This has nothing to do with USD dominance as many are suggesting. Ghana is running out of USD reserves and has to resort to buying with gold. Nothing suggests they wouldn’t use USD if they had it.
Now true, having your product be a hot commodity everybody wants is good for business but there’s only so much of that before your competitor starts offering a more readily available product.
Pepper that with some morally objectionable stances the US has taken over the past 22 years and suddenly your ultra safe and liquid commodity while still good and desirable for this present crisis might not be as desirable for the post crisis era. Where one crack starts many others can possibly form.
edit: not sure why I'm being downvoted for asking a relevant question
The main issue is that the global supply chain cannot literally serve richer American consumers, so the cost of supply increases and everyone (in the US and out) faces inflation pressure.
Correction: foreign central banks guided by IMF subsidiaries loved it dearly, people - not that much, perhaps the opposite [1]
Don't watch the score and, especially, don't complain about it.
I inquired why I was being downvoted for asking a question. I was genuinely curious about how that was bad.
Yes it may be bad form to mention your own score, but it's equally bad form to downvote for asking a question, or read into a question something that wasn't said which may require a down vote.
Why don't you take the time to answer the parents question rather than downvote them for querying why their question got downvotes?
If there's anywhere that appreciates the gaining of knowledge on the internet, surely hn must be one of the top candidates. So why downvote questions? And yes it's happened to me multiple times, and it's bloody annoying. Doubly so because you know if you try to clarify you'll get someone downvoting you because why? I don't know. Because that would be 'bad form'? BS.
/Rant
I want intelligent questions and answers and a basic respect for learning and knowledge.
To me it just shouldn't be acceptable to downvote a (non rhetorical) question.
Spoiler - we didn’t print nearly as much as you think we did. And we generally haven’t even scratched the surface of how much more a normal growth of the currency since 2008 was needed.
The question that needs to be asked is more political and societal than monetary. Does the US want to lead the world by resuming at marketing a more true and secular beacon of hope and freedom or does it want to become isolationist and toe the line of each dog to its own. If we choose the former the question than arises if that’s even still possible and if we ever were true to it or were we just lucky enough to enjoy the arbitrage of developing countries not having developed yet.
I personally don’t have all the answers but it seems to me that combined with our questionable moral standing in the last 22 years and our secular stagnation the latter is the path we’re choosing to follow.
Spoiler - we didn’t print nearly as much as you think we did. And we generally haven’t even scratched the surface of how much more a normal growth of the currency since 2008 was needed.
If by “normal” you mean debasing and destroying the government money just like every empire before, sure.
Often cited and incorrect metric. The fed changed how the count M2 I believe because they started paying interest on reserves during their response to the COVID crisis. Either way the chart often cited showing an increase in M2 is not telling the whole story, namely that not nearly enough USD has been “printed” to satisfy world hunger and needs. (Think, if dollar was a plenty then why is DXY at the close to the second highest in history. Demand outpaces supply.)
You can Google it. Have fun! While you’re at it also Google Triffin Paradox. Read about trade deficits as they relate to a country who’s currency is a global reserve currency.
US has around 1 trillion USD trade deficit every year, that money needs to come from somewhere and GDP seems to go up every year.
US also has budget deficit of around 1-1.4 trillion USD per year. So US is also printing 1.4 trillion to finance the budget.
So we are at around -2 trillion USD every year with debt of around 130% GDP.
Seems like the rest of the world is financing that debt? Or how does it work?
Triffin explains the trade deficit perfectly. I’ll quote from Wikipedia:
“…that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfil world demand for these foreign exchange reserves, leading to a trade deficit.”
We basically have to keep feeding the world with dollars. Or at least collateral that can be trusted to be turned into dollars so that banks around the world can create those dollars. How? Create more government debt.
The part about debt to GDP growth is I think exactly that problem of balancing your domestic short term needs vs the long term needs of the currency on a global scale.
When the world is starved for dollars and the dollar becomes stronger this isn’t a measure of US economic strength it’s a measure of how much the system is choked. Less dollars to go around less global trade is able to function less goods and services produced all around.
In a globalized system if one country isn’t able to produce as much (think China), the effects ripple to all countries like dominos. Causing secondary and tertiary effects further down the chain.
You do realize that it's not actually just printed and given to people right? The fed buys government bonds, the people through taxes pay the interests on this loaned printed money.
So, the money is printed and loaned to the government, the government uses this printed money to make the rich richer (supporting big companies so the economy doesn't crash, through Blackrock who gets to decide who gets what based on ..weird values), inflation is a tax on the people already, and they're the ones paying back that loan, and the poor countries get poorer because their dollar reserves aren't enough to buy things from the US and other countries who trade in USD.
So thinking QE on that scale is good is either being a contrarian for the sake of ego or believing everything you hear on CNBC.
That doesn't make sense - just take some gold, and buy USD. Is there some physical shortage of paper or something?
But even if there was a shortage, I doubt that on a country level USD (or any currency, for that matter) is bought in physical form - it’s just credited to the country’s bank account.
Linen comes from the flax plant and cotton comes from the cotton plant.
Linen versus cotton have a great history. Linen was used on WW1 era airplanes as outer skins because it didn’t run like cotton canvas when the material was shot through.
I was under the impression that you can buy dollars much easier than oil.
But using the gold for currency does sound like it could be more efficient, cutting out the middleman.
Note: normally countries maitain a float of foreign reserves for this, and I'm guessing this stash of economic lubrication has run a business dry for Ghana and they don't have the luxury of rebuilding their reserves, and hoping to use gold as a more immediate solution.
The reason for that is post 2008 banks have become much more risk averse (seeing what happened to Lehman et al) and they are mostly the conduit through which broad currency is generated. That mechanism is mostly broken unless you’re an ultra rich company like Apple or Google.
So today to make a bank create USD for you you’d be required to have the best of the best collateral namely sovereign bonds. As it stands the US hasn’t taken even close to enough debt and thus issued Treasuries to even come close to the shortage in dollars that banks’ risk aversion has created since 2008.
Over the last 15 years, USD has increased in value against the Ghanaian Cedi by almost 16x. If we're trying to destroy confidence in USD, then Ghana sure makes it seem like we're doing an awful job.
https://www.google.com/search?q=1+USD+to+GHS&oq=1+USD+to+GHS
However, look at the US dollar over longer durations against wheat [1], copper [2], gold[3], or Bitcoin [4]: the dollar buys significantly less than 10, 15, 40, or 100 years ago.
While the Cedi may be much weaker against the dollar, the dollar is loosing against real commodities/assets that can't simply be created by banker's fiat.
So, the dollar's the cleanest dirty shirt in the room. And Ghana just announced that they'd rather trade oil for a clean shirt (gold) rather than taking a dirty one.
[1] https://www.macrotrends.net/2534/wheat-prices-historical-cha...
[2] https://www.macrotrends.net/1476/copper-prices-historical-ch...
[3] https://goldprice.org/gold-price-charts/15-year-gold-price-h... / For 100 year chart, https://www.macrotrends.net/1333/historical-gold-prices-100-...
[4] https://www.xe.com/currencycharts/?from=USD&to=BTC&view=10Y
My intention is to justify inflation from this end.
If you have gold but can’t get your hands on USD then something is very wrong, but I doubt that is the case.
Something I have been shouting hoarse is that this war in Ukraine is going to have multi-generational effect on world order with USD coming under US pressure.
If Saudi drops USD, which now seems extremely unlikely, then it's truly a descent for the US empire.
USD in oil is barely $3T per year
Nothing external will ever pressure USD without the United States having collapsed first.
Not completely true. The current crisis is driven by foreign buyers not being enthusiastic about buying more US debt. The current inflation crisis is directly related to the large amount of price support for US debt provided by the US Fed in 2020-21.
US govt is essentially holding foreign creditors hostage. If you try to move away from US debt, they will just print more dollars and devalue all your (and everyone else's) assets. So the non-Western world (90% of humans) very strongly wants to dedollarize as smoothly as possible. US debt is extremely toxic, which isn't an obvious fact if you look at the surface only.
That is largely irrelevant. As the world's reserve currency, the Federal Reserve could buy up Treasuries as needed. The domestic inflation problem is another matter.
Then USD is no longer the global reserve currency.
Is it? Why do you think so?
I’d say it’s the safest asset in the world. Sure, if you buy a 10y US bond you risk having some of the value eaten by inflation. But that’s a relatively “soft” risk in that hyperinflation is unlikely. Default I think is extremely unlikely.
The USD has never been stronger and FX volume for USD is increasing.
There is a whole lot of money moving around via forex transactions, but that doesn’t control the value of the dollar.
This does not mean that the $5T per day of FX outweighs the actual commerce in determining the value of the dollar.
(I’m not interested in the “lack of understanding” game.)
Similarly, the INR is being (slightly) liberalized, not because Indians prefer international trade in their local currency but because it costs them so much to have such a bad currency.
There are reasons to think people would prefer a different currency to USD to be the reserve currency but it’s because it’s not liberal enough. Switching to extremely repressive currency regimes like the yuan or the rupee is counterproductive To the people who want a different international trade currency.
What part of this narrative makes sense to you?
China has some of the strictest currency controls in the world. To the point if you are doing treasury operations for an international business there you can’t use your normal financial rails to accomplish day to day tasks like manage payroll.
No one, including Chinese citizens, want to keep their cash there. For corporations this manifests in added costs, but for individuals (with even moderate means) it becomes a game of hide the assets. So much so that cities in the west are dealing with asset inflation specifically attached to Chinese buyers.
China doesn’t have a problem with western citizens over paying for property there.
Until a currency liberalizes it can’t become a reserve currency for international trade. So for the yuan we have 2 choices, it liberalizes (and perhaps tanks their leadership) or it stays second class. The current Chinese leadership believes the former is worse than the latter.
I don't believe that's whats happening though.
The idea that Russia is holding a gun to china's head just doesn't make sense. Russia and China are part of the BRICS economic treaty, and this treaties main purpose is to see the dollar dethroned. I live in China FWIW and I don't see any of what you describe
I 100% believe that the BRICS signatories want to see the dollar dethroned. I’m not even stating an opinion on whether it should be or not. My position is simple, illiberal currencies are not a viable alternative for international trade. A prerequisite for the yuan taking over as reserve currency is it becoming more liberal. That’s not currently the trend.
And fwiw I’ve been both a fx trader and worked in treasury operations for an international. I’ve dealt specifically with moving yuan.
Pretty sure one of the above will happen over the next few years
You are absolutely right, because it is the other way around. China doesn't want to have problem with US and EU for dealing with Russia in USD or EUR, so it demands Russia to trade in yuans. Russia is therefore forced to sell its' oil and gas for yuans for the price set by China. The only leverage out of that situation is to trade with India and Turkey in rupees and liras, but India and Turkey can't offer lots of goods only China can.
Huh. Checks forex rates. Not worthless, USD/RUB went from 100 to 60. It's worth 167% what it was before Feb 2022. How do you explain that?
So many people forget that the value of a currency derives from considerations of supply and demand. When Russia said it demands to be paid in Rubles for some commodities, then this created a demand for Rubles. You may not like the demand, but it is a real demand.
A net exporting nation is not going to have a worthless currency, rather it will be able to control the value of its currency by either insisting that a portion of its exports be bought with its own currency, or -- equivalently -- allowing its exports to be bought with a tradeable currency and then selling that for rubles.
So the strength or weakness of the currency is going to be decided by the net export situation, and as Russia's trade surplus is much higher in 2022 than in 2021, earning roughly $330B in energy exports in 2022, a roughly ~40% increase from last year, it's currency is going to appreciate unless Russia takes steps to devalue it. And that's just energy. Russia is also a major global supplier of fertilizer, wheat, diamonds, gold, titanium, etc. That's what makes the ruble valuable, not what you think of Russia's geopolitical strategy. Currency markets don't reflect the moral value of a nation, they don't reflect their foreign policy, they reflect the net supply and demand for the nation's production. The world is hungry for oil, gas, coal, wheat, fertilizer, wood, titanium, potassium, gold, and diamonds. It is the value of these commodities that gives the Ruble its value.
In terms of China, Russia runs large trade surpluses against China because it is a major energy and food supplier to China. It has therefore accumulated a large amount of CNY reserves, just as the record of all those surpluses. It makes sense that it would use some of these reserves to purchase output from CNY or other countries willing to be paid in CNY. That use of foreign reserves does not mean that the Ruble is worthless, it means that Russia is spending some of its foreign reserves. Nothing particularly special going on here - China is more than eager to sell goods to Russia to reduce its trade deficit with that country.
Russia is now mulling issuing yuan denominated bonds. As if they were a client state of China. That’s not because their economy is strong. Their trade surpluses are largely because their imports have collapsed.
The ruble/yuan pair is quite simply China taking advantage of a Russian economy that is teetering. Extrapolating out anything beyond that about global reserve currencies is folly.
[edit] went looking for detailed trade data for Russia and it turns out it’s no longer published by the Russian authorities https://www.reuters.com/article/ukraine-crisis-russia-import...
I am sorry for sounding like a jerk, but you don't understand the current situation in Russia. Country is under heavy sanctions and they are mountaining more and more every month. A good chunk of sovereign reserves are just frozen. Country is net exporting not because it has that much goods to offer, but because it cannot import anything. Yuans and rupees (and YTL) are spent immediately to buy anything from China or India or Turkey. "Anything" like on anything not on US/EU blacklist, because of course China, India and Turkey are more interested in avoiding secondary sanctions than profit from trade with official terrorist-state.
Also rubles don't have to be exchanged for USD, you can use that to buy Russian gas, oil, arms, nuclear, wheat etc
I mean, you must live in the U.S., which explains why you think your experience generalizes to the whole world and why you think if something is unavailable in the U.S., then it must be unavailable in the whole world.
But for other readers, consider for a moment that there is a world outside of Europe and North America. Consider for another moment that the vast majority of the planet lives in that world -- the world where Russia isn't being sanctioned, where you can purchase Russian output and sell goods to Russia, and demand for Rubles is high because even in the poorest nation on earth, they still need to buy oil, wheat, and fertilizer. They may not be importing a lot of iPhones, but Russian output they will import. This is why despite the sanctions imposed by a small minority of nations, the majority of nations is still purchasing Russian output, which is why Russia exported more to the rest of the World in 2022 than what was purchased in total in 2021. Shocking, I know.
In terms of how you trade fiat currencies, you need to keep in mind that fiat is non-convertible and therefore doesn't leave its own banking system.
All dollars are held in the U.S. system, and for a foreigner in, say, Brazil, to buy dollars, they become a depositor of a bank in Brazil which has a relationship with a bank in the U.S. that is a correspondent bank for the Brazilian bank. The Brazilian bank is a depositor in that U.S. bank, and the U.S. bank buys the dollars and holds them in an account assigned to the Brazilian bank, but which actually exists in the US system. Then the Brazilian bank creates a matching entry in the Brazilian system and assigns ownership of that corresponding account to you. But the dollars stay in the U.S. (here I am ignoring paper money, which can travel, but isn't important for forex rates.). When you decide to sell the dollars, the clearance happens in the U.S., someone else -- either a foreigner with a correspondent bank or a local with a direct domestic bank -- has the money transferred from the correspondent account to their account.
So to buy pounds, you need an account with a bank that has a correspondent account in England, and has reserves in the Bank of England. The pounds never leave England. That is how you buy pounds.
To buy Rubles, you need an account with a bank that has a correspondent account in Russia, and stores reserves with the Russian central bank. The largest correspondent bank is Sberbank. I am sorry that your local bank doesn't have a correspondent relationship with a Moscow bank, but there are plenty of other banks that do outside of that walled garden. This is how Japan and China buy oil and gas from Russia, for example.
So that is how you -- or rather, someone who has escaped the walls of the garden -- can own foreign fiat currencies. In terms of how you trade them, well, dollars are traded in US exchanges, CNY is traded in Chinese exchanges (there is a parallel currency for Hong Kong traded in HK exchanges) and rubles are traded in Russian exchanges. I understand you think the US exchanges are the entire world of forex exchange - perhaps you think they are the entire world of investment -- and that only a black void exists outside of that, but really there are currency exchanges all over the world. The forex rate I cited was from Moex (which is the largest), the Moscow exchange. The volume of forex transactions in Moex is about 18 Trillion rubles a month. After the Western sanctions, there was a decline in volume of about 30% as the Western customers exited the exchange, severing their correspondent relationship, so it would be about 25 Trillion forex transactions per month before the sanctions. Nations outside the West -- primarily in Asia -- account for that remaining 70% of Moex flow, 18 Trillion rubles a month is plenty of flow to support a net trade surplus of 330 Billion a year.
On the contrary, I live in Serbia, but 45 years before that I lived in Russia and USSR. So I have a first hand experience with currrent Russia's situation and all the events led it here.
For now, you either cannot have an account on Russian exchange if you are non-resident, or even if you do - you just cannot do any trade. If you have an account with the bank which has connection to sanctioned Russian banks - you will be presented with the rate far different than that you see on Forex. And you have to trade not USD or EUR or other credible currency, but in yuan, which is cursed by CCP (even Chinese people don't want to keep their savings in yuan) or, even better, turkish lira, which is cursed by Erdogan and has tremendous inflation of 10-15% per year for last 5 years. Good luck exctracting you arbitraged value from those.
I also see a visible volume of rupee/ruble on MICEX, but I don't think the rupee is a viable alternative to yuan or TRY for that matter.
I think the over regulating of the labor market and Ponzi style pensions are the two major factors. But it is hard to understand how they can be so different. I’d love to read something on the subject if anybody has any recommendations.
9/11 is the inflection point (and subsequent matter is my opinion) and regrettably for us Americans, the store was in the hands of neocons, who stupidly (they wrote in late 90s a document announcing to the rest of the world that ~'US will never permit anyone reaching parity to challenge', shit like that) misused our global position, and give motivation for various powers, including w/o a doubt ~Western allies, to review Swift's Gulliver's Travels ..
We pissed away blood, treasure, and reputation during the regime of the neocons (which spans D and R presidents, btw).
Do you think the laughably comical criticism of "world order" by the "mutlipolarity" gang, the likes of RF or CPC and junior friends, would be taken seriously by other world leaders/nations if US had not acted like a bully these past 2 decades?
We absolutely must re-examine our stewardship performance vis-à-vis the tacit acceptance of other major powers for this arrangement under sane leadership of US of A.
Second, Putin's adventure would not have happened in an environment of robust US prestige and power, but you appear to forget just how oddly our nation has been acting (at least as viewed from an external lens) in terms of our domestic politics. We've lost prestige on that end as well. What made this little man so confident? Why is he still hanging on? It should have been well over by now.
Finally, RF appears to have forced US to use mechanisms -- confiscation of sovereign reserves, etc. -- that I assure you must have scared the living light from all spectators with treasure trusted to the "international order". They are all saying 'but by the grace of god of mamon there go I'!
So we need to get our act together as a nation, if we intend to continue to insist that we are the responsible steward of the Global order.
I believe Putin perceived Biden as weak. Big mistake. Both of his more recent adventures were during Democrat administrations. The 2008 Russo-Georgian war was during the GW Bush administration, when the US was busy in Iraq and Afghanistan.
I would much prefer a unipolar world with a benevolent US in the driver’s seat. I think the war in Ukraine shows that that is where we are right now. The idea that authoritarian regimes with a disdain for human rights (like China and Russia) should be allowed anywhere near an equal say in the future of this world is scary to me.
I agree though that this requires more restraint on the use of force than the “neocons” showed. Hopefully US leadership has learnt its lesson over the past two decades: the fact that you have the power to utterly destroy a country does not mean that you have the power to build one.
(I’m Swedish BTW.)
I will add that there is a legitimate concern, internal and external to the West that so far, given that this issue of ideological extremists (such as neocons) getting their hands on some elements of policy and executive arms of the West did not get a public accounting and redress -- how did it happen and what is to prevent it from happening again -- leaves open the possibility that the unipolar world may very well become uniformly fascist. This remains to be effectively addressed.
People in the '90's would have bemoaned that the US was well down from its peak in The 40's (you know, when we had nuclear superiority for c. 5 years). But in neither era would an average Congolese citizen use a US-developed product for most of the day (though now they sure as hell use Android and Google). Soft influence is a thing too.
>9/11 is the inflection point
George Bush et al really wanted Americans to believe that, but why? It's not like Iraq is that much different from Vietnam. Both were ill-fated wars we mostly lost, but not in a way that makes our enemies see us as weak (Iraq, particularly its leaders, got annihilated, The US just failed at rebuilding)
>Second, Putin's adventure would not have happened in an environment of robust US prestige and power
Yeah, the Soviet Union never invaded bordering nations during the 20th century.
>We've lost prestige on that end as well. What made this little man so confident? Why is he still hanging on? It should have been well over by now.
You really weren't alive during the Cold War, huh? Remember Chernenko? The one that invaded Afghanistan? He held on just fine.
>Finally, RF appears to have forced US to use mechanisms -- confiscation of sovereign reserves, etc. -- that I assure you must have scared the living light from all spectators with treasure trusted to the "international order". They are all saying 'but by the grace of god of mamon there go I'!
Or they are saying 'better to be a friend of the US vs. an enemy!" It's not like we are picky in who we like (cough MBS cough), we just are opportunists who will welcome anyone who plays along.
>>9/11 is the inflection point >George Bush et al really wanted Americans to believe that, but why? It's not like Iraq is that much different from Vietnam.
This to me fails to note the categorical difference between the US's role before and after the fall of the Soviet Union.
Before '90 US was representative of one of the candidate systems. After '90, "new world order" of George Bush (the elder). UN was supposed to be the mechanism for unleashing violent force. So Vietnam and Afghanistan may look the same on paper (superficially imo), but they are two entirely different matters as far as the "international community" is concerned. This was the sin of the neocons -- shattering that implicit accord among the powers.
Or is your implication that the US didn't use the UN to fight wars before the 90's? Because then I think you're forgetting about Korea.
Maybe NATO is the org. you're thinking of? Because they did invoke Article 5 for Afghanistan.
So I'm not really sure what difference I'm supposed to be seeing.
I guess inflation is a lot more complex than the comments section here would have you believe.
Also helps to look like you're doing something about a debt crisis even if the net effect is minimal or negative...
Gold is, for all intents and purposes, usable as money, at least between sophisticated parties such as governments. It lacks some of the features of USD, but if Ghana is out of USD, then those features don't matter to them.
Look at HN's somewhat sophisticated audience heralding it as a power move against the dollar rather than a country scrabbling around for ways to dig itself out of a financial hole caused in part because the dollar holds value much better than their own currency.
Indeed, having a better engineered money system is one of the things that make rich countries richer.
Countries have resources thus commodities. Commodities have value. Real value.
Trade in local currencies can be backed by these commodities.
Necessity will force countries to find USD alternatives.
But now the US is even destroying confidence in the dollar, through its confiscation of the Afgan central bank reserves (which included private citizens' deposit accounts) and distributing the money to families of Sept 11th victims; or freezing the Russian central bank reserves, even though the international settlement system was meant to be apolitical.
“Apolitical” does not mean “usable by any party for any transaction.” SWIFT policy prohibits using its system in support of illegal activity [0], and the settlement system has been denied to sanctioned countries before [1].
[0]: https://www.swift.com/about-us/legal/compliance-0/fighting-i...
[1]: https://www.aljazeera.com/economy/2018/11/5/what-swift-is-an...
If BRICS launches their own basket of currency that will be the first major salvo at USD.
The further a society drifts from truth, the more they will hate those who speak it.
You're misunderstanding the fundamental problem. It's not about a "shortage" of USD for Ghana, where they ran out of USD suppliers and no one is willing to sell them USD so they will need to switch to RUB.
You get USD by exporting stuff and you can import stuff when you spend USD. The fundamental problem for Ghana is that they need to import valuable stuff but they are running out of valuable stuff to export in exchange, hence their USD reserves are dwindling. You can't solve that problem by changing the currency. If someone is to give you their RUB, they'll still want valuable stuff in exchange.