Comment by mvkel
2 months ago
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.
> 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.
Talk to Mr. Buffet and see what he thinks about this with his mountain of cash… Cash being just transacting might be the most insane thing I’ve read here this year, well done
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This seems a little pedantic, but sure, no one wants to be owed debt denominated in dollars.
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A checking account that pays around inflation in interest doesn't net out to that unless you don't pay any tax on the interest.
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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].
> 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...
I don't think that FOREX rates are the best way to think about this, but if you work in that world or otherwise have an intuition for it, then go ahead. Most of us only handle 1 currency, and reasoning in terms of 2 isn't exactly an intuition pump.
Instead think about:
1. The dollar valued against itself a year earlier, and a year in the future. That is the interest rate or yield of the asset if held. It should have a positive real yield, but right now it doesn't.
2. How much your personal basket of monthly expenses costs in terms of dollars. Ignore a basket that someone on the news told you to care about, like CPI. I mean your personal basket, all the stuff you personally buy, how much is it in dollars, now, a year in the future, a year earlier.
If you stored value in business or a precious metals in the last year and then converted back, you would probably have more dollars, or be able to buy more stuff, that's all there is to it.
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The EUR/USD FX rate has been pretty stable for about 10 years. I think (sadly, didn't check notes before I wrote this), the trade balance between US and EU is well-balanced. As a result, the FX rate should also be well balanced.
> but even that has serious issues for Europe's export oriented economies
Hum... There are no reliable numbers out there, but I don't think the dollar devaluation has been keeping up with the US inflation.
And if so, no, Europe's exports are becoming more competitive, not less.
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Assets, not other currencies. Equities, commodities, consumer goods.
> 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.
Why not just google inflation on your own? Or money supply?
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.
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.’
Unfortunately the skeleton analogy is not correct, because it assumes that the foundation is fine, and you just need more beef/muscle/money to scale it up.
With the exception of few European countries that did maintain a functional army (Finland, France), other countries' military skeletons suffer from terminally low levels of bone density due to decades of under- and malnutrition. The whole bodies (incl. skeletons) have to quickly be build anew.
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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.
That’s great, I’d love a strong European military. Can you help Ukraine enough so it can win? If not you can’t defend your own countries alone.
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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.
no society is going to just bow down for eternity and accept things as they are for long. if an opportunity presents itself. I'm not understanding what "reality" means as if the BRIC nations aren't in that "reality" as we speak. weaponizing sanctions and intimidating macro foreign economies isn't something that other peoples take lightly. the circumstances from the 90's and now are very much different with very much different rulers taking charge today. less dictators in third world countries and more dictator impersonators of developed countries. There was a less will to do more harm that can be public before vs now everything is public and you become immune to the affects of what could be until it becomes the norm for you. Things change my friend, its frugal thinking otherwise.
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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.)
I think what you are saying is the sum total of global economic activity from the US point of view is foreign debt. The US has no direct control over this debt other than control of printing treasuries.
Is that fair interpretation.
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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?
I don't doubt he was lucky which is why I parenthetical referred to the dot com boom. I don't quite understand the relevancy of GLP1s to his luck. I think obesity wasn't what it is today back in the 90's.
I think the saying is Luck rewards the prepared.
I mean, luck is always a part of it, but you need responsible policy too. The US was lucky from 2010 to 2020, with the the economy growing basically that whole stretch, and we still ran a massively growing deficit the entire time because we decided to try and reform the middle east while lowering taxes.
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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.
We are at constant peripheral micro-wars in the last 33 years. The US are behind these, selling weapons to both sides. Nothing will change. Ukraine saga will continue as it is for many years, before the next one. God bless nuclear weapons that we don't see any direct US-Russia-China conflict.
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.