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Comment by lolinder | Hacker News Reader

That chart is... bad. I'm not sure if there's a legitimate reason to represent the data as "percent change from Q2 2004" or if it was done intentionally to make the comparison to other currencies look worse. I don't have access to look at the data in more detail because the only way to view the full report[0] is to email Eurizon SLJ Capital.

I pulled the data from the IMF for a better chart that shows how the currencies actually relate to each other [1]. Yes, there's been a substantial decline in the use of the dollar, but that's not because some other currency is shooting up to take its place. It looks like countries are diversifying their portfolios, not fleeing the dollar for another currency.

[0] https://www.eurizonsljcapital.com/dollar-smile/rapid-erosion...

[1] It's a bit slow to load, but here's the link: https://data.imf.org/?sk=c22e624f-ce09-4c9e-a70b-647defa5215...

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> diversifying their portfolios, not fleeing the dollar for another currency

Aren't these literally the same thing? Selling dollars and buying something else is dedollarization, regardless of whether it's for diversification or some other reason.

If there’s nothing replacing the dollar as the dominant global currency then yeah, it’s a wildly different story. One is a story of diversifying investments so that your country’s wealth isn’t tied to a single country. The latter would mean a global shift in power with massive geopolitical ramifications.

One empire can crumble into nothing without another empire immediately taking it's place. Previously the rest of the world tripped over one another to put all their eggs into our basket. Now we are getting sideways looks with a mixture of "You doing OK America?" and quietly diversifying their portfolios.

Apparently nobody in the US seems to understand that debt ceiling shenanigans and government shutdowns makes them look like Argentina.

The exact same sentiment was had last time. The consequences from these shenanigans last time had very little real impact - a _very_ slight increase in interest rate on treasuries.

And i predict that this time, at the last minute, the bill will pass again, like every other time. Unless the republicans truly believe that it's worth going down with the ship for.

The US Republican party, as with all parties even in America, has a continuum of members.

Some would be fine letting the US default if their demands aren't met (e.g. Tea Party types).

Others not so much.

One difference this time is the amount of trouble the House Speaker had getting elected by his own party, and any closed door concessions related to that were very likely promises around budget and the debt ceiling.

You're literally looking at the graph of the impact here.

>Now we are getting sideways looks with a mixture of "You doing OK America?" and quietly diversifying their portfolios.

From who exactly? Most of developed and developing world is facing demographic collapse over the next 50 years.

The US is the largest energy producer, one of the largest food producers, the most dominant military, has relatively stable demographics and has no trouble assimilating immigrants, etc.

https://www.youtube.com/watch?v=DKWKRMxXB0M

The first is a necessary step for the latter. There's a reason pundits have been talking about a multi-polar world for 20 years.

No country is currently strong enough to cement its position the way the US had, but the move away from the dollar will hurt the US a lot, by limiting the Fed and increasing inflation. It also enables other countries to have a foreign policy more antagonistic to the US, it takes away a good chunk of leverage.

no, the move away from the dollar will not hurt the US.

Exchange rates are the net result of trade in goods and services (and capital), it's the bottom line fudge factor that makes trade work. If a country imports too much, its currency drops making foreign goods more expensive slowing imports. If it exports too much, its currency rises making its goods more expensive and slowing exports.

If the US imports a lot, it sends dollars overseas. If the foreigners want to invest in the US economy, those dollars come back in exchange for assets and the value of a dollar is not affected. If the foreigners don't want dollar denominated assets, they just buy their preferred currency instead, sending the dollar down. (In the case of investment, the US for most of its history ran a huge trade deficit. It was not a problem because economic growth meant foreigners wanted to invest here. Much of the trade deficit was caused by the purchase of capital equipment, used in driving the economy)

People who are thinking about exchanging currencies are not doing it on whim, they are doing it for underlying reasons that have to do with economic activity, productivity, long term investment opportunities, etc. These things carry currency denominated prices, but those currency fluctuations do not affect the rates of return of the investments, rather those currency fluctuations are how the books are balanced and change the rates of ebb and flow.

> no, the move away from the dollar will not hurt the US

I doubt that. The US has been able to both support a trade imbalance and print money at prodigious rates that would be unsustainable for any other country.

I remember articles from economists pointing this out going back to the eighties.

One important reason for this is that not all dollars the US prints inflate the local money supply. Instead, they go out into the world where they are used by other countries to trade amongst themselves, without US involvement (and reserves).

It's like writing a check that is never cashed. Cool if you can pull it off.

You mention foreign investment. Well, if the value of the dollar goes down, because demand for those dollars is lower, those investments also become less attractive. Could cascade.

> print money at prodigious rates

+All that debt will become 'real'. We could look to UK and see what happens to a nation post (currency) empire. But a word of caution here regarding the analogy: the new empire (US) were allies of the dethroned empire (UK). Come US's time, it is doubtful that the new power will be a Western power. So US will have a harder time than UK and things have not gone well for UK since WW2.

Zombie International Currency: The Pound Sterling 1945-1973, 2021:

http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP...

You are not wrong, but you are missing an element. The US dollar's position as world reserve currency and preferred exchange currency artificially increases the value of the dollar. A big part of the reason that the US has been able to run a trade deficit and still maintain a strong currency is because there is demand for the currency, itself. People need dollars to use in their international trade, and countries hang on to them for their reserves (stuffing them in the figurative mattress). If people stop using the dollars for international trade, and countries start pulling them out of the mattress rather than stuffing them in, there will be a glut of unwanted dollars on the international market. As you point out, this will drive down the price of the US dollar, significantly weakening it as a currency, thus driving inflation in the US and hitting the economy HARD. Eventually, it may stimulate US exports, but things are going to settle out with Americans much poorer, overall, as their currency is no longer artificially supported.

>no, the move away from the dollar will not hurt the US.

This is wrong - as you point out. When people don't need dollars except to buy/sell from the US, the dollar is a less attractive currency to keep around.

This is going to hurt...

Actually one of the main (the main?) pillar of Dollar hegemony was the USA-KSA strategic agreement for mandating the use of US Dollars for energy transactions. This is all early 70s geopolitical actions that had and continues to have significant side effects, including dropping the Shah of Iran* (and embracing KSA instead). For many nations, holding Dollar reserves is/was for buying oil and gas.

[1] https://www.bloomberg.com/news/features/2016-05-30/the-untol... (https://archive.is/kRW9c)

[2] https://www.currencytransfer.com/blog/expert-analysis/saudi-...

* From [1]: “Just a week before setting foot in Saudi Arabia, Simon publicly lambasted the Shah of Iran, a close regional ally at the time, calling him a “nut.””

https://www.semanticscholar.org/paper/Showdown-at-Doha%3A-th...

The rise of Islamic Jihadis, financed by KSA and trained by CIA, propagation of Wahabism, tolerating the replacement of a secular ally in Iran with Islamist revolutionaries, ..., are all the direct consequence of this strategic shift by the USA. This is all in the context of post-Vietnam debt, rise of OPEC, and a still very menacing Soviet Union.

The Shah had made the error of thinking that by not joining the oil embargo of Arab states he was proving yet another reason (beyond being a forward Western block allied barrier to Soviet Union’s access to the Persian Gulf) for being considered a strategic ally to US. Nixon and Kissinger publicly and privately also assured of Iran’s importance. But what actually happened was that the oil embargo demanded a reassessment of the value of Shah of Iran to US. It was seen that oil and Arab producing nations’ alignment was far more important than any value Shah’s Iran was providing as a bulwark against the Soviets. The Brezhinski doctrine effectively addressed the means of filling the vacuum: Islamic Fundamentalism.

Right! The fact that Arab-oil countries want to join BRICS and are starting to trade in Yuan instead of Dollars is also going to accelerate this.

https://www.zerohedge.com/geopolitical/five-arab-states-plus...

some go quietly, some put up a fight,

some linger in centuries long decline, some collapse overnight

Well, imho, this question hinges more on the calculations (and subsequent actions) of US's allies rather than the counter-organizing efforts of the rebel states.

I get this seems inconceivable to those involved and so thoroughly permeated with oil == power dynamic of the 20th century.

But it's interesting this particular "power center" of the world (US dollars for oil) is weakening just as oil's grip on the world is weakening.

The world was totally beholden to oil for what, 100 years?

But everyone with a brain sees that oil demand is going to plummet with EVs and wind/solar to recharge them ... and domestic reserves will likely cover the remaining demand. The political power dynamic of the petrodollar has ... what ... a decade? Or it's already dead?

Power and economic productivity is/were hand in hand. The geopolitical dominance of oil provided direct political dominance over everyone's economy.

But Solar/Wind/EVs are largely independent of geopolitical control. Yes China appears to be dominant in EV production, batteries, and solar cells, but it isn't the ironclad grip of "we have oil underground you don't".

EV drivetrains are simple, everyone can make an electric motor. Viable EV battery chemistries are proliferating and also becoming immune to cobalt, nickel, and even lithium supply constraints. Anyone can make a wind turbine, and solar cell production will likely plummet in cost and diversify in production if/when perovskites and other non-silicon panels hit the mainstream.

But likely we are headed back to a cold war alignment, or even more fascinating, a tri-power alignment (EU, US, China), and economic alignment will be replaced with the good old protection racket of the Cold War.

Oil will probably remain as a military energy source. But likely everyone will be able to solve gas production with, at minimum, biofuels.

I didn't realize this until I came across Nate Hagens work on Oil/Gas, etc. He's got a PHD and extensive research expertise on oil and natural resources of the world. He's telling us, oil is absolutely pivotal for global GDP. Furthermore, what I found interesting about his works (very surprising): reknewable energy sources are not independent of oil, they depend on oil just like everything else. and he's got some rather stunning discoveries on oil and GDP.

Thanks for the ref. I've seen this precise thesis elsewhere (have to dig it up) and both make a completely persuasive case of centrality of energy, mainly hydrocarbons, to basically everything. (In the video below) Hagens also introduces the credit side of the equation (which is perfectly topical for this subthread).

What is interesting to me is how ignorance of the actual issue -- our civilization now depends on continual growth that we can not sustain -- shapes the discourse of alternatives to global regime du jour (with the so-called multi-polar model as the 'solution'). This would be nothing more than rearranging the chairs on the Titanic. No one is discussing alternatives that address the credit-interest-growth regime. This is the 'sacrosanct' dimension of the problem, and no one in polite society wants to touch it, anywhere.

The Human Predicament, Nate Hagens (57m) https://www.youtube.com/watch?v=MNzLkdr7UIU

What dependence on specifically ground-drilled fossil fuels are there in alternative energy? Aside from the fact that current grid powering the construction/manufacturing of it is currently still a lot of coal / gas turbine.

As in, I get there are current dependencies, but what is it fundamentally about the wind turbine's parts is beholden to ground-extracted oil? Plastics/fiberglass (should be replaceable)? The electric dynamo because of needed heat in metallurgy/refining?

For solar (silicon solar cells specifically), again, what is it beholden to? Silicon? Etching chemicals?

I can see oil still being used for lots of industrial processes (and plastic production), but ... EVs are going to drop a massive amount of demand for them. And while plastics suck for lots of reasons, fundamentally plastic is fossil fuel carbon that has been sequestered in a durable long-lived form.

I'll check it out, but again I wonder if the dependence is due to someone "growing up" ensconced in a petroleum world not realizing the full path forward that will eliminate so much of it, particularly the massive scale of burn-into-CO2 part.

all i can tell you is he's interviewed experts with deep extensive knowledge of how oil is used. there's one interview with a guy where the guy explains in details how all the parts of oil are used for over 45 min! most of it was over my head. some of his videos do go into great detail about how reknewables can't take the place fully. I think part of it is that wind and solar are too intermitent and that, that greatly limits their applicability.

The Yuan is pegged to the dollar. Trading in Yuan is still trading in dollars, just in a really convoluted way.

Except that if it's a peg, then it's without actual dollars involved, and thus without those direct effects of dollar-demand.

> A big part of the reason that the US has been able to run a trade deficit and still maintain a strong currency is because there is demand for the currency, itself

No. It's a measure of much foreigners trust the Us economy and it's political and judicial system. What drives the demand for the dollar is the will of people to invest money in American securities and on the American capital market.

Chinese investors invest on the Chinese market in Yuans. Rich Chinese investors invest on the US market with US dollars.

>> because there is demand for the currency, itself

> No.

Actually, what the OP wrote is true: the use of the dollar as both a reserve currency and as a trading currency between non-US countries means there is a demand for the currency itself without actually wanting to buy goods and services from the US or invest there.

What you describe, investing in the US, also happens. But it isn't the only thing that happens, the demand for dollars without such investment also happens, and as far as I know is the larger part.

If it didn't happen the de-dollarization that the fine article talks about couldn't be happening.

> as a trading currency between non-US countries

If country A trades with country B, it'll either get paid or pay with country B's currency. Country A might not be interested in country B's currency, so it can use the US dollar and a US institution as a proxy between the two. But that doesn't do anything to affect the value of the three currencies. It's simply a matter of convenience (these US dollars get exchanged back into currency A or B seconds after being purchased).

What matters is how confident people are of their respective government, laws and institutions compared to the US. Would they prefer to hold assets in the United States or their own country, or country A or B.

Once again: no, they are not (just) holding US assets, they are also holding currency in order to trade.

And no, your idea that they change money into dollars, execute the trade and then change right back is an interesting theory, but not actually what happens.

If I have chickens to trade and you have wheat and the only thing we can agree to trade in is leaves, do leaves not gain value in this arrangement?

Both represent a global shift in power. Dedollarization doesn't happen overnight. Even though this chart suggests the move is happening quickly.

Some of the things that have been happening are grossly underreported on, like this: https://thewire.in/diplomacy/india-signs-deal-to-adopt-mosco...

Let's assume you wanted a route to send/receive money from Russia now, you could do so via India - a country in the good books of both Russia and the West.

Iran has been settling oil sales to China in Yuan more and more over time: https://www.silkroadbriefing.com/news/2023/02/21/iran-increa...

Assuming the dollar gets replaced by one reserve currency is the fallacy. Like with geopolitics, we're seeing a multipolar world return.

You point to a sanctioned country where India has no choice but to figure out a new system and a move the the Yuan, a currency pegged to the dollar (so still trading in dollars, just in a really convoluted way). Not sure this shows anything?

> Both represent a global shift in power.

Yes, but there's a difference between a shift of power from one entity to another and a shift of power from one entity to many entities (distributed). That's what the people above you are saying.

Tldr: Swap != diversification

> The greenback’s share in global reserves slid last year at 10 times the average speed of the past two decades

I'll just leave this here:

https://markets.businessinsider.com/news/currencies/russia-d...

Yes, I expect that this isn't just de-dollarification, but a move away from any over-weighted dependency.

I.e. countries reserves will move to diversified portfolios of currencies and assets (gold, etc.) that minimize general financial risk, but also foreign economic-political influence.

I don’t think so, for example if you use dollars to buy Apple stock you are very much still long dollars because a big part of Apple’s valuation is their enormous dollar reserve including t-bills. If instead you used it to buy say Chinese real estate you could say you diversified away from dollar.

is there any data that shows the movement of the new monetary value? my guess is that, for any economy, significantly cutting down the role of the dollars requires cutting down participation in parts of the US economy that are proxies for the dollar. so, for example, china could decide to acquire lands or farms in the US. that's not necessarily long dollar. they could be buying resources in different parts of the world as well.

Land or farms in the US are extremely likely to transact their value or production in dollars, so you'd still be exposed.

Believe parent's comment was that you would want something where no/minimal part of its 'value ecosystem' touches dollars.

E.g. Chinese real estate, with rent paid in yuan and sales transactions happening in yuan

Anything which collateralizes in the currency would be exposed. Additionally, you may want to re-watch the China Hustle.

They have no laws protecting foreigners from theft/fraud. Its encouraged.

The yuan also has its own issues.

I'm in no way suggesting one invest in Chinese real estate.

Governments with xenophobic and nationalizing tendencies tend to be poor bets for private investment. Picking up pennies in front of a steamroller, etc.

When I posted this many of the comments were about how the Chinese currency was going to replace the dollar, which is the story the chart on Bloomberg was trying to tell. So that's what I meant—no single currency is replacing the dollar. Countries aren't fleeing American economic hegemony and running into the arms of the Chinese or any other up-and-coming hegemon, they're leery of hegemonies in general.

It's not that there's not a story here, it's that the chart they used wildly misrepresents what the story is.

(EDIT: In fact, as I write this the second highest comment on the main thread[0] is speculation about the Yuan becoming the world reserve currency, which is a reasonable line of thinking if you only look at the Eurizon chart and don't realize how misleading it is.)

[0] https://news.ycombinator.com/item?id=35800862

CEOs often us this excuse.. I'm not selling company stock, I'm just diversifying.

If you're from the US, then they're the same thing. For the average person (again, from the US), it means an inflation rate more directly coupled to money supply (i.e. the opposite of how it was in the past; some of this is of course already very evident and has been, for about a year and change--modern monetary theory notwithstanding).

Isn't part of this countries dumping their dollar reserves to defend their currency with buy-backs?

Maybe a better metric would be: How much dollar denominated debt is out there?

Also I think people are confusing the two uses of the dollar: one as a reserve currency (money in your mattress) another one is for international trade

It seems it's the latter that's most affected (as per the link 1 you posted)

> While the Global South seems unwilling to continue to hold dollar assets, they do not seem to have the ability to divest from the US dollar as an international currency, particularly for financial transactions. We suspect it will be very difficult to overcome the strong network effects that have been behind the dollar’s international currency status.

Well no crap Sherlock

An issue with dollar as international trade currency is that all transactions are performed via US banks. And US is not a reliable party anymore, because they could freeze your accounts or decline your transaction if they don't like something about you. So governments which want to have some degree of freedom and independence in their actions will naturally move to other currencies.

Good alternative could be a P2P currency which does not require any particular center to handle a transaction. Switching dollar to ruble or yuan does not seem like it could change something drastically.

Though I don't really understand why governments need a single currency. Just use your own currency and exchange other currencies, it'll settle down eventually.

The problem is it doesn't. It does balance out if you're a big wealthy nation with imports and exports. If you're a small poor nation with limited resources, money only ever flows out, and barely ever in, depleting the nation's treasury.

If they are instead buying things with US dollars, where do those dollars come from?

Often things like IMF loans that massively burden countries with debt to first world countries - with the money mostly going into infrastructure for extractive industries like mining so the countries who indebted them can buy their resources cheap, and also get to suck extra money out of their economy for the interest payments. These kind of things often just happen to end up that the people of a nation end up with the burden of the debt, austerity, etc. while a smaller group of well connected people and companies end up with the benefits.

US trade balance is negative for decades, exactly because dollars go to developing countries (in the form of direct investment and also as the classic paying for things, and also because tourists leaving hard cash at the locals)

IMF loans are better than austerity. and structural reforms as conditions of IMF loans are better than selling natural resource extraction rights for 99 years to private companies.

are these development programs perfect? of course not, but the mindless and ignorant vilification is just propaganda at this point.

These vilification are propaganda, likely covert operations from places like china or russia.

The IMF is no saint, but they at least is looking to improve things, despite not acting altruistically. Their loans are contingent on economic reforms - e.g., Pakistan's default is in part due to state subsidies and inefficient tax allocation, etc. In the short term, reforming these things looks like causing of suffering for the population, but so does alcohol/drug withdrawal. In the long term, it produces a better economic outcome imho.

Contrast this with stuff like the Belt and Road initiative.

> These vilification are propaganda, likely covert operations from places like china or russia.

Source?

> The IMF is no saint, but they at least is looking to improve things, despite not acting altruistically.

Should I consider you likely covert operation from China or Russia because of the accusation that IMF is no saint and does not act altruistically?

> issue with dollar as international trade currency is that all transactions are performed via US banks

Not necessarily. The US dollar is fully convertible and several countries offer accounts in USD

(though a lot of places rely happily on SWIFT)

Non US banks have to deposit their dollars to a US bank that actually handles transactions and decides if a transaction can go on or not.

There’s nothing stopping a non-US bank having a vault full of actual US currency backing its US-denominated accounts. And settling transactions by sending physical cash on a plane. It is more expensive than using a US bank which makes it much more electronic, but has the advantage that the US government cannot stop it except by shooting down that plane

This is not true. Eurodollars exist.

>Though I don't really understand why governments need a single currency. Just use your own currency and exchange other currencies, it'll settle down eventually.

Because commerce is much easier if everyone uses the same currency, plus the more countries use a currency the more stable the currency gets. This where two big reasons why in EU most countries decided to use Euro.

It's not that commerce is easier: currency exchange is pretty frictionless nowadays. It's that the value of inputs and outputs, which are critical to running a company doing part of its business abroad, or buing inputs from abroad, is much easier to calculate without having to account for exchange rate fluctuations.

I'd put it is that conducting international trade in a single currency is more systemically stable.

Iow, the currency's ubiquity and total amount buffer shocks to the system, in a way that multi-polar currency use could not tolerate.

If some folks decide to break {insert smaller international currency here} because they think it's overvalued and they don't use it, they probably have the means. But it's difficult to tip over a world-economy sized apple cart.

And a single trade currency also mostly keeps nation-states out of the currency warfare game, because it's a gun pointed back at their head too.

This is what I meant by saying that it makes commerce easier.

> Though I don't really understand why governments need a single currency.

"need" is probably too strong a word. A single currency just makes things easier.

Having a single currency, or using many different currencies is sort of like the difference between a barter system vs a money system (multiple currencies is equivalent to bartering). If the buyer is trying to buy in a currency that is not desired by the seller (i.e. there is nothing that they want being sold in that currency), the seller has to offload it somehow to someone that does want it. There is a cost to that, in additional risk and effort.

Bartering works ok, up until a point. But a shared currency just removes friction, so is preferable.

only that those two are intimately related. Countries don't hold US treasuries because they're great investments (..... obviously). They hold them BECAUSE they have liabilities in USD BECAUSE their international trade is in USD, and having to covert their local currency to USD not only introduces a currency risk. The world financial system is also organized to make local currencies of poorer countries depreciate over time, more than the USD does. Just like inflation is a silent tax that robs wealth from the poorer stratums inside a country, faster inflation/depreciation in the global south than in the north does the same on a global scale; it's a means of exploitation. Holding USD treasuries protects against that, at least a little. The fall in USD use in world trade doesn't immediately translate into an equivalent fall of reserve holdings because the trade isn't the only reason they hold them. The other big one is serving international debt, also in USD (for.. the same reasons as above, again an exploitation mechanism). So even if you stopped ALL trade in USD tomorrow, countries would have years' worth of USD denominated debt to pay off (which, of course, never pays off, because just like student loans, it accrues fees and interest and will never be paid down under "normal" circumstances, just rolled over). So there's a second change to watch: the change in debt denominated in other countires' currencies. It's a slow moving train.

I dont thinks its a means of exploitation in the sense that controling inflation is not something anyone has mastered in hundreds of years of trying all kinds of things.

Inflation is a consequence of the conditions that permit economic growth (fractional reserve banking / currency creation, credit extension / investment / speculation).

We could "solve" inflation tomorrow, but we'd also be zeroing growth.

Ergo why the usual target is a small but acceptable bit of inflation. E.g. the US Fed's 2%

Note the reason the dollar works is that USA past wwII became the number one importer due to the baby boomer generation of consumers. Past the demographic shift, i.e. when Z gen become full time consumers, the country that has the most of those is still the USA, followed by Canada and Mexico.

So its somewhat a false narrative on those basic facts.

>Yes, there's been a substantial decline in the use of the dollar, but that's not because some other currency is shooting up to take its place. It looks like countries are diversifying their portfolios, not fleeing the dollar for another currency.

The bulk of the "diversifying their portfolios" is being done by China. The de-dollarization happening in other countries is a rounding error.

Generally it is misleading to talk about the rise of "BRICS" and the "Global South". In most contexts it is only China that is relevant and the other countries are rounding errors.

Russia has a good incentive to dedollarize now. It's actually harder for China because holding Yuan is not an option for them.

And I think it is misleading to treat a country like India, with the 5th highest GDP in the world, as rounding error.

I think the rounding error is in relation to the amount of de-dollarization happening in these countries.

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