Currency is a complicated thing and naturally it is not as simple as this article portrays it.
You can’t eat dollars and nor do they function very well in powering your automobile.
The fact that the US dollar is the world’s reserve currency is an advantage insofar as it provides cheap credit. The US can sell US treasuries for very low interest rates because the US does not have to have dollar reserves to back them up. Countries without a hard currency have to back up their debt with reserves of some currency. When that currency is mostly dollars, it is good for the US because they essentially buy dollars at a low interest rate so they can lend themselves at a higher rate.
The US has had the greatest, but not the only advantage from this. The Pound, Yen and Deutsche Mark also served this purpose - simply to a lesser extent - for the past 60 years as well. The Euro is simply taking a larger slice of the pie.
The link to oil in this article is simply a political slight of hand. The only thing that denominating oil in Euros means is that Europeans will no longer need dollars to purchase oil. It potentially weakens the US currency, but also makes US exports more attractive and investments in US assets cheaper.
If the Euro were to completely replace the dollar, it would mean that US borrowing would become more expensive - because the US would be have to keep Euros on hand. But that will not happen in the next 50 - 100 years and I think a global currency is more likely than that scenario. Moreover, the Rupiah and Remnibi should also be reserve currencies too so the dollar as the super-majority world reserve currency is anyway limited in its duration. This is neither suprising nor alarming.
Perhaps the largest single advantage of the dollar is that several hundred billion in actual bills are floating around the planet and these are essentially an interest free loan to the US treasury. Given inflation, it is like lending money the US and asking to be paid back less. Still it is not so sigificant. The only reason people are willing to keep dollars is that the US has never, ever refused to recognize he value of its currency. A new currency or devaluation would be a disaster for the US and therefore ensure the US currency would lose its status as the world reserve currency.
The article’s conclusion of what the US might do would have the exact opposite effect of what its intention would be´. In other words, it is pure garbage.
Exactly. The article raises many genuine facts and then extrapolates them wildly into conspiracy theories even a tinfoiler would have trouble with.
Genuine food for thought in this topic, but more on the origins of the situation and future implications, preferably written by someone more levelheaded.
Thank you for the very thoughtfull answer. I’m not an economist - I don’t really understand the intracisies of the financial world.
Can I ask a couple more questions based on your answers?
“The US has had the greatest, but not the only advantage from this. The Pound, Yen and Deutsche Mark also served this purpose - simply to a lesser extent - for the past 60 years as well. The Euro is simply taking a larger slice of the pie.”
If the euro is, or will be, taking a larger slice of the pie, then logically, does it not follow that the dollar will have a smaller slice? If that is so, well I don’t believe the conspiracy aspects of this that it will lead to immediate US military intervention on a global scale, but at the same time its hardly likely to be something the US government is going to be happy about!
“The link to oil in this article is simply a political slight of hand. The only thing that denominating oil in Euros means is that Europeans will no longer need dollars to purchase oil. It potentially weakens the US currency, but also makes US exports more attractive and investments in US assets cheaper.”
I see what you mean, but as the article points out, this is dependent on the US being able to make and sell products and investments that the rest of the world wants. It seems to me that the US (and in fact most of the rest of the western world) is in a financial mess primarily because we are simply living beyond our means. The exact system used - socialist, capitalist, whatever - is largely irrelevant compared to the simple fact that any nation, just like any individual, that consistently buys more than it earns is ultimately going to be in trouble.
“The only reason people are willing to keep dollars is that the US has never, ever refused to recognize he value of its currency.”
What about the assertion in the article about the US refusing to buy back dollars for gold?
By this I mean that the article has some salient points, most important being if there was a shift to Euros (not even a full shift ....just a fraction of price movements in Euros) that the Dollar would be seriously hit, and the US economy would suffer detriment. Where the article becomes garbage is when it deviates and takes on the guise of conspiracy spiel. However, the fact still remains that there is some pressure for a lot of the nations to diversify their FX holdings and/or revenues to a much larger extent than they did in the past, and that there are some serious questions on the Dollar.
Another place the article softens is when it talks of the Dollar being replaced as the World's reserve currency. That will not happen, at least any time soon. What will happen is that another currency (most probably the Euro) will continue to ascend to be a major competitor as a secondary reserve currency. However a complete overthrow of the Greenback would only happen if the US was nuked to oblivion, or something of that nature, which totally turned everything topsy-turvy.
The other thing the article does is over-simplify things. A weak Dollar will not be all-bad ....it will be terrible for some sectors (e.g. those that deal with imports) of the US economy, but great for other sectors (particularly the sectors that deal with exporting American products). There are very few purely linear factors in economics, and nothing is as simple as the article makes it seem.
No need to bother with the nuke Iran conspiracies. That's tripe. (Although I do see wars in the future being fought over resources - though not necessarily oil, but oil is a major one)