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Comment by rossdavidh | Hacker News Reader

Maybe more interesting is that the Euro is also down vs. the British pound and even the Japanese yen. It's true the US dollar is appreciating against almost every other currency, but the euro is down even against the Swiss Franc, presumably also impacted by the war in eastern Europe and its threat to grain and energy imports.

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Yeah it's not just the USD being strong but also the Euro being weak. Main reasons:

- the EU currently has a trade deficit. This is the first time ever. Reason is the energy crisis due to sanctions against Russia: energy prices have skyrocketed and EU is importing loads of energy

- the ECB has been printing money like crazy in the last 14 years. So far this money had been absorbed mostly by banks but slowly but surely it is starting to trickle into the real economy. Recently the ECB has finally increased interest rates and stopped buying Southern European bonds, however they had to start up their bond buying program again because Southern European government bond interest rates went up dangerously fast. This has undermined the belief that the ECB will be able to effectively battle inflation

> Recently the ECB has finally increased interest rates

Did they? I thought they agreed (or iterated) that a rate increase is almost certain. But the increase itself is yet to happen (and it's not clear they are going to increase it by how much)

Mm you're right, ECB agreed to increase rates but the actual increase will happen only on July 21st.

> the ECB has been printing money like crazy in the last 14 years. So far this money had been absorbed mostly by banks but slowly but surely it is starting to trickle into the real economy.

This is wrong, none of the money the ECB "prints" goes out into the real economy (see [1] e.g.).

[1] https://themacrocompass.substack.com/p/tmc-6-all-they-told-y...

It definitely does go into the real economy. They mostly use the new money to buy government bonds, and governments end up spending it (mostly) on people, who then spend it on things. The article you cited is just an explanation of the (long, complicated) technical process by which this happens. The claim money printing doesn't cause inflation is mainly backed by the claim that most Americans used the money "printed" and given to them by the USG to pay off debts, thus destroying money again. But it doesn't really destroy money if you're printing money and then using it to pay off debts. It just devalues the debt itself, because the total money supply has still increased, so the repayments are worth less than the lender expected.

You can't use central bank reserves to buy government bonds! They're not legal tender.

You can't own central bank reserves at all, but all banks accept them for money transfers from other banks. That's how money transfers between banks work and being able to do that is why you have a bank account at all. Paying for things this way is as money as it gets.

Yes, central banks buy government bonds from commercial banks but that is irrelevant. The commercial banks effectively act as pass-throughs. They buy government bonds knowing that they'll immediately offload them to the central bank. The way money printing works in the modern economy is much more complicated than it used to be, but it boils down to the same thing with the same problems.

Until recently the Swiss National Bank was mostly concerned with pushing the franc down, they had the lowest rates in Europe (and after the recent raise they're still negative at -0.25%), after many years of this they've accumulated over a trillion USD in foreign reserves. Trading in the other direction and keeping CHF up should be fairly easy for them.

The main issue is that the ECB will be unable to raise rates sufficiently to combat inflation because some EU member states will be in a lot of trouble.

Yeah, the EU also has a strong trade relationship with China - which was slammed by lockdowns. They've been smacked around from all sides.

Hopefully this is going to be a wake up call but probably not. The US economy is much more robust, USD is the reserve currency and it also doesn't help that capital is fleeing to the US.

It's not like that's a particular problem for Europe though. The US imports more from China than from any other country, and about the same as it imports from the entire Euro zone.

It's a problem specifically because of dependence on Russian gas, let alone Chinese imports.

Every country is dependent on everyone else at this point. We're all in it together. We do need to be smart about it though. We've been particularly dumb about Russia ever since 2014, that's crystal clear now.

I think relying on (taking advantage of?) cheap Russian gas is only a mistake if you also think that giving Russia a pass over annexing Crimea was acceptable. In reality choosing to do both was a catastrophic error. You can make deals with your enemies (and both Russia and China as oppressive expansionist autocracies are choosing to be our enemies), as long as you make it clear where your boundaries are. We didn't do that clearly enough with Russia, and cannot afford to make the same mistake with China.

Yep, all on it together. But governments in China and Russia don’t have to care about their populations’ wellbeing. They can do bad things and then violently repress dissent.

Western democracies can do that only to a very limited degree. That’s why economic interdependence doesn’t work with autocracies.

There are multiple reserve currencies, USD is not alone in being one.

The Euro is down a few percent on the pound, but GBP:EUR has been overall stable +- 5% since about 2016. In 2016, it was roughly 2:1 for GBP to Dollar, and 1.4:1 for the euro, but the pound lost a lot of value after that.

Edit — sorry, misread the graph scale there. At any rate, the euro has been more stable against the pound in the last few years than either of them have been against the dollar.

The pound hasn't been 2:1 with the dollar since circa 2008. That was the high pre financial crisis. It mostly traded between 1.50-1.60 from then till 2016.

important to note that GBP has had a 5-year high this year

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