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Old 10-31-2019, 01:30 PM
 
Location: Tijuana Exurbs
4,087 posts, read 10,642,630 times
Reputation: 4936

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To the OP, you are correct: inflation.

In this theoretical situation, as all of those reserve dollars are disgorged from the vaults of the central banks, they'll flood the foreign exchange market, depress the value of the dollar, raise import prices, raise interest rates (because those reserve dollars are held in the form of treasury bonds which will have to be dumped on the market) and flood the domestic economy with excess dollars thereby generating inflation.

As for an alternative reserve currency, posters above have it right in that the economy of the alternative must be large and liquid, such as the Chinese Yuan or the EU Euro, but not really any others. However, the Euro has issues with political unity and lack of economic dynamism, and the Chinese Yuan suffers from expropriation risk because the country at its core lacks rule of law.

IMF Special Drawing Rights have been suggested as a reserve currency, but the SDR is just an agglomeration of existing hard currencies (42% US dollars) which is essentially what central banks do right now by holding on average 2/3 of their reserves as dollars.
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Old 10-31-2019, 02:06 PM
 
9,612 posts, read 4,226,224 times
Reputation: 1870
Quote:
Originally Posted by kettlepot View Post
To the OP, you are correct: inflation.

In this theoretical situation, as all of those reserve dollars are disgorged from the vaults of the central banks, they'll flood the foreign exchange market, depress the value of the dollar, raise import prices, raise interest rates (because those reserve dollars are held in the form of treasury bonds which will have to be dumped on the market) and flood the domestic economy with excess dollars thereby generating inflation.

As for an alternative reserve currency, posters above have it right in that the economy of the alternative must be large and liquid, such as the Chinese Yuan or the EU Euro, but not really any others. However, the Euro has issues with political unity and lack of economic dynamism, and the Chinese Yuan suffers from expropriation risk because the country at its core lacks rule of law.

IMF Special Drawing Rights have been suggested as a reserve currency, but the SDR is just an agglomeration of existing hard currencies (42% US dollars) which is essentially what central banks do right now by holding on average 2/3 of their reserves as dollars.
If foreigns dump Treasuries, barring world war or other sort of US physical destruction, most likely that would happen over a broad time span. Otherwise sellers would take great losses. And as above, what to do with their new USD supply?

And as they shrink their UST holdings, they receive USD's. So it also depends on where those USD's go. If they stay out in the world, inflation here might not be too bad. (If that is even a worry based on why this is happening in the first place.) Foreigns currently own about $4T in UST's. It doesn't seem likely that all that would come home so soon.
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Old 10-31-2019, 04:42 PM
 
2,765 posts, read 1,607,458 times
Reputation: 5992
The problem would be ballooning deficits with reduced demand for dollar denominated securities. Especially in a low growth environment, rates rising dramatically could create some major issues.

At the same time the world starts dumping dollars and pricing commodities in some basket or other currency which would cause input prices to rise. Reduced demand and bubble like supply of dollars isn't a good start of the equation.

We would also lose the ability to enforce our authority via sanctions and lots of other little things like devaluation of dollar based debt could seriously accelerate the issues.

The speed at which this happens is very important but I fail to see significant upside for us in this. FYI, this is already happening, Europe is bypassing dollars for Iran trade due to our belligerent president and China / Russia are all for reducing our influence.

I think historians will look back on the last 3 years very critically when this is all said and done. We have squandered much for nothing and will end up with less.

Posted from mobile
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Old 10-31-2019, 04:46 PM
 
4,979 posts, read 2,153,658 times
Reputation: 9839
wish i knew.
and i wish i knew when.
anything else is just my guess.
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Old 10-31-2019, 05:03 PM
 
1,425 posts, read 957,940 times
Reputation: 2595
The Chinese Yuan is a world currency..
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Old 10-31-2019, 05:04 PM
Status: "State of Satisfied Bliss and Indifference" (set 28 days ago)
 
Location: western East Roman Empire
7,031 posts, read 11,033,272 times
Reputation: 6547
Who thought it was a good idea in the late 1990s/early 2000s to go full throttle on sending jobs overseas, credit-driven consumption to replace lost income, and junk mortgages as pillars of the money supply?
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Old 10-31-2019, 05:04 PM
 
Location: Great Britain
13,700 posts, read 4,710,300 times
Reputation: 8690
The two main currencies in the world are now the dollar and euro, the Chinese would dearly like their currency to be a global player however this is unlikely in the forseeable future.

I don't currently see any threat to the dollars standing.
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Old 10-31-2019, 05:11 PM
 
967 posts, read 679,542 times
Reputation: 1051
China's economy has been growing since the late 70's. You never know. But, if they have a real estate downturn and economic problems (GDP declining), their claim to be the world's currency will be delayed.

The U.S. still has the largest consumer economy with a GDP of $20 trillion and 325 million people. China would need to get that lead and hold it for a while to be considered the world's dominant currency.
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Old 10-31-2019, 06:04 PM
 
1,425 posts, read 957,940 times
Reputation: 2595
You folks should study what it means to be a world currency..
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Old 10-31-2019, 06:33 PM
 
Location: ATX-HOU-DFW
17 posts, read 2,218 times
Reputation: 23
Quote:
Originally Posted by NJBoy3 View Post
You folks should study what it means to be a world currency..

I think the assumption is that the OP meant "the world's currency".
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