Posted on 02/20/2023 5:23:47 PM PST by SeekAndFind
The U.S. dollar enjoys the world reserve currency status due to numerous factors.
Legal and investor security, an open and transparent market, as well as independent institutions with checks and balances that limit political power and strengthen the country’s currency in relative terms. No, a country does not have a world reserve currency due to military power. No one accepted the kopek when the Soviet Union ruled half the world.
For a fiat currency to be a world reserve it needs to be widely accepted as unit of measure, method of payment and reserve of value.
The problem is that all the above may be under threat.
Increasing pressure from politicians is threatening the reserve of value status of fiat currencies, and the political threat is not only against monetary authorities, but aimed at all institutions that provide independent checks and balances that limit political imposition.
When politicians talk about the “social use” of money, what they are basically saying you will suffer higher inflation for longer. It means using the currency to disguise massive fiscal imbalances under the illusion that citizens will always have to use the local currency. It makes no sense. A fiat currency, like any other good or service, is subject to supply and demand. Excessive supply is damaging its purchasing power the same way that excessive supply lowers the price of a good, but weakening demand added to rising supply leads to the collapse of the currency.
The moment that politicians stop defending the reserve of value status of their currency they are destroying the country they promise to defend.
Destroying the currency is the first sign of the decline of a nation. The rulers of the state never think that it will end because the process is slow until it suddenly accelerates with hyperinflation and the state crumbles. This happens when neither domestic nor foreign citizens will accept the state currency as a means of payment and reserve of value. It erodes slowly and the collapse happens fast.
Countries lose their currency demand when governments attack the reserve of value status and the independence of its institutions under the perception that nothing will change. Assessing the patience of foreign and domestic users of a currency always ends badly. However, political powers believe that they can always issue a devalued currency to hostage citizens that can only use the credit note issued by the state. It is false. When domestic citizens lose their patience with an increasingly worthless currency they move on to other systems of trade, using other means of payment and even barter.
In fact, most politicians believe that if “nothing” has happened so far and the country’s currency remains widely used then they can continue eroding the independence of institutions and the currency’s purchasing power forever. It is incorrect, and all empires have vanished under this illusion. The illusion of monetary sovereignty.
This is why MMT -modern monetary theory- is so wrong. It assumes that monetary sovereignty is static and gives the right to governments to mismanage money at their will. And monetary sovereignty vanishes as quickly as the fallacy of endless money printing.
The U.S dollar remains the world reserve currency because, so far, it has no contenders. This is not because the Federal Reserve policies are sound money, but because others are worse. The U.S. government and the Federal Reserve should know that imposing the use of a currency through digital currencies is not the answer. The only way in which the U.S. dollar will remain a world reserve currency is if the government and the Fed commit to strengthening its reserve status by increasing popular and global demand, not imposing it, because it never works.
Alternatives seem to be few or none until someone offers a true reserve of value with demonstrable demand driven by independent institutions. The Federal government and the central bank may believe that there is no contender today because other fiat currencies are worse, and they are right in that analysis. The problem is that alternatives may come from truly independent means. So far, the Fed has been smart enough to point at the Achilles’ heel of cryptocurrencies: Liquidity. However, regardless of the weakness of the currently available alternatives, the only thing that will strengthen a fiat currency is to be a reserve of value. If the Fed and the U.S. government ignore reserve of value as a policy, the end of the United States global status will be closer.
“The U.S dollar remains the world reserve currency because, so far, it has no contenders.”
Unless space aliens from a world with a stronger currency land on earth, for the foreseeable future, the dollar will be the world’s reserve currency.
If that is not your view, you should take all your dollars, head to the bank and covert all your dollars to reals, pesos, euros or rubles.
Now that Russia and China have ‘bonded;,....
the gig is up.
I believe the Euro is the sounder currency. It is only the difficulty of acquiring Euros and using them that keeps me using dollars.
Currencies could be based on gold, lithium, cobalt or nickle.
Foreign nations might insist on bonds based on a percentage of federal and state tax and fee revenue.
A billion dollars might be repayable at say 1/8000th of such revenue and bear an annual interest charge of say 1/400000th of such revenue.
Or based on nothing but an eroding good name...
MMT is quite clear that the supply of money that a currency issuer creates to pay for entitlements and fiscal needs can not exceed the productive capacity of the country without causing inflation.
Obviously, by improving productivity and using innovation to reduce unit costs, the private economy can expand up to the limits of available labor. There is no theoretical limit to this growth as long as we don’t artificially suppress it by obsolete regulations, anti-competitive business practices, or political stupidity.
No currency has any “intrisic” value. All sovereign currencies only have relative value to other currencies on the foreign exchange market based on floating exchange rates. The reason the dollar remains strong is because we have certain advantages in our productive capacity that are not available in other countries. That can fluctuate daily, but as long as the supply of currency in public hands doesn’t exceed its productive capacity, the absolute number of dollars is irrelevant.
The Fed is like the banker in Monopoly. One of its first rules is: “The Bank can never run out of money. If more money is needed it should use plain paper.”
Let’s just wait and see how BRICS plays out... it might get real ugly
Or silver and/or gold... and ride out the tide.
We've even turned former allies like Saudi Arabia against us. We've turned Iran and Turkey against us. And, worse, we pushed Russia into an alliance with China.
China doesn’t ‘get’ capitalism - they fake it. But not well enough to be a reserve currency ...
Well, yes - but there is more to it, naturally.
The article makes a few cogent points. A reserve currency needs to be from a country with a stable, predictable govt. A reserve currency needs to be respected and with no undue international banking pressure challenging it. A reserve currency needs to be the accepted exchange for vital global resources.
A reserve currency might survive failure on one of these foundational issues; it would face serious difficulties dealing with two of these standards. Joe Bitem has forced the dollar to be out of sync on all three foundations!
First, Bitem and the Demo'rats are proudly prosecuting a scheme to utterly change America's political basis for success: capitalism. Further, they have proudly declared that America will no longer survive on energy independence; indeed, its populace will sacrifice (suffer) in order to restructure the whole energy industry away from fossil fuels. Washington D.C. has acquired an odor, a tarnished patina of corruption. All of these factors present an image of instability, unpredictability.
Second, America has run up a highly suspicious level of debt. Further, much of that debt is held by one of its major competitors for status of world's 'reserve currency.' Joe Bitem's determination to splurge by seemingly unending spending on Ukraine has added another global furrowing of eyebrows concerning the dollar. He is not just sending military aid to the Baltic state, he is now committing the US dollar to pay Ukrainian pensions. Further, he has sent, or promised to send, American military weaponry to Ukraine. In combination to the expensive, perhaps secret, military equipment that he abandoned in Afghanistan, some US military leaders or former leaders have questioned the position the country might be in if faced with a serious conflict. A conflict on two global fronts raises serious questions. Bitem's hazy leadership will not escape world leaders, both great and small.
Third, the dollar might maintain its dominant position in regard to a desirable stable currency for one of the world's most vital sought after critical resources - oil, and fossil fuels in general. However, Bitem has sneered at that role for the dollar with contempt. He alienated the leader of one of OPEC's major suppliers of oil, Saudi Arabia, by accusing him of murder and autocratic rule (something Joe is becoming more familiar with!) He has championed all the world to follow his lead in abandoning oil and fossil fuels for 'renewable energy' sources: solar, wind, geothermal - not hydroelectric river dams! . ..not nuclear! World leaders pat him on the back and cheer, "Lead the way! We will follow soon."
Joe Bitem is virtually screaming at the world to abandon the dollar as its reserve currency. He knows that fossil fuels will be ushered out by 2050 and we will all live in utopian peace with electric vehicles, electric military machines and solar powered airplanes.
For some reason China is opening a new coal fired electric generating plant every week and a half or so. For some reason Russia is surviving Joe's sanctions and selling oceans of oil to whoever wishes to buy it. For some reason China is viewing Taiwan with an optimistic eye. For some reason NATO is beginning to hint at cracks in its solidarity. For some reason South America is flirting with Marxist socialism again. For some reason Australia is beginning to question its strategic position in the Asian/Pacific theater.
Well... surely Joe Bitem has a plan for all of those challenges!
Sigh, always with the Pro-Russian propaganda.
Since when is the SEEING of the total take-over of America, by an American Communist government, diagnosed as being “pro-Russia”?
Too absurd for words.
John F. Kennedy went to nuclear stand off over Soviet missiles in Cuba to defend the continental USA from brazen and deadly encroachment, in Cuba, by the USSR.
A few 1950’s thinkers seem to think that modern RUSSIA is still the old communist-grade USSR, with peasants and bread lines.
Try diversifying your sources of info. You sound like Karine Jean-Pierre.
The old USSR that you dread is your Marxist/communist Resident in the White House, and his captured US Media Propaganda Machine.
Russia is fast becoming the religious, productive and self-sufficient power of the USA,... the one that no longer exists as we her.
as we “knew” her.
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