- Whenever I see headlines like this, I ask: what happened in 1994?
It was post-Cold War and central banks were trimming USD reserves to test alternatives.
Then, crises hit (tequila, Asian, Russian, dot com) and the world reconsolidated around USD, thanks to the immense strength of the Federal Reserve and IMF.
Similarly now, reserve share is falling as countries hedge sanctions and geopolitics, yet dollar usage in trade, debt, and crisis funding remains dominant, and unless a true full-stack alternative (liquidity, safety, yield, and crisis response) emerges, history will repeat.
Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
- I'm not an economist so someone please correct me / expand on this;
I'm guessing this is kind of a "It's not a problem until it's a crisis" situation? So far other central banks haven't begun selling treasuries, they've just stopped buying them. But once one starts selling it could become self reinforcing?
What could replace it? There doesn't seem to be any new hegemonic power on the same level. Could we enter a world where all central banks hold a mix of currencies and nobody benefits from being the reserve?
- Who would tell. Economy runs on 'trust' - not on 'by tomorrow we apply this random tax rate to this pinguin island and everone else'.
- A 2% change, more likely this has something to do with the global rush for US tech stocks.
Some countries like South Korea are crazy on US stock trades.
Dollars' depreciation probably helped a bit too.
- Dollar dominance erosion shifting towards dollar inertia. Post RU sanctions dollar lost much of it's leverage (as geopolitical weapon), i.e. actual useful dominance function (transaction panopticon, sanctions)while still retaining most of the liability (Triffin etc). Dollar going to remain popular by volume because plumbing in place, but parallel payment systems last few years = systematic blindspots where US treasury can't monitor what others buy outside of dollar system, and generally weaker ability coerce countries. What's left of dollar system is US enjoying exorbitant privilege of going into ~35T and rapidly increasing debt to serve as asset for everyone else, while dragging down export via uncompetitive FX.
One interesting attack vector vs USD is PRC recycling it's dollar surplus / shadow lending it's USD reserves at more favorable rates than US gov can, i.e. countries (emerging markets / BRI recipients) who would have borrowed USD from FED (or US influenced IMF/WB) now borrow from USD from PRC -> reduce US treasuries demand and drive up US interest -> further increase US debt. PRC basically hijacked and weaponize USD liquidity to make increasingly ineffective dollar system (as geopolitical tool) even more expensive to maintain while PRC can enjoy dollar liquidity without the maintenance costs. And that's probably the ultimately the goal, smart play is not to inherit reserve obligations, but to turn reserve holder's exorbitant privilege to exorbitant curse.
- USD position as global reserve is very much based on trust.
Between the weaponizing that for sanctions via SWIFT, US becoming unreliable as a partner (militarily, politically and economically) and Trump rambling about replacing pieces of the financial system with crypto [0] that trust was bound to waiver
Think we'll have a parallel system in record time. Question is who/how. Russia wants it but they're well Russia. China's yuan isn't open enough. Euro is a bit to regional and dependent on the US lead system anyway. So there isn't an obvious candidate.
Something is going to have to give though given US shenanigans.
[0] https://www.reddit.com/r/economy/comments/1otdio8/trump_says...
- Judging by the comments Americans still don’t intuitively understand what the rest of the world does. Everyone is trying to create distance from the United States. The US no longer represents the smart deal, it represents risk, risk that countries can’t afford. The US has spent the last year creating chaos and punishing its closest allies and trading partners. The instability goes beyond Trumps term too, they’re rightfully afraid of the system that elected Trump twice. When they have a choice between euro’s, dollar’s or yuan they’re going to choose dollars less frequently to avoid exposure to the US.
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- We do have a trojan horse with social security. Overnight we can become the largest single owner of global corporate stocks and bonds.
- Insane this administration wants pimp the US out to the highest bidder and let the crypto weirdos run the world. If we ever lost the reserve currency peg treasury bills will spike and it’ll be impossible to fund the government. We spend 7T every year and take in 5T in taxes. This admin is gutting the IRS and banking on tarrifs which are just taxes. So … without the ability to keep interest rates very low because everyone wants our debt …
- There’s more to international trade than what central banks do. The US is still a good place to invest overall, which is why we can run trade deficits. The money earned by foreigners, whether it’s from selling oil, cars, or anything else, goes into US investment of all kinds. Foreigners can buy the S&P 500 just as easily as bonds.
US interest rates have been declining lately, so perhaps other investments are more attractive.
- Highly unpopular opinion here and I'm going to get downvoted into the ground (who cares), but ... this has been a very long time coming and has very much been a self-inflicted change.
My bet is that it will end up being a very good thing for the world at large.
China has recently started to buy Arabian oil and paying with yuan.
Major countries (India, China) are starting to buy Russian raw materials and paying directly using rubles.
In both cases, trade is happening and completely bypassing the once unavoidable USD.
The US choosing to weaponize the USD for geopolitical purposes has finally made the world realize the immense loss of sovereignty they had allowed themselves to be subjected to by making the USD the global trading currency.
This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.
The golden triangle of Russia (raw materials), India (highly educated workforce, strong demography), China (industrial powerhouse, stole the bulk of Western IP, is now producing more cutting-edge research than the west) finally free of the shackles of the USD and establishing direct overland trade routes that 100% avoid the seas (thereby 100% avoiding potential US embargoes, both financially and militarily enforced) ... the world is going to change in a rather profound way, finally relegating the US to being a simple country instead of the has-been empire it currently is.
- tl;dr dollars are coming home. expect weimar republic levels of inflation in next decades.
- So is "non-traditional reserve currencies" cryptocurrency or not?