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Previous Liberty Street Economics analysis and New York Fed research addressed the potential implications for the United States if the dollar's global role changed, noting that the currency might not retain its dominance forever. This post checks the status of the dollar, considering whether any erosion in the dollar's international standing has occurred. The evidence to date is that the dollar remains the world's dominant currency by broad margins. Alternatives have not gained extensive traction, albeit this does not rule out potential future pressures.
[...] Major developments pertinent for the current international financial architecture include the introduction of the euro in 2000, China's rising status in the global economy, and post financial crisis changes in the U.S. policy and financial environment. Various additional policy and operational developments have had and will have the potential to alter the desirability of using U.S. dollars.
[...] After its introduction in 2000, the euro saw its status as an international currency deepen, peak around 2003, and decline in the aftermath of the global financial and euro-area crises amid slower growth in the euro area and uneven progress toward reaching a fuller financial and economic union.
[...] The international use of China's currency has risen with the importance of China in global output, official investments to improve China's institutions and governance, and deliberate promotional steps by the Chinese government.
[...] Potentially working against the international use of dollars are: a decline in correspondent banking, where banks seek out other banks to provide services on their behalf (occurring as banks de-risk); higher fiscal imbalances in the United States, to the extent that concerns rise about fiscal deficits and debt burden sustainability; and policy actions that could weaken international trade and financial ties.
[...] Cryptocurrencies, set up to challenge the conventional structure of payments in official currencies
(Score: 1, Interesting) by Anonymous Coward on Wednesday February 13 2019, @04:17PM (8 children)
How important is it to have the lead currency, when by now the US controls access to the huge US market, physical access to the western hemisphere, and has full control authority over SWIFT, which banks use to transfer funds?
(Score: 5, Informative) by Anonymous Coward on Wednesday February 13 2019, @04:42PM (5 children)
Good question.
If the dollar loses its primacy, alternatives to SWIFT become a lot more attractive, so right there is one thing.
If the dollar loses its primacy, the US debt becomes a lot trickier to handle, thus affecting the US military budget and dominance. That's a pretty big deal.
If the dollar loses its primacy, the US market (and the flood of dollars that it can provide) becomes a lot less valuable. That's kind of a big deal.
Hope this helps.
(Score: -1, Troll) by Anonymous Coward on Wednesday February 13 2019, @06:54PM (4 children)
Interesting points.
1) Why build an alternative to SWIFT? It works well enough.
2) The US dollar is part of this package, the other is being an assertive leader to our satellites and making them buy our military hardware.
3) Less valuable, but at ~300m first world consumers, impossible to ignore, and far more attractive than countries like Russia or Iran. Even with a declining dollar, the US could still sanction countries and companies that trade with our political enemies.
(Score: 1, Interesting) by Anonymous Coward on Wednesday February 13 2019, @07:27PM (1 child)
Here is how it works:
1) The money supply is *always* increasing. They target a magic number (made up by some australian dude) of 2% per year.
2) The "new money" is given to special corporations called "Primary Dealers" [wikipedia.org].
3) The primary dealers get to spend (eg, literally or use as collateral for new loans) this new money before prices have dropped to account for more dollars in existence.
4) The larger set of people/corps who get those loans/cash from the primary dealers also get this advantage, but then prices of adjusted somewhat.
5) The next set get less advantage, etc.
6) This new money tends to get spent in the US first.
7) The last thing to rise due to the new money are wages and fixed incomes (pensions), but even those people in the US do get some (much reduced) benefit over the rest of the world due to number 6.
I'm not even making a judgement on whether this system is better/worse than others. However, it is obvious to see this "tickle down" system is designed for the rich to get relatively richer. Any politician who complains about that (e.g., the "1%") without mentioning where money comes from is either a liar or has no idea what they are talking about.
(Score: 0) by Anonymous Coward on Wednesday February 13 2019, @09:36PM
Typos I just noticed:
"before prices have dropped [risen]"
"prices of [have] adjusted somewhat"
(Score: 0) by Anonymous Coward on Wednesday February 13 2019, @10:30PM (1 child)
1) If you're the USA, no reason. If you're not the USA, then the fact that the USA calls the shots is reason enough.
2) Yes, but weakening the package matters to the USA.
3) True, but from a position of decreasing relative strength. This still matters to the USA.
(Score: 0) by Anonymous Coward on Thursday February 14 2019, @05:04AM
The US' strength can decline, but the US will retain its lead as long as any alternative is not as attractive as retaining the status quo. Goes for the financial infrastructure, our military block and trade relations.
(Score: 0) by Anonymous Coward on Wednesday February 13 2019, @11:05PM (1 child)
Why do countries need to deal with US dollars at all? The main reason is that in the 1970s, Saudi Arabia (through some clever finagling by american agents [bloomberg.com]) was tricked into only selling their oil for USD, and it wasn't long before all OPEC sales were in USD.
Venezuela started to trade with Bhutan in rupees a while back, and stands close to trading with India in rupees. The US Deptartment of Treasury is fucking terrified. That they only started an economic embargo against Venezuela (exacerbating some relatively minor problems to crisis level) shows unusual restraint. It is surprising that they didn't drop a handful of nukes.
(Score: 1) by khallow on Thursday February 14 2019, @05:40AM
I doubt it. It's amazing how much emotion one can attributed to an organization, and then have absolutely nothing to back it up.
Or the absence of terror. I kind of see this as negative evidence.
Why? Nuclear weapons don't solve trade/economic issues even if the US were terrified for some reason.