In some ways, this effect can have a positive impact on US citizens; demand for the US dollar requires supply to satisfy the demand. Where does that supply come from? Oftentimes: Printing. The US generally does not make a habit of telling US dollar buyers "no, we don't have any US dollars to sell you", so less demand on the dollar for reserve holdings can have a deflationary impact on its value. This can be combined with lowering interest rates, which creates more domestic demand for dollars, to help balance out the inflationary impacts from that.
Many economists take the stance that being the world's reserve currency is something of a two-edged sword; a curse that does come with geopolitical advantages, but bundles those advantages with significantly more difficult global financial responsibilities.
It’s either printing or increasing taxation for constant benefits. We all know what happens when the government tries to increase taxes at all, now try doing it for zero increased benefits. This is a populace that’s had candy for dinner since WW2, and forcing them to eat their vegetables will result in a never before seen level of civil unrest from people of all political inclinations.
The Fed most commonly uses Open Market Operations to modify the money supply, with "money printing" or Quantitative Easing used in more emergency situations.
But more broadly your comment doesn't really represent reality, whatever happens in the markets and economy the Fed manages inflation (or deflation) and it's much more complicated than a single relationship like you describe.
More interesting is trade, where the US consumes so much and pays out so many dollars for goods that places like China which run huge surpluses have few choices other than lend it back to the US.
It doesn't necessarily have to be one thing. We've had multi-currency regimes in the past (before one generally took over). See How global currencies work past, present, and future by Barry Eichengreen, Arnaud Mehl, and Livia Chitu:
The British pound was displaced by the US dollar. Currently, the US dollar just doesn't have a proper rival. The euro, yuan and rupee are considered politically suspect (each for its own unique reasons); the pound and yen have too small a base. Without further transformation of the global financial system, the only alternative is for banks to hold a basket of currencies, and in such a basket the dollar would likely still play a significant, if reduced, role. This is a slow process because it means changing the nature of currency reserves from a single safe haven to a "nest". What this means for USG spending power is not immediately clear.
Ok, let's see - yuan isn't a freely traded currency, it's heavily regulated by China. From that alone it can not be used a reserve currency by anyone - unless they want to hand over all control over their assets to CCP.
The rupee is better, but there's not a lot of trust in Indian institutions globally, so black swan events are more likely. I can see it becoming a better proposition as India further matures and taps into its population more.
No, euro - that's a solid contender. Not only it's already used in a lot of countries, and therefore backed by more than one economy, the EU institutions are legit to a fault - they continuously refuse to seize Russian assets, because there's no solid legal grounds for it, despite all political will towards doing so.
That alone makes it far removed from being politically suspect in my book, unless there's some blatant case against the euro that I'm missing.
Who considers them politically suspect? I’m guessing the people who live in the countries that use them don’t, and on the contrary would increasingly be seeing the USD as politically suspect.
Treasuries are not some kind of artifacts that can be stored indefinitely, they are bonds with maturity dates. As they mature they turn into cash automatically and that cash used to come from selling new treasuries. As the demand dwindles the US has to sell its bonds cheaper thus borrowing at higher interest and that interest will have to be paid by selling even more treasuries at even higher interest so it's already a feedback loop.
If they stop buying treasuries, that's still a big problem, because the US continues to run a deficit, and therefore continues to need to sell treasuries.
Gold is a terrible unit of international money because the supply isn't flexible enough to accommodate any growth in international trade.
Contrary to popular belief, during history gold has always had limited role in the monetary system, because it was too scarce to really be useful (in most of human history, Silver, not gold was the cornerstone of trade, and trade itself was a tiny part of economic activity in an era where most of it was subsistence farming). It's only when banking and paper money replaced silver that gold took a bigger role in the monetary system. The gold standard is in fact an invention of the late 19th century and it didn't last long before it disappeared progressively (the first world war being the beginning of the end).
Unfortunately for us, it just happened to be the period when a bunch of influential economists grew up (particularly Ludwig Von Mises), and like every human being they assumed that the system they grew up with was special and what came after was decadent, an idea that has unfortunately since then become widespread in the general population.
Most people wrongly assume that the key property for a commodity to become the basis of a monetary system is scarcity, but in reality scarcity is a drawback. Money must be abundant enough (too abundant is bad, but too scarce is even worse).
Isn't a more modest opinion that gold admits a guaranteed minimum on its price because of scarcity and demand from industrial applications? That guaranteed minimum on its price is what enables it to be used as a hedge against a possible hyperinflation event of the USD. By comparison, the USD, like all other fiat currencies, might not have any guaranteed minimum price.
Only the fact that it would be an idiotic policy that would destroy the economy.
Why would you let your monetary policy be run by gold miners in China, Russia and Australia? They could cause inflation or deflation simply by increasing or decreasing gold production.
Conversely how is the Fed supposed to manage inflation if it runs out of gold?
Gold is an industrial metal, also used in jewelry, not a financial panacea.
Imagine if there was a gold which could be transferred across borders easily and completely securely within seconds, proof of holdings and ownership could be easily proven, and there was no future risk of gold supply shocks (eg gold asteroid hitting earth or alchemy becomes viable).
All the arguments against gold are completely bogus because there is nothing stopping the price of gold from climbing to meet the economic need. The price of gold was suppressed for a long time by institutions, but this active suppression is increasingly difficult to continue.
As for verification and transfer, that's what electronic shares are for, distributed across a few key physical asset holders.
Insane this administration wants pimp the US out to the highest bidder and let the crypto weirdos run the world. If we ever lost the reserve currency peg treasury bills will spike and it’ll be impossible to fund the government. We spend 7T every year and take in 5T in taxes. This admin is gutting the IRS and banking on tarrifs which are just taxes. So … without the ability to keep interest rates very low because everyone wants our debt …
My understanding is that it has happened. The oil market was tied to the USD. The BRICS have now implemented a payment system as robust as SWIFT system. Oil is now being paid for using that system.
Panics about how oil is being traded in non-USD terms are as old as the internet and, in all likelihood, even older than that. You can find usenet slop from 20-30 years ago about the petro-euro and the "tehran oil bourse". Here's an old site that is/was daily panics about the fall of the dollar, from 15-25 years ago. http://www.engdahl.oilgeopolitics.net/
So gutting public institutions and the tarifs do not work as trump intended because the fed opposed it? What did they do achieve that? (Sorry if i come across as trump deranged.)
> Are you trying to project this unto Trump when the Fed is doing everything it can to oppose his measures?
The Fed isn't opposing Trump's measures, on the contrary, the Fed is doing everything to accommodate as much of his policies as possible without wider damage to the economy.
It's Trump who doesn't understand the risks of unhinged tariffs and low interest rates which he demands because of his personal conflicts of interest.
The US worked hard for this outcome. After stupidly weaponizing the financial system, and stupidly outsourcing their industrial capacity and basing GDP progress on bubbles, there's no wondering why countries and global players wont trust their money to the dollar...
There is a global shift toward higher US equity allocations seeing how well they've performed in the last however-many years. Also it seems like President Trump's sole mandate is to keep the stock market from crashing, so that helps.
Highly unpopular opinion here and I'm going to get downvoted into the ground (who cares), but ... this has been a very long time coming and has very much been a self-inflicted change.
My bet is that it will end up being a very good thing for the world at large.
China has recently started to buy Arabian oil and paying with yuan.
Major countries (India, China) are starting to buy Russian raw materials and paying directly using rubles.
In both cases, trade is happening and completely bypassing the once unavoidable USD.
The US choosing to weaponize the USD for geopolitical purposes has finally made the world realize the immense loss of sovereignty they had allowed themselves to be subjected to by making the USD the global trading currency.
This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.
The golden triangle of Russia (raw materials), India (highly educated workforce, strong demography), China (industrial powerhouse, stole the bulk of Western IP, is now producing more cutting-edge research than the west) finally free of the shackles of the USD and establishing direct overland trade routes that 100% avoid the seas (thereby 100% avoiding potential US embargoes, both financially and militarily enforced) ... the world is going to change in a rather profound way, finally relegating the US to being a simple country instead of the has-been empire it currently is.
Every time I hear people claiming India and China now not using dollar and the end of dollar’s dominance, I feel it’s coming from mostly clickbait headlines, not data. From a global payments share, dollar is still the single largest currency from a percentage standpoint, and is at historically highest share of global trade. Any changes to currency share are coming from lower volume from the Euro. On top of that, if you look at foreign reserves, yes there has been a recent selloff from the peak, but we are still at 60% of global reserves and its still kind of around the same historical average for the last 30+ years.
Edit: I also want to add, that while having the international trade entirely in dollar sounds very appealing, it can actually destroy US exports and damage the trade balance. This can have massive impact on domestic as well as global economies. What you want is a strong enough dollar.
I think youre conflating 2 different things, share as a payment currency and share as reserve.
Share as a payment/trade currency is not going away though it will be greatly reduced especially with CIPS that bypasses SWIFT.Andmost data showing no change is usually from SWIFT - with zero visibility to the volumes in CIPS.
Share as reserve is more visibly viz central banks stacking gold and hedging on treasuries , with most tresurie bids coming in from offshore financial hubs likethe Caymans.So could be a whole shellgame there to inflate the volumes.
So yeah the $ isnt going away anytime soon (cross border trade still requires it in many places),the exorbitant privilege it enjoyed is.
> Every time I hear people claiming India and China now not using dollar and the end of dollar’s dominance, I feel it’s coming from mostly clickbait headlines
I would encourage you to actually take a gander at the history of reserve currencies, how long they last, how they lose their reserve status, and what the current state of thinking around where the dollar is headed.
Unless you would classify the IMF as a clickbait farm, of course.
Start with the brit. pound and what led its downfall to the niche financial instrument it is today.
But the pound is just the latest, and by no mean the only one.
> get the bloody USD printing machine under control
The amount the US government spends on debt service is already unreasonable. If the US dollar lost reserve status, the first thing that would happen is that the Fed would have to buy the debt with newly created money to prevent bond rates from causing interest payments to explode. Meanwhile the act of other countries unloading US dollar reserves would cause significant inflation in itself.
Basically, loss of reserve status = hyperinflation. At least at the outset.
On the plus side, that would pretty much wipe out the excessive amount of US consumer debt as long as wages stay consistent with the value of the dollar.
Russia is a joke, India is somewhat irrelevant and doesn't seem like that will change soon, China is a different story, although they also have their share of demographic and economic issues.
And Putin and Xi are 73 & 72, and I doubt they will give up power as long as they're living which may result in significant turnmoil for both countries.
> US to being a simple country instead of the has-been empire it currently is.
The US isn't going anywhere for now, although it is trending in the wrong direction, but it's not yet a lost cause, not to mention that its still basically a fortress with endless natural resources and relatively good climate.
And then you also have the AI race which might be a dud or might be a winner takes all scenario. So gonna be an interesting next decade.
> My bet is that it will end up being a very good thing for the world at large.
I generally agree with pretty much all your points other than this one.
While it will be good for other countries to regain sovereignty - and the weaponization of the US dollar for trivial reasons will be the biggest self-own perhaps in history - I do not think the world is going to be a better more peaceful place in 50 years.
It might be more free in a certain sense though, which may or may not end up long-term (over multiple generations) being better overall for humanity. Time will tell.
Certainly though, the average quality of life in the US is about to plummet.
Agree it will land more stable for most parties but it will be turbulent getting there. Global free trade under the USD has created many structural fragilities. Principally that we have global overproduction outside the USA.
Frankly, this will be good for the world if it happens. The U.S. War Industry will for the first time after Bretton-Woods be deprived of a bottomless piggy-bank.
Lot of emotion in this comment; not a lot of substance. I think you're misunderstanding how some of these systems work.
> This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.
It is not the case that the US didn't "need" to get the USD printing machine under control because of the reserve status; it is the case that the US
"could not" get the USD printing machine under control, because of the reserve status. When there is demand for US dollars, domestic or foreign, US dollars sometimes needed to be printed to satisfy that demand. If the US decides to not print those dollars; this is literally "defaulting on the debt", and would be bad-bad.
This gets at where you're misunderstanding how these systems work, because I think you're imagining that US debt is, like, an account in your Chase app that goes up, then you pay it down. US debt are, obviously, bonds. The USG says "we've got bonds to sell, they're at N year M% interest". Buyers say "we want those bonds we'll buy them". The USG is now in debt, and is obligated to repay those bonds; and sometimes has to print money to do so. This gets at the previous paragraph; money, broadly, is printed to satisfy debt obligations, not directly to service the deficit (proceeds from the initial bond sale are what could be said to directly service the deficit, but that's pennies compared to the size of the overall market).
Extending the Chase app analogy, you have it internalized that if we just get the deficit under control, then we could start "paying down the debt". In fact, probably, even our President understands it like this. But this isn't how it works. To "pay down the debt" would require two things to happen: We stop issuing new treasury bonds, and we pay off the already issued ones over 20/30/etc years as they mature.
The general professional sentiment on what would happen if the US even communicated it wanted to, in totally good faith, begin doing this at some point in the future, is basically armageddon. You have it in your head that, because Dave Ramsey says debt bad, the US should have no debt; but the world wants our debt; it has an insatiable (though, decreasing) appetite for it. Depriving the world of this debt would leave trillions of dollar-equivalents without anywhere to park safe from inflation, which would descend global financial markets into chaos. Tens of millions of people would starve in the first three months, among other undesirable outcomes. Some actively make the argument that the USG refusing to take on new debt would be net-worse for the world than the US defaulting on their existing debt, though its an interesting space to game out; a little game of global-cataclysm worst-thing-to-ever-happen-to-humanity olympics you can play.
But, debt servicing is becoming unmanageable for the US budget; so the best case for the United States is that USG debt demand from the rest of the world drops slowly and naturally, so we can naturally slow the issuance of new debt; and over 100 or so more years let managed inflation catch us up to recover from the utter shitshows that was 2001, 2008, and 2020. Everything I've seen, and I do mean everything, suggests that this is what is happening; but we'll know for sure in 90 more years.
Your entire wall of text has conveniently and completely omitted the hard fact that the U.S. Treasury has borrowed to pay for its defense (oops, sorry, I meant "war") budget for many, many years now. The war budget (~$850B) has been larger than the deficit in many years.
No other nation except the U.S. can sustain this without running into hyperinflation and consequent national rioting.
Ooooh that must've struck a nerve. Seems we can't post that here without massive loss of reputation. Progressivism != liberalism. That stuff just doesn't fare well, even as sarcasm.
Dollar dominance erosion shifting towards dollar inertia. Post RU sanctions dollar lost much of it's leverage (as geopolitical weapon), i.e. actual useful dominance function (transaction panopticon, sanctions)while still retaining most of the liability (Triffin etc). Dollar going to remain popular by volume because plumbing in place, but parallel payment systems last few years = systematic blindspots where US treasury can't monitor what others buy outside of dollar system, and generally weaker ability coerce countries. What's left of dollar system is US enjoying exorbitant privilege of going into ~35T and rapidly increasing debt to serve as asset for everyone else, while dragging down export via uncompetitive FX.
One interesting attack vector vs USD is PRC recycling it's dollar surplus / shadow lending it's USD reserves at more favorable rates than US gov can, i.e. countries (emerging markets / BRI recipients) who would have borrowed USD from FED (or US influenced IMF/WB) now borrow from USD from PRC -> reduce US treasuries demand and drive up US interest -> further increase US debt. PRC basically hijacked and weaponize USD liquidity to make increasingly ineffective dollar system (as geopolitical tool) even more expensive to maintain while PRC can enjoy dollar liquidity without the maintenance costs. And that's probably the ultimately the goal, smart play is not to inherit reserve obligations, but to turn reserve holder's exorbitant privilege to exorbitant curse.
> countries (emerging markets / BRI recipients) who would have borrowed USD from FED (or US influenced IMF/WB) now borrow from USD from PRC -> reduce US treasuries demand
This makes no sense. If the PRC is lending U.S. dollars, that doesn’t reduce Treasury demand. It increases demand for dollar-denominated assets, goods and service providers. The borrowing country has to spend those lent dollars after all.
PRC lending their USD surplus to countries to buy more PRC shit. "Increases demand for dollar-denominated assets, goods and service" =/= increase demand for US treasury, aka it doesn't fund US deficits. The attack is not on dollar circulation / liquidity but cost of treasury
Old: PRC recycle surplus USD into US bonds, increase US treasury demand, subsidizes cheap US debt.
New: PRC recycle surplus USD into BRI finance, said USD doesn't return to US treasury to buy bonds, decrease US treasury demand, treasury increase interest to fill hole, makes exorbitant privilege more exorbitant.
PRC parallel dollar bond lending COMPETES with US treasury bond lending. PRC dollars gets recycled towards PRC goods / BRI projects, not US treasury. PRC leveraging dollar liquidity for PRC geopolitical interests, meanwhile taking demand away from treasury bond sales, so US drive rates up to compete. US treasury had to find other buyers to fill ~600 billions (and raising) of USD bonds that PRC no longer holds. Filling hole that size = finding more price sensitive buyers (vs PRC who previously default recycled into treasury), so raise interest, increase debt servicing. US 10 year going from 0% (countries basically paying to hold USD) to ~0.8% cost US ~300B+ annually. Now that's not all PRC doing, but 100 billion here and there and soon we are talking about real money.
USD position as global reserve is very much based on trust.
Between the weaponizing that for sanctions via SWIFT, US becoming unreliable as a partner (militarily, politically and economically) and Trump rambling about replacing pieces of the financial system with crypto [0] that trust was bound to waiver
Think we'll have a parallel system in record time. Question is who/how. Russia wants it but they're well Russia. China's yuan isn't open enough. Euro is a bit to regional and dependent on the US lead system anyway. So there isn't an obvious candidate.
Something is going to have to give though given US shenanigans.
The key point, which at least the top comment here is missing and others may overlook of the article, is that the article states that the USD currency reserve is still the same but that the other currencies being present in the mix have increased and thus the USD proportion has decreased (not that the absolute amount of USD being held decreased). However, the implication is still the same and that is that the rest of the world's central banks are holding relatively less USD.
Judging by the comments Americans still don’t intuitively understand what the rest of the world does. Everyone is trying to create distance from the United States. The US no longer represents the smart deal, it represents risk, risk that countries can’t afford. The US has spent the last year creating chaos and punishing its closest allies and trading partners. The instability goes beyond Trumps term too, they’re rightfully afraid of the system that elected Trump twice. When they have a choice between euro’s, dollar’s or yuan they’re going to choose dollars less frequently to avoid exposure to the US.
Can confirm, one example: the company that I am currently working for put all its plans for investing in the US in the fridge and is exploring other markets now.
That’s entirely the point. Leave the USA financial system or contribute more. If you pick an single alternative currency I’ll run through the reasons why most would choose the US Dollar.
There’s more to international trade than what central banks do. The US is still a good place to invest overall, which is why we can run trade deficits. The money earned by foreigners, whether it’s from selling oil, cars, or anything else, goes into US investment of all kinds. Foreigners can buy the S&P 500 just as easily as bonds.
US interest rates have been declining lately, so perhaps other investments are more attractive.
Whenever I see headlines like this, I ask: what happened in 1994?
It was post-Cold War and central banks were trimming USD reserves to test alternatives.
Then, crises hit (tequila, Asian, Russian, dot com) and the world reconsolidated around USD, thanks to the immense strength of the Federal Reserve and IMF.
Similarly now, reserve share is falling as countries hedge sanctions and geopolitics, yet dollar usage in trade, debt, and crisis funding remains dominant, and unless a true full-stack alternative (liquidity, safety, yield, and crisis response) emerges, history will repeat.
Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
Dollars are currently only in demand for short-term use in transactions. Most of the world still relies on dollars for transactions, because that is what all the banking and payment infrastructure uses.
But no one wants to hold them because they devalue and will continue to do so at an accelerating rate. It's a game of hot potato where everyone is forced to hold equities, commodities or other assets by default in order to preserve their wealth, and then convert to dollars to transact. The days of savings accounts are over, and everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world.
Meanwhile, the big players in the current financial system are trying to figure out how to continue playing the current game without resetting everyone's progress. They don't want to lose their hard won position to pay for bad decisions by American voters. It's a coordination problem, and the shelling point looks like it is still gold, same as it has been for thousands of years.
> Dollars are currently only in demand for short-term use in transactions
This is all currencies. You store value in debt. You spend in the hot currency.
> no one wants to hold them because they devalue and will continue to do so at an accelerating rate
Literally what Treasuries are for.
> everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world
One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
But in today’s economy, you generally can find checking accounts with pay around inflation. And if it really worries you, you can buy TIPS.
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> But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
Devalue against what is the main question though, isn't it? The real longer term issue is that the USD is devaluing against the Euro, but even that has serious issues for Europe's export oriented economies [1].
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> But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
Talk is cheap. Show me the stats.
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No, this is an artifact of Russian reserves getting frozen in 2022 and autocracies the world round getting more careful about having all their eggs in that basket.
The PRC’s SAFE is selling dollars and buying gold in a very covert but absolutely massive fashion, and most likely, so are many other countries in a smaller way.
Gold price is double, not sure it’s that quiet.
India has also been quietly bringing back its gold reserves stored abroad. NATO west made a very bad call by freezing, and then publicising their threat to also seize, Russia's foreign reserves in their country.
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The US is now openly threatening countries not to create an alternative to the dollar.
Ofcourse this does not work with PRC they are perfectly capable and willing to sink carrier groups if it comes down to it.
2 Star Trek tv shows airing and one in development and a movie came out. West coast grunge scene in full effect. Kurt cobain died. MLB baseball strike after a killer Montreal expos team and then no World Series. OJ trial. Friends debuted. Channel tunnel opened. Mandela elected. PlayStation debut. Amazon founded. Yahoo founded. Netscape founded. USA World Cup. NAFTA. QR code invented. The Downward Spiral. Justin Bieber born. Shohei ohtani. Born. Nixon died. Jackie Kennedy died. Senna died. Ukraine gave up its nukes. Guantanamo reopened. Kim Il-sung Died. Forrest Gump.
1994 was wild
No, each pushed alternative is just worser. The euro could take over, but europe just revealed itself as a "lawful" player with no plan and no pants (security-wise) - so the euro is just defacto tied to the dollar value wise. For without the us guarding europe, the euro is just loaded with invisible gigantic security and pension debts.
BRICs is dealing in store credits and raw-materials. Every other empire and kingdom is not to be trusted or only to be trusted as long as the town power-drunk world-police-man does his job. He may be the towns drunk, mumbling "Screw you guys, im going home!" but he is also the only one so far doing a decent job as sheriff.
You can grasp how unreliable the other actors are, by how one of the hostile actors (russia) recently complained about the (world-police) doing what its proxies in yemen and ukraine are constantly doing (piracy) to venezuella. They complained about the break-down of maritime safety- to the us. Yep, its that bad.
Everyone knows what’s going on. Europe is slowly reacquiring pants (too slowly for my taste).
The US has this ridiculous belief that Europe has no military ability. The truth is that Europe is far too skilled at war, and collectively disarmed after the Second World War and let the US make the decisions and pay for it all because that was the only way to achieve a lasting peace. European armed forces aren’t ready for war, but they are skeletons on which wartime forces can be reconstituted.
Now that the US is dropping its responsibilities it’s also losing its privileges, but everyone is moving quietly so that the amateurs in the White House don’t cotton on. The world doesn’t need a sheriff; it’s just going to have a bunch of players looking after their own interests. The historical attitude to war already prevails: ‘it’s fine as long as it doesn’t affect us.’
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> For without the us [sic] guarding europe
Those words hit harder when you've an executive that isn't beholden to Russia or threatening to fucking annex part of an ally, and a Europe that isn't investing heavily into rearmament.
But please, continue in your delusion.
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> reserve share is falling as countries hedge sanctions and geopolitics
We’re importing a bit less [1]. That means fewer dollars being pushed (versus pulled) abroad.
[1] https://tradingeconomics.com/united-states/imports
Something like the brics can challenge that. Having a safe currency vehicle that can sustain itself much like the dollar that the world will trust is all the momentum you need. Much like why the dollar is. You have a big player now like China backed by other large populated countries etc brazil.
Brics is nothing but a meeting, conversation and PR arena. It is not an Union of any kind, not military, not scientific, not political, not trade, not cultural.
BRICS having it own separate currency and a central bank is as far from reality as the samw thing happening to the qualifying countries in Mundial.
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So yes this can change this time. Nothing stays the same. That's all of humanities experience so far if we haven't learned anything from it.
Early 90’s during the Clinton administration (and the dot com boom) appeared to be the best run US budgeting process I have ever seen.
Yes, but global reserves are the domestic total foreign debit, and the government does not control that one. (I mean, it can weight in how it grows, but it's not the one that makes it.)
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another POV is he was extremely lucky
Pfizer decided to NOT commercialize its GLP-1 drug (https://www.statnews.com/2024/09/09/glp-1-history-pfizer-joh...) in 1992.
What if it had commercialized GLP1s?
The law that prevented Medicare from paying for weight loss drugs like GLP1s, the MMA, was passed in 2003. So Medicare would have to pay.
YEAR NOM. ADJ 23 NET NET ($B) ($B) 10% 100%
Okay, only 4 surplus years. 10% uptake of GLP1s, okay, they'd be in surplus. 100% uptake, it would be a deficit.
Any number of things could have happened. This was just one thing that definitely was completely in control of people - it was in the control of Pfizer's commercialization team - it wasn't some unforeseeable crisis.
My point is, the little HN takes here and there like yours, better to not make them, because frankly you don't know anything about the budgeting process or governance, so why say anything at all?
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The article answers your question:
> The dollar’s share had already been below 50% before, in 1990 and 1991, after a long plunge from the peak in 1977 (share of 85.5%). This plunge accompanied a deep crisis in the US with sky-high inflation and interest rates, and four recessions over those years, including the nasty double-dip recession.
Or, in other words, at 1991 the US started recovering from the Oil Crisis and the subsequent fuckery. There's a dip in that number around the time the USSR felt, but it's just a small acceleration to the trend.
> Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
Do you think the world is relatively "stable" right now?
Oh, and I'd check the data before believing usage in trade debt and crisis funding are going strong. Two of those are constantly making headlines for how they are decreasing, and "crisis funding" is basically another name for "reserve currency".
"Stable". If any time in history where planets align so perfectly for wars it is right now.
It could play out nicely for USD, if the US stays out of direct conflicts but keeps selling weapons.
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The dollar's share hit a historical bottom around 45-46% in the early 1990s (specifically hitting roughly 45.8% in 1991 and remaining in the high 40s/low 50s through 1994). By the end of 1994 and into 1995, the share began to rise again, eventually peaking at over 70% in 2001.
Another factor was that the 1990's was the Pre-Euro Era, the peak of the "multi-polar" reserve system. Before the Euro was launched in 1999, global reserves were split among many more national currencies (the French franc, the Dutch guilder, etc.), which naturally diluted the dollar's total share more than the current "USD vs. Euro" system.
> It was post-Cold War and central banks were trimming USD reserves to test alternatives.
This is the problem though. In 1994 central banks were trimming USD to test alternatives. Not because something was wrong with the USD itself.
Today, central banks are trimming USD To test alternatives because the USD itself has lost value.
Any flight to stability will necessarily not use as much USD given that it’s far less stable than it was 3 decades ago or even 3 quarters ago.
> Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
No. Its the result of the US, UK and the EU stealing Venezuelan and Russian state and private dollar funds and every country on the planet realizing that they could get the same treatment if they are at odds with any of them at any point.
Seems interesting that cryptocurrency has suddenly been bolstered with legislation. A secondary market might become important were the dollar not to recover.
Good observations.
Not only that, I find it funny when title of “global reserve currency” is based on a static measure of what countries are holding.
This ignores transactions entirely.
I'm not sure I'd call our current geopolitical status stable in any way. Multiple major wars, historic superpowers losing their absolute minds, fascism rising, even discontent in the EU.
This is an artifact of the instability of our current times. USD reserves are falling because the US is no longer a stable country offering a stable currency. Plus we keep demanding more tarriffs in effect reducing the real value of a US dollar.
Stability would appear as more confidence in USD, not less.
I'm not an economist so someone please correct me / expand on this;
I'm guessing this is kind of a "It's not a problem until it's a crisis" situation? So far other central banks haven't begun selling treasuries, they've just stopped buying them. But once one starts selling it could become self reinforcing?
What could replace it? There doesn't seem to be any new hegemonic power on the same level. Could we enter a world where all central banks hold a mix of currencies and nobody benefits from being the reserve?
Its only really a crisis for people who are dependent on the US for protection. The whole compact is that you use the dollar, and the US will look after you (ie House of Saud, Europe, taiwan, south korea, etc) But that isn't really certain anymore.
You need to make tributes to the suntan king, and he is most capricious and likley to tariff the fuck out of you. So alternative destination for your goods is a necessity
Also the markets are not convinced that the fed is in good hands. The whole point of the fed is that they are far enough away from the meddling in Washington so that you can rely on the dollar. The fed is being steadily erroded, with the new chair being selected soon. The problem is that present administration is hell bent on loyalty over competence.
Printing dollars to get out of domestic budgetary problems was never a thing (excluding QE, but thats different, nominally) was never an option in the US. but that doesn't seem so far fetched now.
The printing of dollars by the Fed comes with a secondary effect - the dollars are not evenly distributed amongst the population. They are printed via market action, and the ones who are closest to the market action are free to capture as large of a share as markets allow.
Over time, it's natural that actors will optimize the above system to capture as many dollars from the printer as they can.
Putting trade tariffs on countries like Vietnam should have gotten Trump deposed. He is literally the Manchurian candidate.
This is more of a go out with a whimper rather than a bang type thing. Being the world reserve currency (as well as the largest consumer market in the world) previously enabled the US to do things like relatively easily export inflation in spite of relatively reckless monetary policy. Now that inflation is sticking around far more persistently, even long term bonds have gone from 1-2% to 4%+, and so on. Stagflation is a conceivable longer term outcome.
The replacement will probably be a multinational currency with strictly controlled quantity tied to some sort of physical asset(s). Basically Bretton Woods 2.0, except with the learned experience of not just granting a single country immense power and having them pinky swear not to default on their obligations and then abuse that granted power. China's probably betting that that asset will be gold.
No, physically backed currencies will not return because physical goods do not correlate with the size of an economy, especially the amount of gold
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We almost got that with Bretton Woods 1.0:
https://en.wikipedia.org/wiki/Bancor
> The replacement will probably be a multinational currency with strictly controlled quantity tied to [...] probably [...] gold.
This is econolibertarian fan fiction. Literally no one wants that except people already involved in speculating[1] on gold. Are there bad externalities to relying on a unlitaterally controlled reserve currency? Yes. Are they made better by handing financial control over to a bunch of fucking mine and vault operators? Let's be real, here.
Basically this idea appeals to people who've convinced themselves they can get rich betting on financial policy and stay rich by burying their loot in their metaphorical backyard.
[1] The very fact that such speculation even exists should be a triple exclamation point red flag on any argument about hard currency, but alas no.
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With highly liquid capital markets, why wouldn't the dynamics be more like a bank run?
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Imagine how red 100 years of economists faces will be when the world ends up back on a gold backed currency.
Probably only takes 2 years before they start inventing abstractions on top of it and this kicking off the eventually next economic disaster.
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US Treasuries have terms, if you aren’t refreshing your treasury buys, it is the same as selling them. US treasuries and by extension USD was useful because it could soak up billions of dollars of savings (debt for America) without taking a huge inflation hit (treasury rates were often less than inflation, so you still take some hit).
As for where that money is going now? Other currencies and saving instruments probably..
In some ways, this effect can have a positive impact on US citizens; demand for the US dollar requires supply to satisfy the demand. Where does that supply come from? Oftentimes: Printing. The US generally does not make a habit of telling US dollar buyers "no, we don't have any US dollars to sell you", so less demand on the dollar for reserve holdings can have a deflationary impact on its value. This can be combined with lowering interest rates, which creates more domestic demand for dollars, to help balance out the inflationary impacts from that.
Many economists take the stance that being the world's reserve currency is something of a two-edged sword; a curse that does come with geopolitical advantages, but bundles those advantages with significantly more difficult global financial responsibilities.
It’s either printing or increasing taxation for constant benefits. We all know what happens when the government tries to increase taxes at all, now try doing it for zero increased benefits. This is a populace that’s had candy for dinner since WW2, and forcing them to eat their vegetables will result in a never before seen level of civil unrest from people of all political inclinations.
The Fed most commonly uses Open Market Operations to modify the money supply, with "money printing" or Quantitative Easing used in more emergency situations.
But more broadly your comment doesn't really represent reality, whatever happens in the markets and economy the Fed manages inflation (or deflation) and it's much more complicated than a single relationship like you describe.
More interesting is trade, where the US consumes so much and pays out so many dollars for goods that places like China which run huge surpluses have few choices other than lend it back to the US.
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What about US debt? If nobody buys USD anymore, suddenly there will be a lot of excess USD.
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> What could replace it?
It doesn't necessarily have to be one thing. We've had multi-currency regimes in the past (before one generally took over). See How global currencies work past, present, and future by Barry Eichengreen, Arnaud Mehl, and Livia Chitu:
* https://press.princeton.edu/books/hardcover/9780691177007/ho...
The British pound was displaced by the US dollar. Currently, the US dollar just doesn't have a proper rival. The euro, yuan and rupee are considered politically suspect (each for its own unique reasons); the pound and yen have too small a base. Without further transformation of the global financial system, the only alternative is for banks to hold a basket of currencies, and in such a basket the dollar would likely still play a significant, if reduced, role. This is a slow process because it means changing the nature of currency reserves from a single safe haven to a "nest". What this means for USG spending power is not immediately clear.
Ok, let's see - yuan isn't a freely traded currency, it's heavily regulated by China. From that alone it can not be used a reserve currency by anyone - unless they want to hand over all control over their assets to CCP.
The rupee is better, but there's not a lot of trust in Indian institutions globally, so black swan events are more likely. I can see it becoming a better proposition as India further matures and taps into its population more.
No, euro - that's a solid contender. Not only it's already used in a lot of countries, and therefore backed by more than one economy, the EU institutions are legit to a fault - they continuously refuse to seize Russian assets, because there's no solid legal grounds for it, despite all political will towards doing so.
That alone makes it far removed from being politically suspect in my book, unless there's some blatant case against the euro that I'm missing.
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Who considers them politically suspect? I’m guessing the people who live in the countries that use them don’t, and on the contrary would increasingly be seeing the USD as politically suspect.
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Treasuries are not some kind of artifacts that can be stored indefinitely, they are bonds with maturity dates. As they mature they turn into cash automatically and that cash used to come from selling new treasuries. As the demand dwindles the US has to sell its bonds cheaper thus borrowing at higher interest and that interest will have to be paid by selling even more treasuries at even higher interest so it's already a feedback loop.
> As the demand dwindles the US has to sell its bonds cheaper
To be clear, we see no indication of this. (The Fed reduced its balance sheet in the last 3 years on the order of the GDP of Spain or Brazil [1][2].)
[1] https://www.federalreserve.gov/monetarypolicy/policy-normali...
[2] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...
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If they stop buying treasuries, that's still a big problem, because the US continues to run a deficit, and therefore continues to need to sell treasuries.
There’s nothing fundamentally stopping all currencies from floating against gold and gold being the base asset
If your economy grows by 100 percent, and the supply of gold grows by 10 percent, its a massive problem
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Gold is a terrible unit of international money because the supply isn't flexible enough to accommodate any growth in international trade.
Contrary to popular belief, during history gold has always had limited role in the monetary system, because it was too scarce to really be useful (in most of human history, Silver, not gold was the cornerstone of trade, and trade itself was a tiny part of economic activity in an era where most of it was subsistence farming). It's only when banking and paper money replaced silver that gold took a bigger role in the monetary system. The gold standard is in fact an invention of the late 19th century and it didn't last long before it disappeared progressively (the first world war being the beginning of the end).
Unfortunately for us, it just happened to be the period when a bunch of influential economists grew up (particularly Ludwig Von Mises), and like every human being they assumed that the system they grew up with was special and what came after was decadent, an idea that has unfortunately since then become widespread in the general population.
Most people wrongly assume that the key property for a commodity to become the basis of a monetary system is scarcity, but in reality scarcity is a drawback. Money must be abundant enough (too abundant is bad, but too scarce is even worse).
Isn't a more modest opinion that gold admits a guaranteed minimum on its price because of scarcity and demand from industrial applications? That guaranteed minimum on its price is what enables it to be used as a hedge against a possible hyperinflation event of the USD. By comparison, the USD, like all other fiat currencies, might not have any guaranteed minimum price.
I'm out of my depth, so apologies.
There is a fixed supply of gold that does not correlate with economic output. It makes zero sense to tie the value of paper money to gold.
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Only the fact that it would be an idiotic policy that would destroy the economy.
Why would you let your monetary policy be run by gold miners in China, Russia and Australia? They could cause inflation or deflation simply by increasing or decreasing gold production.
Conversely how is the Fed supposed to manage inflation if it runs out of gold?
Gold is an industrial metal, also used in jewelry, not a financial panacea.
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Imagine if there was a gold which could be transferred across borders easily and completely securely within seconds, proof of holdings and ownership could be easily proven, and there was no future risk of gold supply shocks (eg gold asteroid hitting earth or alchemy becomes viable).
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All the arguments against gold are completely bogus because there is nothing stopping the price of gold from climbing to meet the economic need. The price of gold was suppressed for a long time by institutions, but this active suppression is increasingly difficult to continue.
As for verification and transfer, that's what electronic shares are for, distributed across a few key physical asset holders.
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Not buying is same as selling with debt. On long enough time horizon. If the debt is not rolled over anymore eventually you run out of lenders.
Insane this administration wants pimp the US out to the highest bidder and let the crypto weirdos run the world. If we ever lost the reserve currency peg treasury bills will spike and it’ll be impossible to fund the government. We spend 7T every year and take in 5T in taxes. This admin is gutting the IRS and banking on tarrifs which are just taxes. So … without the ability to keep interest rates very low because everyone wants our debt …
My understanding is that it has happened. The oil market was tied to the USD. The BRICS have now implemented a payment system as robust as SWIFT system. Oil is now being paid for using that system.
Panics about how oil is being traded in non-USD terms are as old as the internet and, in all likelihood, even older than that. You can find usenet slop from 20-30 years ago about the petro-euro and the "tehran oil bourse". Here's an old site that is/was daily panics about the fall of the dollar, from 15-25 years ago. http://www.engdahl.oilgeopolitics.net/
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> Oil is now being paid for using that system
The petrodollar hypothesis has been a myth since the 1990s. With America a net oil exporter, it’s an entirely stupid model to keep running.
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Are you trying to project this unto Trump when the Fed is doing everything it can to oppose his measures?
I'm only the crypto weirdo guy asking.
So gutting public institutions and the tarifs do not work as trump intended because the fed opposed it? What did they do achieve that? (Sorry if i come across as trump deranged.)
Have you ever thought it doesn't matter what the fed does to try to minimize the damage.
Trust needs to come from the top, and there is none there right now.
> Are you trying to project this unto Trump when the Fed is doing everything it can to oppose his measures?
The Fed isn't opposing Trump's measures, on the contrary, the Fed is doing everything to accommodate as much of his policies as possible without wider damage to the economy.
It's Trump who doesn't understand the risks of unhinged tariffs and low interest rates which he demands because of his personal conflicts of interest.
The US worked hard for this outcome. After stupidly weaponizing the financial system, and stupidly outsourcing their industrial capacity and basing GDP progress on bubbles, there's no wondering why countries and global players wont trust their money to the dollar...
Some dude at Treasury even wrote a book about. Juan Zarate, author of Treasury's War: The Unleashing of a New Era of Financial Warfare.
Who would tell. Economy runs on 'trust' - not on 'by tomorrow we apply this random tax rate to this pinguin island and everone else'.
Trend has been negative since 1999 so as much as I like to poke the tango doll, this can not be the reason or only reason.
A 2% change, more likely this has something to do with the global rush for US tech stocks.
Some countries like South Korea are crazy on US stock trades.
Dollars' depreciation probably helped a bit too.
There is a global shift toward higher US equity allocations seeing how well they've performed in the last however-many years. Also it seems like President Trump's sole mandate is to keep the stock market from crashing, so that helps.
Highly unpopular opinion here and I'm going to get downvoted into the ground (who cares), but ... this has been a very long time coming and has very much been a self-inflicted change.
My bet is that it will end up being a very good thing for the world at large.
China has recently started to buy Arabian oil and paying with yuan.
Major countries (India, China) are starting to buy Russian raw materials and paying directly using rubles.
In both cases, trade is happening and completely bypassing the once unavoidable USD.
The US choosing to weaponize the USD for geopolitical purposes has finally made the world realize the immense loss of sovereignty they had allowed themselves to be subjected to by making the USD the global trading currency.
This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.
The golden triangle of Russia (raw materials), India (highly educated workforce, strong demography), China (industrial powerhouse, stole the bulk of Western IP, is now producing more cutting-edge research than the west) finally free of the shackles of the USD and establishing direct overland trade routes that 100% avoid the seas (thereby 100% avoiding potential US embargoes, both financially and militarily enforced) ... the world is going to change in a rather profound way, finally relegating the US to being a simple country instead of the has-been empire it currently is.
Every time I hear people claiming India and China now not using dollar and the end of dollar’s dominance, I feel it’s coming from mostly clickbait headlines, not data. From a global payments share, dollar is still the single largest currency from a percentage standpoint, and is at historically highest share of global trade. Any changes to currency share are coming from lower volume from the Euro. On top of that, if you look at foreign reserves, yes there has been a recent selloff from the peak, but we are still at 60% of global reserves and its still kind of around the same historical average for the last 30+ years.
Edit: I also want to add, that while having the international trade entirely in dollar sounds very appealing, it can actually destroy US exports and damage the trade balance. This can have massive impact on domestic as well as global economies. What you want is a strong enough dollar.
https://www.federalreserve.gov/econres/notes/feds-notes/the-...
I think youre conflating 2 different things, share as a payment currency and share as reserve.
Share as a payment/trade currency is not going away though it will be greatly reduced especially with CIPS that bypasses SWIFT.Andmost data showing no change is usually from SWIFT - with zero visibility to the volumes in CIPS.
Share as reserve is more visibly viz central banks stacking gold and hedging on treasuries , with most tresurie bids coming in from offshore financial hubs likethe Caymans.So could be a whole shellgame there to inflate the volumes.
So yeah the $ isnt going away anytime soon (cross border trade still requires it in many places),the exorbitant privilege it enjoyed is.
> Every time I hear people claiming India and China now not using dollar and the end of dollar’s dominance, I feel it’s coming from mostly clickbait headlines
I would encourage you to actually take a gander at the history of reserve currencies, how long they last, how they lose their reserve status, and what the current state of thinking around where the dollar is headed.
Unless you would classify the IMF as a clickbait farm, of course.
Start with the brit. pound and what led its downfall to the niche financial instrument it is today.
But the pound is just the latest, and by no mean the only one.
Here are a few links to get you started:
https://marketcap.com.au/history-world-reserve-currencies/
https://www.economicprinciples.org/DalioChangingWorldOrderCh...
Barry Eichengreen – “Exorbitant Privilege”
https://www.imf.org/en/publications/departmental-papers-poli...
Your link has a trend graph. I recommend you look at it.
also, it ends in 2024.
> get the bloody USD printing machine under control
The amount the US government spends on debt service is already unreasonable. If the US dollar lost reserve status, the first thing that would happen is that the Fed would have to buy the debt with newly created money to prevent bond rates from causing interest payments to explode. Meanwhile the act of other countries unloading US dollar reserves would cause significant inflation in itself.
Basically, loss of reserve status = hyperinflation. At least at the outset.
On the plus side, that would pretty much wipe out the excessive amount of US consumer debt as long as wages stay consistent with the value of the dollar.
> Basically, loss of reserve status = hyperinflation.
That's not exactly how hyperinflation works. You can't use this as a predictable claim, hyperinflation is never predictable.
That said, yes, that would cause a lot of inflation. Normal inflation. And there's a risk it causes hyperinflation.
> as long as wages stay consistent with the value of the dollar.
Which the won't, so it will end in disaster for the average American.
Russia is a joke, India is somewhat irrelevant and doesn't seem like that will change soon, China is a different story, although they also have their share of demographic and economic issues.
And Putin and Xi are 73 & 72, and I doubt they will give up power as long as they're living which may result in significant turnmoil for both countries.
> US to being a simple country instead of the has-been empire it currently is.
The US isn't going anywhere for now, although it is trending in the wrong direction, but it's not yet a lost cause, not to mention that its still basically a fortress with endless natural resources and relatively good climate.
And then you also have the AI race which might be a dud or might be a winner takes all scenario. So gonna be an interesting next decade.
> My bet is that it will end up being a very good thing for the world at large.
I generally agree with pretty much all your points other than this one.
While it will be good for other countries to regain sovereignty - and the weaponization of the US dollar for trivial reasons will be the biggest self-own perhaps in history - I do not think the world is going to be a better more peaceful place in 50 years.
It might be more free in a certain sense though, which may or may not end up long-term (over multiple generations) being better overall for humanity. Time will tell.
Certainly though, the average quality of life in the US is about to plummet.
Agree it will land more stable for most parties but it will be turbulent getting there. Global free trade under the USD has created many structural fragilities. Principally that we have global overproduction outside the USA.
<https://news.ycombinator.com/item?id=9160121>
Just so you know India buys USD equivalent middle eastern currency to pay for Russian oil.
Which one?
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Frankly, this will be good for the world if it happens. The U.S. War Industry will for the first time after Bretton-Woods be deprived of a bottomless piggy-bank.
Lot of emotion in this comment; not a lot of substance. I think you're misunderstanding how some of these systems work.
> This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.
It is not the case that the US didn't "need" to get the USD printing machine under control because of the reserve status; it is the case that the US "could not" get the USD printing machine under control, because of the reserve status. When there is demand for US dollars, domestic or foreign, US dollars sometimes needed to be printed to satisfy that demand. If the US decides to not print those dollars; this is literally "defaulting on the debt", and would be bad-bad.
This gets at where you're misunderstanding how these systems work, because I think you're imagining that US debt is, like, an account in your Chase app that goes up, then you pay it down. US debt are, obviously, bonds. The USG says "we've got bonds to sell, they're at N year M% interest". Buyers say "we want those bonds we'll buy them". The USG is now in debt, and is obligated to repay those bonds; and sometimes has to print money to do so. This gets at the previous paragraph; money, broadly, is printed to satisfy debt obligations, not directly to service the deficit (proceeds from the initial bond sale are what could be said to directly service the deficit, but that's pennies compared to the size of the overall market).
Extending the Chase app analogy, you have it internalized that if we just get the deficit under control, then we could start "paying down the debt". In fact, probably, even our President understands it like this. But this isn't how it works. To "pay down the debt" would require two things to happen: We stop issuing new treasury bonds, and we pay off the already issued ones over 20/30/etc years as they mature.
The general professional sentiment on what would happen if the US even communicated it wanted to, in totally good faith, begin doing this at some point in the future, is basically armageddon. You have it in your head that, because Dave Ramsey says debt bad, the US should have no debt; but the world wants our debt; it has an insatiable (though, decreasing) appetite for it. Depriving the world of this debt would leave trillions of dollar-equivalents without anywhere to park safe from inflation, which would descend global financial markets into chaos. Tens of millions of people would starve in the first three months, among other undesirable outcomes. Some actively make the argument that the USG refusing to take on new debt would be net-worse for the world than the US defaulting on their existing debt, though its an interesting space to game out; a little game of global-cataclysm worst-thing-to-ever-happen-to-humanity olympics you can play.
But, debt servicing is becoming unmanageable for the US budget; so the best case for the United States is that USG debt demand from the rest of the world drops slowly and naturally, so we can naturally slow the issuance of new debt; and over 100 or so more years let managed inflation catch us up to recover from the utter shitshows that was 2001, 2008, and 2020. Everything I've seen, and I do mean everything, suggests that this is what is happening; but we'll know for sure in 90 more years.
Your entire wall of text has conveniently and completely omitted the hard fact that the U.S. Treasury has borrowed to pay for its defense (oops, sorry, I meant "war") budget for many, many years now. The war budget (~$850B) has been larger than the deficit in many years.
No other nation except the U.S. can sustain this without running into hyperinflation and consequent national rioting.
This might be the most unhinged defense of money printing and inflation I've ever read haha. "We can't stop the printers, or millions will die!!!"
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Ooooh that must've struck a nerve. Seems we can't post that here without massive loss of reputation. Progressivism != liberalism. That stuff just doesn't fare well, even as sarcasm.
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Dollar dominance erosion shifting towards dollar inertia. Post RU sanctions dollar lost much of it's leverage (as geopolitical weapon), i.e. actual useful dominance function (transaction panopticon, sanctions)while still retaining most of the liability (Triffin etc). Dollar going to remain popular by volume because plumbing in place, but parallel payment systems last few years = systematic blindspots where US treasury can't monitor what others buy outside of dollar system, and generally weaker ability coerce countries. What's left of dollar system is US enjoying exorbitant privilege of going into ~35T and rapidly increasing debt to serve as asset for everyone else, while dragging down export via uncompetitive FX.
One interesting attack vector vs USD is PRC recycling it's dollar surplus / shadow lending it's USD reserves at more favorable rates than US gov can, i.e. countries (emerging markets / BRI recipients) who would have borrowed USD from FED (or US influenced IMF/WB) now borrow from USD from PRC -> reduce US treasuries demand and drive up US interest -> further increase US debt. PRC basically hijacked and weaponize USD liquidity to make increasingly ineffective dollar system (as geopolitical tool) even more expensive to maintain while PRC can enjoy dollar liquidity without the maintenance costs. And that's probably the ultimately the goal, smart play is not to inherit reserve obligations, but to turn reserve holder's exorbitant privilege to exorbitant curse.
> countries (emerging markets / BRI recipients) who would have borrowed USD from FED (or US influenced IMF/WB) now borrow from USD from PRC -> reduce US treasuries demand
This makes no sense. If the PRC is lending U.S. dollars, that doesn’t reduce Treasury demand. It increases demand for dollar-denominated assets, goods and service providers. The borrowing country has to spend those lent dollars after all.
PRC lending their USD surplus to countries to buy more PRC shit. "Increases demand for dollar-denominated assets, goods and service" =/= increase demand for US treasury, aka it doesn't fund US deficits. The attack is not on dollar circulation / liquidity but cost of treasury
Old: PRC recycle surplus USD into US bonds, increase US treasury demand, subsidizes cheap US debt.
New: PRC recycle surplus USD into BRI finance, said USD doesn't return to US treasury to buy bonds, decrease US treasury demand, treasury increase interest to fill hole, makes exorbitant privilege more exorbitant.
PRC parallel dollar bond lending COMPETES with US treasury bond lending. PRC dollars gets recycled towards PRC goods / BRI projects, not US treasury. PRC leveraging dollar liquidity for PRC geopolitical interests, meanwhile taking demand away from treasury bond sales, so US drive rates up to compete. US treasury had to find other buyers to fill ~600 billions (and raising) of USD bonds that PRC no longer holds. Filling hole that size = finding more price sensitive buyers (vs PRC who previously default recycled into treasury), so raise interest, increase debt servicing. US 10 year going from 0% (countries basically paying to hold USD) to ~0.8% cost US ~300B+ annually. Now that's not all PRC doing, but 100 billion here and there and soon we are talking about real money.
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USD position as global reserve is very much based on trust.
Between the weaponizing that for sanctions via SWIFT, US becoming unreliable as a partner (militarily, politically and economically) and Trump rambling about replacing pieces of the financial system with crypto [0] that trust was bound to waiver
Think we'll have a parallel system in record time. Question is who/how. Russia wants it but they're well Russia. China's yuan isn't open enough. Euro is a bit to regional and dependent on the US lead system anyway. So there isn't an obvious candidate.
Something is going to have to give though given US shenanigans.
[0] https://www.reddit.com/r/economy/comments/1otdio8/trump_says...
The key point, which at least the top comment here is missing and others may overlook of the article, is that the article states that the USD currency reserve is still the same but that the other currencies being present in the mix have increased and thus the USD proportion has decreased (not that the absolute amount of USD being held decreased). However, the implication is still the same and that is that the rest of the world's central banks are holding relatively less USD.
We do have a trojan horse with social security. Overnight we can become the largest single owner of global corporate stocks and bonds.
Judging by the comments Americans still don’t intuitively understand what the rest of the world does. Everyone is trying to create distance from the United States. The US no longer represents the smart deal, it represents risk, risk that countries can’t afford. The US has spent the last year creating chaos and punishing its closest allies and trading partners. The instability goes beyond Trumps term too, they’re rightfully afraid of the system that elected Trump twice. When they have a choice between euro’s, dollar’s or yuan they’re going to choose dollars less frequently to avoid exposure to the US.
Can confirm, one example: the company that I am currently working for put all its plans for investing in the US in the fridge and is exploring other markets now.
That’s entirely the point. Leave the USA financial system or contribute more. If you pick an single alternative currency I’ll run through the reasons why most would choose the US Dollar.
There’s more to international trade than what central banks do. The US is still a good place to invest overall, which is why we can run trade deficits. The money earned by foreigners, whether it’s from selling oil, cars, or anything else, goes into US investment of all kinds. Foreigners can buy the S&P 500 just as easily as bonds.
US interest rates have been declining lately, so perhaps other investments are more attractive.
So is "non-traditional reserve currencies" cryptocurrency or not?
Not. Cryptocurrency is just nonsense.
tl;dr dollars are coming home. expect weimar republic levels of inflation in next decades.