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Actually, the USD is the world's #1 currency because the US is the world's #1 economy. We produce about 22% of everything produced anywhere in the world and we have have long been deep participants in international trade. The existence and momentum of dollar-supremacy have nothing to do with anything else. It is the accretion of hundreds of thousands of individual decisions made daily over many years and all over the world.
Well China is close if not already producing more than the USA, and the Yuan is barely on the front page. Over time IMO the Yuan will pull up to the USD. It is starting now, maybe in a generation of time it will be useful in the world. I don't see the fall of the USD, but rather the rise of the Yuan to help meet more future investment needs of a larger global economy.
Well China is close if not already producing more than the USA, and the Yuan is barely on the front page.
It's part of the SDR market basket.
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Originally Posted by Hoonose
Over time IMO the Yuan will pull up to the USD. It is starting now, maybe in a generation of time it will be useful in the world. I don't see the fall of the USD, but rather the rise of the Yuan to help meet more future investment needs of a larger global economy.
Not much to work with there, but Renminbi is already an effective regional currency that should grow in importance if China's output and trade continue to expand. Among other things however, there are serious problems with transparency and the rule of law in China, so their horizons may be more limited than might otherwise be the case.
Not much to work with there, but Renminbi is already an effective regional currency that should grow in importance if China's output and trade continue to expand. Among other things however, there are serious problems with transparency and the rule of law in China, so their horizons may be more limited than might otherwise be the case.
Agreed. A small expansion on that would be significant governmental restrictions on taking RMB outside of the China. In a nutshell, you're not supposed to do it...so any substantial RMB trading must be done within the borders of China under the watchful eye of the Communists.
All national currencies exist under the watchful eyes of their issuing authorities. That's not a problem in and of itself. But there is at present a very significant difference in the numbers of international players who are willing to accept Renminbi in payment versus those who are willing to accept US Dollars. This despite the fact that nearly everyone will end in converting their receipts to local currency in any case.
All national currencies exist under the watchful eyes of their issuing authorities. That's not a problem in and of itself. But there is at present a very significant difference in the numbers of international players who are willing to accept Renminbi in payment versus those who are willing to accept US Dollars. This despite the fact that nearly everyone will end in converting their receipts to local currency in any case.
This also applies to RMB as a store of value. So over time China will have to create and then export vast amounts of RMB based investments and debt paper. 100's Of Trillions will take time. It will take time to change the way China explains itself and its money to the world, time to create the money itself, and time to distribute it throughout the world. More time than just a few years. IMO of course.
"They" is OPEC. The dollar is the reserve currency because crude oil sales are denominated in US dollars. If you hold dollars, at least you can always buy oil. Bretton Woods is ancient history, and US gold reserves are long gone, mostly sold to Saudi Arabia.
That does not determine the value of the dollar in world trade. The US consumer does that. The economy of the entire world depends on selling stuff to the US, so other countries engage in currency manipulation to keep their currencies undervalued. This gives them a competitive advantage for selling stuff, not only to the US but to every other market. Everybody's bread is buttered with greenbacks.
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Despite large deficit spending, trillions of dollars in foreign debt and the unbridled printing of U.S. dollars, U.S. Treasury securities remain the safest store of money because of the trust and confidence that the world has in the ability of the United States to pay its debts. Because of that, the dollar is still the most redeemable currency for facilitating world commerce.
It's not necessary for any single currency to become the world's reserve currency. There is no natural law that says we have to have one. One low orbit nuke over the central eastern seaboard would destroy US based financial markets and paralyze the US government, possibly for years. Anyone who wanted to continue international trade would be forced to accept any currency of value. That's just one scenario, but it is certainly possible for the US dollar to be swept away overnight, with no warning. There are some very well informed people who are losing a lot of sleep over it right now. Could it happen next year? Probably not. Could it happen within 5 years? The risk rises.
There are also more gradual difficulties tied to the economy. The dollar has been declining on world markets since 1986. There have been wild swings in value, but the peaks are generally declining. The Fed has responded by incrementally increasing interest rates. A real financial crisis could make a mess out of that. You may recall in 2010 that Canadians were flocking across the border to shop in the US because they could get a 25% discount on everything they bought. People were actually flying to the US from Europe to shop because the dollar was in the dumpster. Prices of consumer goods shot up because they cost more to import. The only reason we don't see high inflation right now is because the feds are cooking the books. The actual inflation rate is 6% to 8% a year. There is only so long you can do that before you find millions of people living in the street, priced out of housing by inflation. How that will affect the stability of the US is anybody's guess. What the Republican tax bill and the resultant $trillion a year deficit will do is anybody's guess.
Will the value of the dollar hold up? I have some doubts. What I don't see is responsible fiscal policy. If the dollar starts to drop rapidly, yes, we will end up with inflation and high interest rates.
The average maturity of public debt securities is between 5½ and 6 years. The interest rates on most of that are fixed. They do not change as the result of market activity.
Exactly. I have 9% federal bonds that I will not cash in until they mature, unfortunately in only 3 more years. Those of us who purchased long term bonds when interest rates were high really moderate the churn rate. As recently as 2006 you could buy a 5%, 30-year bond. Those won't mature until 2036. I think you can see why the churn is as high as it is. Recent bonds have been mostly short term.
This also applies to RMB as a store of value. So over time China will have to create and then export vast amounts of RMB based investments and debt paper. 100's Of Trillions will take time. It will take time to change the way China explains itself and its money to the world, time to create the money itself, and time to distribute it throughout the world. More time than just a few years. IMO of course.
This is all of course right over the heads of those who fear that the USD will somehow precipitously lose its current rank and position in global trade and finance. These things don't work in the same way as the weekly BCS rankings, but that's still the prevailing mindset among far too many.
The dollar is the reserve currency because crude oil sales are denominated in US dollars. If you hold dollars, at least you can always buy oil.
This is just plain rubbish. It doesn't matter what currency oil contracts are written in. Any other widely held convertible-currency will simply be traded for it.
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