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“Can someone explain in small words what the effect of this is? :)”

At the Betton Woods conference in 1933 it was universally agreed that countries would pay off their debts in US dollars. This gives the dollar a much larger footprint, worldwide, as a matter of fact. A huge proportion of all the dollars produced are in foreign receipts accounts for all of the world’s countries. The economic impact on the US is that we have, in effect, an interest free loan for that amount. It’s a huge economic value and leverage for the country and the dollar.

The Obama administration, blesstheirlittlehearts, tried to move the world off the dollar by helping the Middle East replace the dollar with a basket of world currencies. I haven’t read much about that lately. Rest assured, the carrying costs of this loan are not cheap for the countries involved and they’d really like a way to get out of the arrangement.

The effect, incidentally, of bringing all those dollars home would be an instant inflation in very high percentages. The lower the dollar’s value the faster countries will divest; once they have an alternative. Several countries are issuing gold coins but that won’t give them the advantage the US enjoys today.

Sure.

If people use fewer dollars, its value goes down.

If the dollar goes down, the Fed can print fewer dollars without very harmful effects.

Dear dpo622

re: “Can someone explain in small words what the effect of this is? :)”

In short, since Russia has been losing its pants economically, due to its putzing about in the Ukraine, and Communist China has been acquiring more physical gold, the two of them are joining up, and will be making “a dollar” based on gold, and not “a reserve note”, as we do.

Gold bugs will see this as a harbinger of greater things to come, but beady-eyed international finance specialists will scoff that the move is solely a matter of facilitating bilateral Russian-Chinese trade and avoiding the controls and reporting that are part of the US’s SWIFT transaction and clearinghouse network. It will thus become harder to monitor Russian and Chinese trade and to enforce internationally recognized sanctions. This is the widest effect, with little or no consequences for the monetary status of gold or the value of the ruble and yuan. Since the world is not so foolish as to trust Chinese and Russian guarantees of currency convertibility into gold, there will be no enhanced desire by other countries to accumulate rubles and yuan as reserve currencies even if they are made nominally convertible into gold.