Topic: "No reason for dollar to be world's reserve currency" (Read 3948 times)

To me the US dollar definitely seems to be on its way down in the medium term. Here is why:

Currently lots of the value of the dollar is based on the petrodollar deals the US has made with the big oil-producing countries such as Saudi-Arabia (i.e. military protection and weapons for agreeing to only accept dollars for oil). This has resulted in a big demand of dollars all around the world because also those countries not directly involved in these deals need to have dollars if they want oil.

This big global demand for dollars has justified and enabled the FED to increase the dollar money supply without diluting the value of the currency. If any other country that only had a domestically used currency wanted to print as much money as the US has done it would result in immediate massive inflation with obvious negative consequences. However, the US has been able to do just that because of the large international petrodollar demand.

What has been going on during the past decades is that US has been using all its military and economic power to preserve and boost the petrodollar system. There are constant economic sanctions and political pressure against all small-to-medium-size oil-producing counties (like Venezuela) who don't participate in the petrodollar circle and there have been wars fought to preserve the system. For example US attacked Iraq just after Saddam switched the oil trade from dollars to euros. Naturally the first thing they did was switch the Iraqi oil trade back to dollars. Currently there are factions in the US political scene drumming war against Iran (one of the few big oil-producers who don't accept dollars).

All this has been an artificial effort to boost the demand for dollars. I don't think it can continue as it is for very much longer. The US is losing its grip to unilaterally dominate the rest of the world and everybody is becoming less dependent on oil (alternative energy sources like solar are becoming exponentially more efficient).

What will happen when all the countries that have been hoarding dollars in order to participate in the oil trade don't need (so much of) them anymore?

The laws of supply and demand cause the international exchange rate of dollars to collapse. Where will the dollars go? They will naturally flow to the one place where there still is demand for them: back to the US. So the US domestic money supply will quickly and vastly expand thereby collapsing also the domestic buying power of the currency. The world reserve currency status will be lost.

I don't know what will be the next reserve currency. I don't know if we even need to have one singular reserve currency. With modern technology all currencies (especially cryptocurrencies) are easily and quickly exchangeable, reducing the need to have a common currency.

EDIT: related links:
https://en.wikipedia.org/wiki/Iran%E2%80%93Pakistan_gas_pipeline
http://www.gulf-times.com/eco.-bus.%20news/256/details/398622/kuwait-finance-firm-suggests-trading-oil-in-bitcoins
http://www.forbes.com/sites/energysource/2014/05/29/the-colder-war-and-the-end-of-the-petrodollar/

Gold may, in theory, replace the USD as a world reserve currency, but I would say it is unlikely as many countries accept the US dollar as a form of payment, and you can go almost anywhere in the world with a US dollar and have it accepted, sometimes with greater certainty then the local currency.

I doubt the rest of the world stage has confidence in China to not manipulate it's currency at it's whim.  As it stands right now most of the EU tends to vote away from China/Russia.

But this is exactly why the RMB would not be accepted as a reserve currency. The dollar and euro are somewhat manipulated by their respective central banks, but only in the name of stability. 

I think the world is moving towards a multi reserve currency system. There is no one single currency which stands out above all others any more. A reserve making up of USD, EUR, RMB is an obvious combination.

Exactly. Chinese currency is even more manipulated and controlled than the dollar or the euro. Changing masters does not free slaves. In this case the new master would be more sinister than the current one. We need a currency that is not controlled by any political entity to be economically free.

I would doubt that Oil would ever be a reserve currency as there are too many uses for it that must be done with oil and cannot be done with something else. The problem with gold being a reserve currency is that it is difficult to know for sure that you actually have gold so you will need to somewhat trust the counter-party that you are dealing with.

I doubt that any fiat currency will replace the USD as reserve currency. It's more likely that it will be commodity money (precious metals) - we already can observe oil-gold trade in a few countries - or even a cryptocurrency. But one can't know for sure yet.

The countries that use the Euro have a larger collective GDP then China does. I would argue that the Euro is more of a secondary world reserve currency then the RMB is today.

The fact that China is know to manipulate markets and has strict capital controls would likely prevent other countries from adopting the RMB from becoming any kind of reserve currency.

no matter what currency becames the reserve currency, such as the dollar, the trading parties who is not base in the US and receive the dollar as payment have to convert to its own currency when they do balance sheet and calculate profit and loss. Or buyers need to buy dollar priced products. They need to go for exchange to get dollars.It always is fuss. The world currency is needed to tackle this problem. The BTC is the future accepted payment in the world.

Maybe in 25 years but not anytime soon, after all the RMB is not even freely convertible.  DE is right, if you scratch the surface in China you still have a developing country.  A rapidly growing one with good infrastructure but a developing one all the same.

You can't count on the number two argument because many people say China's growth has been fueled by its manipulation of the RMB.

Finally there is the Triffin Paradox where whichever nation provides the reserve currency has to run trade deficits, otherwise how else can other nations obtain that reserve currency?  And that has not been the Chinese path to date.

Yes, China have jumped to the second largest economy over Japan based on GDP. Its international transactions take more and more proportion of that in the world. So RMB will be used more widely in the very future. So some countries have already considered RMB as second reserve currency.

China is still developing as an economy and it would be much too soon to use the RMB as a reserve currency. The chinese government also subsidizes their own industries too much for this to be a viable option

The RMB is definitely going to be the next reserve currency and this might happen sooner than we think. The Chinese have heavily invested in the African continent and this will be on of the factors getting it there.

While the US takes a lot of verbal abuse its brief span of economic "reign" has been pretty benign.  My guess is when, which may still be a long time from now, it comes to an end, people will appreciate it more.

Think anyone who pay attention to what's going on around the world know US dominance days are numbered. If China do take over, is it going to be better for the rest of the world or worse?

The USD will cease at some point to be the world's reserve currency just like the GBP faded before it - another economic power will arise and bring about a new economic order.  Maybe it will be China, but the RMB is far from being freely traded.  Maybe it will be some sort of supra national currency like special drawing rights or the Euro (though even the Euro's survival is doubtful long term).

The dollar's share has gone down but there clearly isn't any clear candidate to replace it yet.  I imagine we'll see a move to a mix of currencies being held and that might actually help with the shift.

The point about there not being any world currency that was not backed by precious metals is a good one.  We really are in uncharted territory.  I often then of the US today as 16th Century Spain - spending riches it really didn't earn - and it eventually will have to collapse.

Except for korea and vietnam the US has won every conflict that it has fought in. Securing the country politically after the fact is a while different game.

Problem is the military spending have its limit and US army is no longer an effective fighting force. US has never won any major war after WW2. Iraq and Afghanistan are still a mess.

Yes, that's almost true. It's not the spending - it's the military power.


Yes, that's also often true.


Yes, even that is true.

But... you form an implicit conclusion in your arguments, that is: Because the US are powerful due to military spending they can't be invaded (like other countries) and therefore their currency will continue to be used (as world reserve currency).

That is not true in general. There are more possible reasons for a currency to loose reserve status than just invasion of the home country by another nation. Actually I predict the main reason for the USD loosing reserve status comes from internal (economic weakness, debt, excessive spending, foreign policy) and not external reasons. The other countries (= the market for the USD) merely react on the weakened empire by rejecting its currency as reserve currency.

The military spending is something that gives the dollar it's strength.

If a country is invaded/defeated in war then their currency would likely no longer be used. Since the US has military might there is a very low chance that our country could be taken over by some other country's military.

First territory of the United States more than the entire European Union. Second, Americans are expansive and enterprising nation and they are more powerful corporations. Therefore, the dollar - a reserve currency. The euro - no.

I agree. This is a good thing for the world and for the US. It was never the dollar that made us a world power. It does make us a target and allows our politicians to declare just about anything as being in our "national interest.' This declaration of something over seas being in our "national interest' is generally a prelude to military action.

The days of the dollar as reserve currency are counted. The US are weakened by the ongoing economic depression, excessive military spending and catastrophic foreign policy.

Reserve currencies before the dollar had backing by precious metals in addition to the economic and military dominance of the issueing nation. The USD is not backed by gold (anymore), it's solely dependent on its continued use as a trade currency. Now that the US loose influence and countries showing tendencies to use other currencies for trade, the demise of the reserve status of the USD will occur very fast.

More than likely they will just have to suck it up and move onto more important matters like freaking secret wait lists at the VA to treat their post-traumatic stress syndromes sadly.  It really chaps my hide that these kids literally risk their lives advancing what has turned out to be obvious money-centric foreign policy.  If we american's on the whole didn't have such short attention spans there would have likely been some serious government/banking reform years ago.  Thank god for Miley Cyrus and the Beeb huh?

Yeah the last thing we need is an even more economically predatory currency system to replace the current one. Bitcoin's lack of borders and neutrality make it a nice candidate for this role.

Hopefully, we get past China's "red mirage", and for RMB not to become the new world reserve currency.

Yes. But not as bad as USD and EURO.

How events unfold in the future for all the currencies will be interesting to watch.

Cina has their own currency problems. None of the currency manipulators will be able to sustain it long term.

Bitcoin would pick up the slack from a failing dollar so fast Chuck Norris would take two steps back.

the usd is falling along with all other fiat man controlled money. i would like to see bitcoin being used in a very smart way in the future.

Information can only go so far. Egypt failed revolution is a good example on gun >>> information.

This is not what I want to see, but it is inevitably true.

Being a reserve currency is about trade and political stability. The Chinese is exporting so much to every country, it is strategically wise for every country to hold RMB as a reserve to stabilise exchange fluctuations. The middle east has always wanted to factor the dollar out of oil prices. If China buys enough oil from them, oil prices in RMB is not out of the question. That is going to be the tipping point.

We have the greatest military there is. It's called the internet.

When even the soldiers in the military are aware of the scam, good luck to the bankers finding someone willing to fight for them in exchange of worthless fiat.

Most US soldiers do get paid in USD, right?  What will happen when the soldiers find out that they got scammed and their fiat is worth less than shit?

US still has the strongest military in the world right now.

It will enforce rules and commerce until another country able to challenge it.


People thinking bitcoin can become a reserve currency without a military is delusional.

The IMF has SDRs(Special Drawing Rights). Is that what you were referring to in your post?

http://www.imf.org/external/np/exr/facts/sdr.HTM
http://en.wikipedia.org/wiki/Special_drawing_rights

China already the world biggest exporters and second largest importer.

It will be the next country to dictate global commerce and trade and hence RMB will be the next currency.

This was helped by the IMF (Or fed, I have to check my source) and World Bank, which had their memberships sold in "shares" or something, and required a few percent to be paid in USD. Countries were loaned to in USD by said institutions, and then USD began cycling more regularly throughout European countries.

As such, debt in millions of dollars was created in USD, workers rebuilding we're paid in USD, and they had to exchange it, but they were getting paid.

It was a great plot, cause the IMF (Or fed) and the world bank were created right after WW2, within 10 years of the end of the war. Their membership payment forms were great ways to peg the USD as the world currency.

During and after WW2, US were the largest exporter because power house like Germany were so wipe out on their factory heart land. The rest of the world also gone back a few decades of progress after the basic infrastructure are being destroyed in the war.


US has its manufacturing base in tact and untouched during the war. The rest of the world need to buy from US to rebuild their infrastructure. While products in the US were sold with premium, basic commodities from the rest of the world were being sold at huge discounted. Profit from the trade (US) were also used to acquire cheap basic commodities producing estate/farm from the rest of the world. This allow US to become enormous wealthy and enable US to capture the resources of the rest of the world and hence setting the stage for USD dominant.


We are at a stage where the rest of the world has caught up and upcoming power trying to free themselves from the USD relationship. How event unfold in the future is anyone guess.

 http://rt.com/op-edge/171144-dollar-reserve-currency-usa/


Your thoughts?