The US Dollar Could Outlast the American Empire
palladiummag.com
palladiummag.com
https://www.bloomberg.com/news/features/2016-05-30/the-untol...
Any threats to the petro-dollar have been met with death and invasion like Libya and Iraq.
It seems that any new hegemon has a chance at a reserve currency if they can force their currency as the default for commodities.
China has a voracious appetite for commodities and if it pays for them in Yuan (like in Russia-China gas pipeline) this could be mean that we might be heading for a multiple reserve currency scenario globally.
Fiat currency as a reserve currency requires being a hegemon and military might. So wars are not just for taking over the resources of other countries but also in how they are priced and sold.
Also the rise of crypto and the “return” of gold could change matters as well as money supply of fiat currency continues to increase beyond economic growth.
https://eurasiantimes.com/petro-dollar-vs-petro-yuan-is-chin...
https://www.reuters.com/article/us-saudi-usa-oil-exclusive-i...
Don't know enough to evaluate possible outcomes for each step.
This relationship of liquidity with the dollar is what creates the petrodollar. People and governments hoard dollars not because of its use as a means to buy oil, but because of its use to buy literally anything that is not sold in their home currency.
Financial assets for hoarding can easily be replaced by other hoardable financial assets. Liquidity, on the other hand, can not.
This is the petrodollar hypothesis, a debunked theory of global trade.
Oil is globally traded. It can be and is priced in many currencies. Most international trade was historically priced in dollars for two reasons. The second was, until recently, the unique speed and breadth of the Fedwire system.
The first is the American consumer. When Americans buy, we spend dollars. This puts dollars in vendors’ hands. Those dollars can be reused for trade or invested, the latter supporting dollar financial markets. Both support dollar hegemony, which in turn drives its dominance in global trade and finance.
Oil is priced in dollars, and countries borrow in dollars, because dollars reign supreme. Not the other way.
Yes, the U.S. government has taken steps to bolster the U.S. dollar. Including through its Saudi relationship. But that relationship was then about securing energy supplies and is today about that and regional security.
You keep saying this[0][1], without providing any citation. What sources do you have to back up this claim?
0. https://news.ycombinator.com/item?id=22829420
1. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
Why The Petro-Dollar Is A Myth, And The Petro-Yuan Mere Fantasy https://www.forbes.com/sites/douglasbulloch/2018/04/26/the-p...
Debunking the Petrodollar Myth https://medium.com/@JSlate__/debunking-the-petrodollar-myth-...
Debunking the Dumping-the-Dollar Conspiracy https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...
There is a common dishonest conversation tactic which is to ask for a source for every single thing, and then pretend like you weren't trying to challenge the conclusion.
If you ask for a source, I am going to interpret that as you disagreeing, and then when I provide the source, I am going to attack you for being wrong.
We would have to write multi page long essays, if we provided sources for every single statement that we make, in everything. That's not feasible.
Demanding a source should entail some minor cost. IMO, that cost should be that you are now implicitly disagreeing with the conclusion, and you get to be attacked if you are proven wrong.
In fact, the reason I found out this user has stated the same thing before was because their prior comment was one of the top Google search results for "petrodollar debunked"
The petrodollar hypothesis is a misreading of a historical term. Petrodollar recycling was an American foreign policy priority in the 1970s, and it turbocharged dollar demand [1]. But its role was in supporting, not creating, dollar hegemony. Today it is no longer relevant.
At $50 a barrel, the 100 million barrels of oil traded in 2019 and expected to trade in 2021 [2], ~$1.8 trillion a year, is about what the U.S. exports and three quarters of what it imports [3]. Each of these figures pale to the $2 trillion of non-derivative international investments made by America in Q2 2020 alone [4]. (This doesn’t count the trillions more invested by foreigners with dollars.) Or the $10+ trillion of international dollar debt [5].
The exports and investments create investable, spendable overseas dollars. The imports and borrowing create dollar demand. Oil is a minority of the latter, one among many commodities.
Changes in the dollar don’t affect oil prices [6]. And billions of dollars of oil and gas are sold in non-dollar currencies [1].
[1] https://www.lynalden.com/fraying-petrodollar-system/#fraying
[2] https://www.statista.com/statistics/271823/daily-global-crud...
[3] https://www.statista.com/statistics/218255/total-value-of-us...
[4] https://www.bea.gov/news/2020/us-international-investment-po...
I think you took two steps. It wasn’t because of the dollar - it was because of the us military. At the end of WWII, there was not real alternative except the British pound, but they couldn’t back it up with military might.
Adding to the leverage was the gift of a DC3 to The Saudi King, whereas the Brits gifted a Rolls Royce. The King liked to fly and could sit in either seat. In the Rolls, he wanted to ride up front, but would have to sit at the unclean hand of the driver.
Sorry to nitpick your nitpick, but these things were more important (and somewhat causal) to a strong dollar.
Totally agree. That is the origin of the supremacy.
The U.S. was the only advanced economy with infrastructure intact. That led to the Bretton Woods system, which lay the ground for the post-BW order.
Oil came after all that.
Having a bunch of CNY is kind of useless if you can't freely exchange it with the country in question, and the one benefit above all else is that the US hasn't had any sort of strong capital controls in modern history that might result in a dollar crunch.
(It may also be a colossal economic collapse when China lets the floodgates open, since inflated Chinese property values being the majority of domestic household investment are a symptom of the capital controls, and the ensuing rush may cause both a collapse in those values and asset inflation elsewhere.)
The problem is that currency markets are ruthless, and past crises with other currencies shown that it is unclear what kind of opening can and cannot be clamped down on. Opening up something innocuous may end up inadvertently creating a large crack. And the Chinese market is so large that even a trickle in releasing Chinese capital controls can be a deluge in other smaller markets.
On the one hand China is not shy about reestablishing capital controls if need be, on the other hand using that as a tool makes CNY undesirable as a reserve currency.
While this makes total sense the fundamental problem with this is a consensus mechanism to control liquidity in a localized crisis. If you have one currency it’s easier for that country to make a decision rather than convince all the other countries.
* https://www.worldcat.org/oclc/748390958
* https://www.penguin.co.uk/books/133/133183/the-last-lingua-f...
* https://www.theguardian.com/books/2010/dec/04/last-lingua-fr...
The Romans spoke (Koine) Greek even though they had the empire at the time and Alexander the Great was long-dead.
The Austro-Hungarian Empire hasn't been a thing for over a hundred years now, but their coinage is still circulating.
You say this as if silver has "intrinsic" value. It (and gold) have no intrinsic value to humans I would argue, and are simply assigned arbitrary psychological value. They could have industrial or even aesthetic uses, but those are culturally defined and not something innate to the material.
IMHO the only things with "intrinsic" value for humans are air, shelter (especially against 'extreme' temperatures), water, and food.
The value of the dollar derives from the might of the American government and the productivity of its economy. A silver coin is worth its weight in silver even if the government and economy that issued it long stopped existing. The dollar is worthless without the American government and American economy backing it.
Assuming the culture you are in has the means to reach those temperatures. A silver coin may be no more than a shiny trinket to those cultures that do not have that (level of) technology.
(I am reminded of the Coca-Cola bottle in the movie The Gods Must Be Crazy.)
> The dollar is worthless without the American government and American economy backing it.
Experience with past currencies suggests the use of coinage can outlive the original creator, and even for completely different purposes (in the case of physical objects):
Silver has a slightly lower melting point than copper, so any culture that has reached a bronze age level of knowledge can handle it (or even just one with half decent pottery kilns).
The first really good British coins, with totally uniform diameter, thickness, and design, milled edges, and so on, were made by (once again) Isaac Newton. There had been coins of a sort for well over a thousand years by then, but they basically sucked. They were essentially raw lumps of metal that had a design hand-hammered into them.
They looked more like a bad sealing wax impression than anything we'd recognize as a coin today. Identifying a good coin was difficult.
Now I hand him a stack of papers with numbers printed on them. The goat breeder has no use for these papers, but he also had no use for the gold. He'd need to trade them for something. Let's run it all back up the same line and we see it doesn't end at "and now the smelter has something useful" because paper isn't useful to the smelter either... but running the paper through that chain of merchants has proven that there's value attached to the paper. The smelter then recognizes the value of the paper and trades the paper to the miners who supply the metal, because the traders who supply the metal want to buy some goat milk from me and they know I accept this weird paper in exchange for my goat's milk.
That's how currency has worked since the beginning of civilization. Ancient people weren't melting down coins to make something more valuable, they were trading the coins as-is without a worry about how useful the raw materials are. They just needed something anything that everyone agreed had a certain amount of value to it that's also difficult to fake. Gold has no intrinsic value for 90% of all humans on the planet, it's just a way to exchange goods and services based on an arbitrary-but-universally-recognized token.
I’d assume it’s more work to dig up and purify gold ore than make linen paper. Wouldn’t this mean some currencies are inherently more stable?
Gold and silver works great for newer and less technologically advanced civilizations, because it's easier to smelt metal than print new US Dollars on speciality linen paper. It would be easier to lose the ability to smelt metal and then later regain that ability than it is to lose the ability to print USD and try to regain it. But once you reach a certain level of technological sophistication, minting fake gold coins becomes easier than printing new USD and people start to trust the currency less.
So I guess yes, precious metals would be easier to rebuild civilization with because it could be more easily reproduced as technology advances. But no matter what I think every civilization would abandon precious metals as they progressed, because counterfeiting becomes very easy very quickly.
But you have to buy them. You can't buy things with them.
You might be able to barter, if you can find someone who has what you want, and also happens to need some 6 9's pure gallium indium phosphide or whatever.
However, the guy at the corner liquor store is unlikely to give you a bottle of whiskey in exchange for it.
Which may be essentially nothing.
Native Americans (e.g., the Aztecs) liked gold because it was pretty, but did not use it as any kind of medium of exchange. By all accounts they were quite puzzled by the obsession the Spaniards had for it.
Silver and gold are useful as money because they are scarce, durable, and recognizable.
I think you'd find that producing convincing imitation U.S. bank notes or even coins is considerably more difficult than you're imagining, especially in a global collapse scenario.
No, actually. The dollar is really quite different than gold or silver.
This is because even after the "american empire" falls, there would still absolutely be people with the ability to replicate dollars very easily, and who would also be willing to do so.
That entity would be whoever owns those US dollar printing presses that are printing the dollars right now.
If the US is in a state of collapse, but people are apparently still accepting US dollars in payment, then there would be a strong incentive for who ever controls those already existing printing presses, to produce more green pieces of paper, and exchange them for goods and services.
The same is not true for good and silver.
Except that most "dollars", or any currency for that matter, are not physical but rather digital values in a computer some place.
The modern "printing press" is a computer located at the central bank of the currency in question (Fed, ECB, etc).
(Technically most money is actually created by private banks through loans and entries in banks' ledgers.)
Ok, that further supports my point then.
If the US is in "collapse" then the people who control that currency will still have a large incentive to digitally "print" more dollars.
Whereas they couldn't similarly print physical gold in the same way.
Note that government-level entities which happen to be enemies of the United States already have a strong incentive to do this, and they've pretty much universally failed. The press is the easy part. The special watermarked paper, the color-shifting ink, the security threads... all of that requires a functioning industrial infrastructure, dispersed over a large geographic region. And that's exactly what would not be available.
If the U.S. goes down, the whole world goes down with it.
Now I'm not an economist, but wasn't the dollar originally Spanish? Perhaps the current US dollar would diminish to nill value, but there's no reason why any future evolution or alternative dollar wouldn't be able to survive without the government or bank that minted it.
Fiat currency has value derived from the faith in the government printing it. Gold has a derivative value in the faith that it will be accepted as a default currency, but also an intrinsic component borne of the relative scarcity as well as material properties having some use.
I may not understand what you’re specifically asking. Intrinsic value is fairly straightforward. A company may have some amount of material worth (machines, intellectual property etc.). The balance of that equity minus their debt is the intrinsic value. After selling all that property and paying off the debt whatever left is the intrinsic value. Similarly, melting down a metal and selling it as a commodity gives the intrinsic value of a currency. A borderline intrinsic value would be a currency that has very little commodity value when divorced from its derivative value (e.g., the paper stock has only a limited marginal value and essential no intrinsic value). Some commodities get most of their worth from intrinsic value (milk, pork-bellies get value from the fact the are food) where fiat currencies has disproportionate derivative value.
The Roman Catholic Church no doubt had a lot to do with that, thanks it its near-monopoly on education, but even after the Reformation scholars continued to use Latin for a very long time.
Isaac Newton wrote some of his works (e.g. the Principia) in Latin, but others (e.g., Opticks) in English. Leibniz wrote some works in Latin, and some in French. Their time may represent a transitional period.
Latin was routinely taught in British schools, and other British-influenced schools with pretensions to being "good schools", well into the 19th Century.
And also I have heard that there was considerable amounts of literature being produced in Latin even into the 18th and 19th centuries, so much for being a dead language, if new serious literature is being produced in it even 1000s of years after its heyday.
May be it is true for Classical Greek as well. The famous orthodox hymn Agni Parthene was written only in the late 19th century.
And even into the 21st Century.
My English secondary school (a Grammar school that I joined in 1972) had two years of compulsory Latin in its first and second year (approx ages 11 to 13). Students who wanted to follow a classics curriculum could continue for O and A levels, and many picked up ancient Greek as well. Latin is still on their curriculum. At the time Latin and Greek were essential prerequisites for some courses taught at Oxford and Cambridge Universities, e.g. 'Greats' at Oxford [0]. which has produced several British prime ministers, including the current one.
I abandoned Latin at the end of my second year. The main benefit of studying it that I realised in later years was that Latin introduced me to elements of language (e.g. a load of different tenses) that took a lot longer to reach in other languages. So it was useful, even if I never had to speak or read it afterwards.
[Edit] Added 'Greats'.
But since I really didn't put any motivation into it, even with "help" I was having terrible grades :)
English became lingua franca after ww2, when the US became the cultural, economic and military center of the world. It was the US that made english the dominant language, not britain.
The decades preceding ww2, the dominant language for science was german, the dominant language for culture was french and the dominant language for commerce was american english as the US economy was the greatest economy in the world - larger than the entire economy of the british empire.
Given how gigantic the british empire was, its language really wasn't as important or viewed as important. Even at the height of the british empire, well into the 20th century, the british royalty/elites communicated with russian/european royalty/elites in french. I remember reading that the most popular foreign languages in europe were german, french, latin, greek, etc for much of the 20th century. British english was an afterthought. I suspect now it's different due to america's influence post-ww2 and of course that great american invention - the internet.
Afaik, English as lingua franca mostly came frome hollywood. Hence anglicanization could only seriously start after most people got TVs.
WW2 created tons of goodwill towards the USA, so nobody really tried to stop it.
It can't. The world doesn't work long term with 25% yearly inflation.
All the reasons written in the article are ,,USD is the biggest currency, so it will remain the biggest forever''.
Historically currencies were swinging between store of value and medium of exchange (gold can't be transferred digitally, USD can). It seems like Bitcoin is a great balance between the two.
An increase in supply of the US dollar, may just be due to the increased demand for the currency, as well as increases in the availability/demand for goods and services (e.g., reduction in scarcity).
If you own a 1% of world, and productivity of the world doubles, the productivity of what you own doubles.
Here’s an article from the fed about inflation and the velocity of money: https://www.stlouisfed.org/on-the-economy/2014/september/wha...
How can anyone be so oblivious to it?
Inflation has been "stubbornly low" for a decade, and yet assets have had quite the bull market.
The rate of inflation seems to have diverged between consumer goods and assets (like stocks and real estate).
Rewarding hodl is a negative feature for a currency!
Right now central banks are printing money and giving it to already insanely rich people, how does that help economic growth and quality of life?
At least bitcoin will be a little more democratic so that it will grow the economy better than current fiat system.
Normally best system would be a nationalised central bank that is actively trying to increase quality of life of citizens but as you can see we are not living in an ideal world.
Because money doesn't get thrown in a vault somewhere; it gets spent on goods and services.
Compete for what? Market as a store of value? It doesn't, by design. For use as a currency? By being actively managed for relatively stable value, which is more important than available quantity.
This is what surprised me the most at first about the September ‘01 attacks: I was certain that no state would try to attack NYC as that would disrupt their own financial system.
Of course the attack was by a non-state actor who was deliberately trying to attack the financial system of Saudi Arabia (plus recruit followers by publicly “striking back against Rome”). It also showed their non-state naïveté by attacking a grandly-named office building rather than an actual organ of world trade (e.g. the CBOT).
After Afghanistan (and perhaps before, I don't know), Osama Bin Laden's objective was the overthrow of the Saudi monarchy -- despite (or because?) he was part of a large, wealthy family in the upper echelons of Saudi society. This is very clear in his writings and videos, and in particular the ones just before and on the subject of the 2001 attacks. As he became a worldwide figure he broadened his scope (PR is everything, amirite?) but could never let go of the "venomous" house of Saud.
It's not like there was a conspiracy to cover up his blathering -- understandably a lot of the English published in the USA focused on the attack on the US and then on the wider "jihad" topic that was important to the government and overall was more important to Americans. It would be surprising if that had not been the case.
But academic work, and translations in other countries (Western Europe, Indonesia, likely other places whose translations I could not read), were more comprehensive, presumably as the direct risks seemed less acute than they were felt by the government and general public in the USA.
Certainly if the economics work out then why not. How could it be bad? But I cant help but feel there is something so perverse about such a system. What ultimately feels like encouragement to consume and rack up debt to detriment to others.
I don’t claim to understand the forces behind the economics of this at all but my intuition tells me the pandemic has created more cracks to such a system.
More recently I've heard a lot of talk of central banks starting to use a global currency based on SDRs, a sort of digital SDR coin... scary shit.
The only thing holding the fiat system together are the elite's willingness to hold onto it in spite of the fact that it is worth nothing to them (particularly in our risk-free bailout-driven economy). The elites only hold fiat to create artificial scarcity; to create an anti-competitive moat around all their existing businesses.
At this stage, from a capitalist point of view, the elites who hold fiat are doing charity work at a loss to themselves... It's a purely idealistic pursuit which is not grounded in their own self-interest. The ideological basis of this charity work is dubious and in the end, the real capitalists will throw their cronies under the bus for profit.
The artificial fiat manipulation that we're seeing now is setting the stage for a massive wealth transfer. The incentives for betrayal between members of the elite keep getting bigger now that their freedoms are at stake.
Share and bond wealth relies on the existence of a functional government who is willing to honour your property rights.
The fact you nominally own 25% of Amazon.com means very little if the server farms have been cut off, the employees have abandoned their posts and the warehouses have been ransacked and plundered
What is the wealth transfer?
1. US rate cuts during crises and deficit spending is necessary for the global financial system. If the US responded otherwise, it would have been dethroned.
the Fed's response to both the global financial crisis and coronavirus crash further entrench the US as the global reserve currency precisely because the "American Empire" exists. Allow me to elaborate. During the GFC, the US became the de facto central bank of the world thanks to Bernanke's liquidity swaps with other central banks. There a great video of him responding to a congress person about this. [0] Remember, since the USD is the global reserve currency, all debt is denominated in dollars, so it's necessary for the survival of the entire system for the primary supplier of USD to relax its policies and ensure devaluation so that other countries don't suffocate from a dollar shortage.
The coronavirus crash entrenched the US's role as the global central bank even further since their response was swift and immediate. Dollar swap lines appeared in weeks rather than years and months, and we did not see a global financial collapse as we did in 2008. This liquidity event was just a blip.
2. Debt to GDP is a nonsense metric in this environment. Everyone has massive deficits.
The US is at 100%. Let's look at the other countries.
Debt to GDP in Japan is 240%. We have EU countries Greece at 174% and Italy at 133% other EUs like France, Belgium and Spain near 100%, Germany at 56%, and the more frugal countries operating at 30-40% debt to GDP. UK is at 85%. Sure China is at 50%, but it has a lot of other problems.
3. Interest rates are negative almost everywhere else.
Every country I mentioned in 2 has negative interest rates save China. This will buoy dollar demand over the long run.
4. Other viable alternatives have unstable and untrustworthy government regimes.
Let's take China as an example. Do you trust an authoritarian government who has not demonstrated willingness or ability to do 1 to take over as the central bank for the globe? This is a country who has also manipulated its currency in the past.
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Remember fiat currency has power through enforcement and governance. Power in this regime comes from the ability to govern a currency well. Bitcoin will never be a global reserve currency precisely because its supply is restricted and cannot be manipulated to give governments the flexibility to respond to crises. Bretton-Woods collapsed for the same reason. For as long as the US is in good relative standing to other trusted fiat currencies, it will remain the global reserve currency. Over time I could see a system where different currencies dominate different geographies thereby chipping away at US hegemony, but if the American Empire were ever to collapse, the dollar would be a fiat currency with a power vacuum. Who's going to print them dollars?
So I believe in technology evolvement and use crypto currencies which solve both problems.
If you believed distributed databases would replace centralized databases, why wouldn’t you believe distributed money would replace centralized money?