Quote:
Originally Posted by Scrat335
Some questions for those who know more about this than me.
Sanctions imposed on Russia have forced Russia to turn to the East. Is this a good thing?
If this trend continues (the dollar being dropped in favor of other currencies) can it hurt the US and if so, how?
What can we expect in the future? A more self sufficient USA? A debilitated America?
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The Bretton Woods Agreement is what created it.
The US agreed to back the US Dollar with gold at the fixed rate of $35/ounce, and in exchange, the foreign States that signed the agreement had to peg their currencies to the US Dollar, and not allowed to deviate from that rate by more than 1%.
In order for foreign States to keep their currencies pegged to the US Dollar within that 1% range, they had to buy and sell US Dollars. In the post-WW II Era, the currencies of many foreign States fluctuated wildly, so they ended up holding massive amounts of US Dollars.
At the same time, the BIS (Bank of International Settlements), which was originally used to manage WW I war reparations, now became a clearing-house to settle international trade accounts, managed by the US and UK. The BIS, basically the US and UK, then decided which currencies would be accepted for use in international trade transactions. Members of the Communist Bloc States were not allowed to be members on the board, and their currencies were blocked from being traded on the international market.
That set the stage for the US Dollar to be the most commonly used currency in trade. Even today, when Canada sells oil to China, the transaction isn't conducted with Canadian Dollars or Chinese Yuan, rather it uses US Dollars.
In the late 1960s, there was more or less a general panic internationally, and foreign States started demanding payment by the US in gold. That depleted the gold reserves of the US, which in reality never had enough gold to back its currency, and caused Nixon to abrogate the Bretton Woods Agreement.
In spite of that, foreign States continued to conduct international trade using US Dollars, largely due to political pressure from the US.
As of last year, according to BIS, about 87% of all international trade is conducted in US Dollars, and about 60% of all currency reserves are US Dollars. The Federal Reserve stopped publishing the data about 15 years ago during the Bush Administration, but foreign holdings of US Dollars as a currency reserve are estimated to be between $6.5 TRILLION to $7 TRILLION.
In addition to that, many foreign States hold US debt in the form of US treasury securities.
US federal debt is $21.1 TRILLION, but only $15.4 TRILLION is public debt. About 40% ($6.2 TRILLION) of public debt is held by foreign States. Note that over the next 10 years, public debt will increase by $3 TRILLION as the OASI Trust Fund, which is intragovernmental debt, not public debt, is liquidated.
Some problems can arise, if the value of the US Dollar is weak against other major currencies.
These problems are generally characterized as "Opportunity Costs." A foreign Central Bank's holdings lose value, unless they switch to a stronger currency, and in the case of holding US treasury securities, foreign investors can lose money, unless the US compensates with higher interest rates.
Higher interest rates for US treasury securities have a negative impact, since it costs tax-payers more, depletes the General Revenue Fund faster, and results in higher public debt, which increases the overall federal debt.
Effectively, every 1% decrease in US currency reserve holdings results in a corresponding 1.5% increase in Inflation, so if holdings suddenly dropped 50%, then Inflation would rise 75%. That would also be more or less true for international trade transactions. If other foreign States started conducting trade in Euros or basket currencies, it has a negative impact economically on the US.
It's unlikely that a 50% decrease would suddenly happen. That might only happen if foreign States protested some military action by the US, but even then, the issue is what currency would those States use to replace their US Dollars reserves? The Euro is currently the only real alternative.
China, Japan and South Korea have been studying a unified Asian currency. They're still running simulations and modeling to determine its effects. They will not rush to introduce it, and they won't introduce it until they're certain it will produce the results they desire. Asians have a fear of looking bad and "loosing face."
Quote:
Originally Posted by pknopp
It will cease to exist at some point and we will not be prepared for it.
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I think they'll be prepared. It will not be pretty for Americans.
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It reasons eventually it might come. But give the opportunity to undercut Trump and weakened united Allies ...... it has been a doomsday clock moved a bit closer with this more possible on Trump's watch.
