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Comment by mamon | Hacker News Reader

The system you described would be beneficial for all but USA :)

The last two people that wanted to challenge US dollar dominance in the world financial markets were Saddam Hussein (wanted to trade oil for Euros instead of USD) and Muammar Kadafi (wanted to trade oil for gold). We all know how that ended for both of them - their countries were invaded in under 6 months after they announced their plans.

Now, the only country powerful enough to force switch from USD to currency basket is China, and their recent initiatives, like creating AIIB bank, or devaluating juan are aimed at exactly that.

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It has never been clear to me that the US has any actual gain from being "the reserve currency." The usual story is "goods are cheaper; vacations are cheaper" and meanwhile goods and vacations are extremely cheap already.

Since all currencies are fungible, you're only a multiplication-by-the-exchange-rate away from any other currency.

I don't understand your first paragraph. It reads to me like "the usual story is 'water is wet' and meanwhile water is already extremely wet."

So what does the US - the people of the US - gain by the dollar being this "reserve currency"?

The status quo advantages: a (relatively) stable and strong currency, meaning net importers are helped. Of course, that means our exporters are conversely harmed when selling to a location with a weaker currency (as our goods become more expensive). A vacation abroad is similar to a net import. You consume something in a foreign locale paid for with US currency.

The confusion I have is your argument of "that can't be the reserve currency advantage, because it's already true", which seems to ignore the (strong?_) probability that it's already true because of being the reserve currency.

I just suspect that I shouldn't really care what the reserve currency is. If anything, it probably has minor annoyances for Americans.

I meant that vacations for people who live in non-dollar places are cheap, goods are cheap. I recall that trips from Canada cost pretty much the same as from the US, taxes notwithstanding.

The main complaint I hear about goods is VAT and import duty where applicable.

Not only is the US dollar the reserve currency but oil is also sold exclusively for US dollars by OPEC. This forces most countries to hold vast reserves of US dollars. The US benefits because they are able to print a ton of dollars which get absorbed by other countries instead of causing inflation.

This allows the US to import goods for 'free' (in exchange for printed money). This is especially true for institutions which are close to the printing presses (the gov., big gov. contractors). This is what allows the US to have such an extravagant military spending.

SFAIK, anybody who has kopecs, roubles, yuan or lira can exchange them freely and instantaneously for dollars ( albeit probably for a fee ).

Those US dollars printed that get stuffed under mattresses don't actually... exist, in a way, wrt to US monetary policy.

The military spending is the same as for everything else.

I've not been able to figure out the benefits. Stability by increasing the stakeholders in the value of the dollar? It gives people more reason to buy dollars => raises the value of dollars => and makes US exports less competitive => makes the US poorer.

Compare the sizes of real economy vs financing in US. There's your answer.

Is that an answer? What's the optimal ratio? On what does change in that ratio depend?

Effects of strong dollar and its global reserve status:

--> Americans can buy stuff / take international vacations more cheaply --> Better lifestyle

--> American corporations can use their stocks valued in dollars to takeover foreign companies/assets and expand more cheaply.

--> Power to punish enemies with financial sanctions/manipulations.

--> QE over and over again with near perfect impunity. Ability to rescue itself from certain kinds of financial crises.

#1 Very nice from the Zanzibar beach I'm sitting on, but I doubt it's a big motivator!

#2 Sounds like something significant. Do you know of a way to quantify it?

#3 As far as I know, the threat is to shut financial institutions out of the US market. I don't think the US government has much control over a dollar once it's leaves the country.

#4 The Chinese have a similar ability to print massive amounts of money without inflation. I wonder if it's a property of sufficiently large economies. The article also mentions a downside that the Fed has had to print money to keep foreign institutions afloat.

A strong dollar means they can import raw materials very cheaply, so that's how they balance out any risk of being "less competitive". And many American products compete on quality and brand recognition (see e.g Apple's iPhone) not on price.

Tragic, really, that US foreign policy is so willing to snuff out such visionary leaders.

Tragic that the US destroyed two more or less functioning nation states and left civil wars in their wake. Iraq would have been better off under Saddam, Libya under Gaddafi.

> that US foreign policy is so willing to snuff out such visionary leaders.

You're kidding, right? Economic views aside, these men were monsters who, combined, were responsible for the deaths of hundreds of thousands, if not millions of people. These were not great men. They were monsters. I'm not going to call Charles Manson "charitable" and "soft-hearted" because his social views are liberal, the guy is still a monster. That's what he is, first and foremost.

He was clearly being sardonic.

Devaluing the Yuan will not help it become a reserve currency, unless people suddenly like to lose money.

Devaluing Yuan had more subtle reason: Just recently China started to sell US Treasury bonds (they have about $2 bln of them to sell)

And if you sell bonds for yuans that causes the yuan's value to raise which hurts Chinese exporters. So, devaluating it first was a way of neutralizing that effect, protecting China's economy.

Bond sale itself was a way of putting mild pressure on US in the ongoing negotiations about making Yuan part of world's reserve system.

Devaluing the Yuan has set any hopes of it being a reserve currency back by a decade at least. It was a move of weakness and has accelerated capital outflow from China as well as causing some head scratching about the competence of party leaders, because it seems unduly drastic, unless things are worse than they seem.

What you are saying is true, but won't matter anyway, because switch from USD to SDR won't be a free market decision, it would be forced upon us once US and China agree on that.

> Just recently China started to sell US Treasury bonds (they have about $2 bln of them to sell)

China didn't just "start selling US treasury bonds". You're implying that they're offloading their bonds, they are far from it. China sold off an insignificant portion of their holdings for liquidity to bail out themselves. They were facing an economic crash and they were trying to stave it off. They needed cash to do that, hence, they sold a very specific amount of their bonds for that specific purpose.

If they sold all of their treasury bonds, it would be economic suicide because there would be so much unstableness in the global economy that every market would crash, including Chinas. They would probably fall the hardest, too.

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