Topic: Advantages of Dollar as the first currency for U.S - page 2. (Read 2410 times)

Yeah, if you are already here and specially if you already own 1 BTC at least, you are lightyears ahead of the common and not so common folk (big gold holders, big fiat holders).
It's all a matter of who will be shaken in the long way up and who will resist the following boom burst BTC price cycles.

No matter how strong or how reliable a fiat currency is, it is still a fiat currency. Centralized, open for manipulation, uncontrolled supply with no cap amount, and a total opposite of what bitcoin stands for. The reason why it is still here today is because people are still misinformed or completely misguided. I hope that will change someday.

That's a good note as more countries stop relying on the US dollar as the mechanism of trade for petroleum trading, the importance of the US dollar as the means to exchange goods and services decreases.

We have seen some agreements being established amongst different countries to trade with their own currencies amongst each other and bypass the US dollar from China, Europe, Latin America and Asia but for now the US is still recognized as the lingua franca of oil trading.


It would depend on how tied they are to the US economy, countries that are less reliant on the US will experience less correlations than those with strong bonds, example Canada US trade tends to follow each other economically, except when you get a nice oil boom and Alberta acts as the engine of growth keeping the economy in good shape, or Canadian Banks don't own Subprime and take less risks so don't get burned as badly in a financial crisis, otherwise their tends to be fairly similar correlations.

On the other hand countries like Saudi Arabia, Venezeula, Qatar which do not trade as often with the United States except in oil resources would feel less effects from the US economy tanking directly but would feel some of the effects from the changes in commodity prices such as oil.  

In the cases of Venezeula Saudi Arabia and Qatar they could easily enough move their oil to China, while Canada would have pipeline issues and be less capable of doing that, (The Brent Price vs West Texas Intermediate), so that helps to determine the level of effect it has on their economy and the % of trade they have with another country and their reliance on them are correlated.

Trade is a double edge tool an isolated nation like North Korea in theory has no dependance on other countries trade (But in exchange most people live like crap as we keep hearing) Versus a small open economy that is dependant on trade and takes a serious hit when other countries have problems like the EU news we keep hearing about.
Contagion is a pain.

Hmmm, yes I think this will happen soon or late but I think it is a big advantage for us now and if it was not maybe us was a much weaker country.

No sovereign government will allow any foreign currency (including USD/bitcoin) to circulate on domestic market in a significant scale, since that will make all the monetary policy of their central banks obsolete

US so far have succeeded in making most of the petroleum trade in dollar, but that is also accomplished by lots of wars in middle east and still there are countries trying to escape that system

The main advantage of dollar is it's network effect. Just like Bitcoin is the undisputed king of cryptos, the dollar is the undisputed king of fiat. No one is going to reject dollars out there. Therefore, they can get away with printing and printing, and people will keep accepting it regardless. But make no mistake, it's destined to collapse sooner or later, is just physics.

What everything is priced in, is irrelevant, and it is not true that everything is priced in dollars. Glanced in a shop window just today, and I could sware the stuff were priced in local currency.

Anyway, price is just a pair, one thing is priced in the other thing.

As everything is priced in USD, if the dollar is weak then the price of oil and other commodities will be weak too as it is priced in dollars.

It was seen in reverse recently when the USD was crazy strong against the euro. Commodities were falling in USD and rising in euro.
It is also a great advantage for America as it makes the dollar almost impervious to attack by traders.  It is like having a very strong blockchain, whereas others are have less mining strength so could more easily be manipulated.

Then, in theory one hundred dollars should be destroyed, but as long as there is another person who saves, it can go on. As long as people want to hold dollars, or bonds, it is ok. It is good for USA, but only as long as that demand increases. Neutral demand does not give USA more to spend. When the music stops...

lol and what if mices dont eat that bill, and he decide after many years to pull it from under the mattress and buy something with it. Will then manager pull them from the circulation and burn  them?

When someone in Myanmar decides to save another one hundred dollar bill and keep it under his mattress, the manager of the money can print or "ease into existence" one hundred dollar more and spend them.

Thanks for info and resources, yes I was thinking like this,  if countries stop using dollar then its value will be declined tremendously and it will have bad effects on U.S economy but not sure about the effects on other countries economies.

Thanks from response and the explainations that I learnd from them, but I think since us dollar is the most used currency and now maybe trillions of dollars are in hand of people around the world if us prints the more dollar it has much less effect compared to the time a country with small scale prints the mony

If US buy goods from England, US always need to pay Pounds. US can print a lot of USD but still need to purchase the Pounds on Forex exchange before paying the merchant from England

In theory, this will devalue the USD and raise the value of Pounds on Forex market, but that depends on the scale. Forex market is the biggest market in the world and there are trillions of dollars changing hands every day, and most of them are speculations. If Soros and other hedge funds are shorting the British Pound, no matter how much cars US import from England, it will not stop the fall of Pound's value

I think Forex market is a highly manipulated market, since the Forex exchange rate volatility is usually very low, means there are large players (typically central banks) behind the scene to stabilize the exchange rate

As norrisK said the currency would drop relative to the amount of people willing to buy and exchange it for something of value.

The US dollar has a strong reserve currency status and would be able to print that $1b dollars and see the exchange rate drop less than the GBP we saw this when they initiated Quantative Easing to their benefit, while a country like Portugal, Greece or Argentina in the same situation  would see the currencies value drop relative to the amount printed and investors would move towards what they consider a more safe and stable currency such as the US dollar or the Pound.

In a sense that is what is considered the American privilege in international markets that allows them to borrow at lower rates while running large defecits to their national debt.

The degree of flexibility is the difference between a small open economy and a large economy in the amount of power they have in printing currency, it's why people like Swiss Franks as a currency but the Frank can't circulate too much because their is less demand to store it as a currency for trading compared to other currencies.

Now if we were talking about whether countries would rather park their money in something other than the US dollar we would see a different pattern emerging with developing countries wanting a better rate of return than a US Treasury bond but that moves into another topic about what makes a reserve currency start to lose its power and ignites a shift towards another currency reserve gaining more power on the global stage.

The IMF publishes articles on these areas now and then the economist does as well so this link will help give you a better understanding on the topic.
http://www.imf.org/external/pubs/ft/fandd/2014/03/prasad.htm

OK NorrisK, thanks, it makes more sense now but I think the lowering exchange rate is not much less compared to other currencies in similar situations if they print  money.

If they would print too much money, the exchange rate would drop tremendously. This ofcourse lowers the amount they have to pay back compared to the currency of the other country. But if it gets too bad and the US citizens start to feel the devaluation of the USD, hell can break loose.

Thanks from your response, in fact I want to know what if for example GBP had the situation of Dollar? Now for example USA buys a  good from country x to 1b$, can it simply print the dollar and pays the debt to country easily when in treasury there is not any money? I hope I can explain what passes in my mind.

The question is a bit hard to understand, but to answer your question the main advantage of the US dollar is that most countries are willing to trade with it and use it for business with other countries if that other country does not want a large amount of the other countries currency, example trade is mainly in one direction and the benefits of holding more of that countries cash is minimal.

The US can print money but the real power is in the IMF and other organizations that can turn loans and money (paper) into real commodities and goods when loaning it out to others, the US just happens to be well represented by these groups and is a recognized and accepted means of trade so they can push that power more than other countries to their benefit.

it is just there, because it is the most used and the most accepted, not because of some magic thing, or because they like it

the second thing is related with the current crisis