Quote:
There’s a lot of chatter at the moment about dethroning the dollar as the world’s reserve currency, with French president Macron saying openly that the world should “decouple” from the dollar. Of course, the Euro was supposed to be a rival reserve currency, but it hasn’t quite caught on because it has its own internal problems. I’m not sure that dethroning the dollar would be a bad thing. The ability of the U.S. to borrow massive amounts in its own currency is allowing us to be fiscally irresponsible on a larger scale for a longer time, making the ultimate reckoning potentially more catastrophic—when that day finally comes. A little dose of internationally-imposed fiscal discipline might not be a bad thing.
But count me skeptical that anyone is going to depose King Dollar any time soon. Do you really have confidence in Chinese currency? I didn’t think so. Anyway, the dollar has eroded some in the last 25 years, but still looks pretty secure.
See the charts:
https://www.powerlineblog.com/archives/2023/04/the-daily-chart-king-dollar-dethroned.php
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Oil or gold are the real reserve currencies.
Last week, on Good Friday, the Saudis reduced production of oil and oil prices rose. This will push up inflation because most prices have an energy component. Saudi, Iran, China and Russia are all trying to de-couple from the dollar and are doing strategic deals denominated in other currencies.
China produces many of the goods consumed in the US and has been paid for years in dollars.The US is not as productive as it used to be. The US prints dollars while China makes real goods using labour, capital, plant, resources. The trade deficits put more downward pressure on the dollar.
But the high standard of living that US citizens enjoy buying goods from China with printed dollars is in danger if the dollar ceases to be viable for this. If the dollar no longer has a reserve-currency position to buy real stuff from China, living standards will fall.
America has since 1975, maintained a Strategic Oil Reserve - huge stockpiles of oil to help the US survive oil crises like those of 1974 when OPEC stopped selling oil in a political protest against Israel’s friends. But for some years Congress has allowed these reserves to be sold to fund federal spending. Early last year, Biden’s administration announced that his administration would sell reserves and then in December the administration announced it would begin replenishing the oil from 2023, expecting to purchase oil at a lower price than it was sold. But the price is now going up because of Saudi’s actions.
I don’t agree that anything looks secure. Bond prices, oil prices, interest rates, trade deficits, inflation - all these should make us insecure. And just because there is no obvious new candidate for reserve currency (other than real gold or real oil), it doesn’t mean that the dollar is healthy.
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