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I only saw one question mark, but I think you asked two questions.

The first was about military intervention. The very idea that a military intervention could force someone to put trust in a given country’s currency is just absurd. The whole point of the dollar as a reserve currency is that it is the currency that is least likely to lose value and is issued by the country most likely to honor its debts. A country that devalues or goes to war to that end would give up that idea.

The issue of honoring the currency with Gold has two flaws. The first is that capitalism postulates that there is an infinite amount of wealth that can be created. To base an economic system on this theory requires a currency that can grow with that wealth. However, there is a finite amount of Gold which would either limit the amount of currency available or make the cost of Gold so high as to make its price inifite and /or eliminate all uses of Gold (and there are some) which are not linked to matching the currency.

You should also keep in mind that Gold as a preserver of value is certainly established, but not based on much other than tradition and the fact that it is pretty. Gold is mostly used in jewelry and once again you cannot eat it or burn it. It is just the oldest-accepted easily transportable holder of value.

In terms of your balancing the budget comments it is only partially true. Assuming continuous economic growth the important thing is the percentage of a deficit in respect to the overall size an economy. If the budget deficit grows slower than the economy than it will, as a percentage shrink. Of late it has been growing faster which is very, very bad. But, unlike a private individual, debtors to the US cannot come and confiscate assets. All they can really do is refrain from lending more money and/or charge higher fees (interest) for lending that money. All that really does is constrain economic growth.

Actually I thought I asked several questions.

I wasn’t asking about military intervention. I am sure that will not happen, for the same reasons you outline (and others too). What I was trying to ask is that as the dollar being the preeminent reserve country is such a good thing for the US, will the powers that be use political and or economic pressure to maintain it as such, against competition from the Euro (and indeed other currencies).

I take what you are saying about Gold but think that you miss the point. I understand Gold is a rather arbitary standard for measuring wealth but the fact is: it was an established and perfectly valid one at the time when dollars were being sold back. So why did the US not honor that debt?

I hadn’t thought of the difference between private individuals and nations. I think its quite a dangerous precedent to set though. Granted your creditors aren’t going to sieze the statue of liberty or whatever in part repayment, but if the balance of payments deficit continues to grow, then they might lose confidence in the US and its currency. That would be very bad. As you say in your very thorough answer (thank you) the whole point of the dollar is that it is the least likely currency to lose value and is issued by the country most likely to honor its debts. But what happens if that is no longer true? The value of the dollar has plummeted recently - I know, I export to the US and its become very difficult to do.