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How The U.S. Dollar Spread Across The World
The U.S. dollar is currently accepted as the world’s reserve currency, but it hasn't always been this way. Reserve currencies change depending on macroeconomic trends: typically, the reserve currency belongs to the world’s most stable and influential economy.
As HowMuch.net notes, the U.S. dollar has been the official reserve currency since the end of World War II, when the world’s powers agreed to implement the Bretton Woods System, officially setting the U.S. dollar as the anchor currency that could be exchanged at a fixed rate for gold.
In 1971, the U.S. ended the dollar's linkage to gold and it became free floating (fiat currency), but it continued to be used a reserve currency by many countries.
The world’s dominant currency seems to change about every 100 years: Portugal held the dominant currency during the 15th and 16th centuries; Spain during the 16th and 17th centuries; Netherlands during the 17th and 18th; France during the 18th and start of the 19th; Britain during the 19th and beginning of the 20th; and the U.S. since about 1929. But the idea of a true reserve currency did not emerge until the 1860s, when Britain and most industrialized nations created central banks and treasuries, and tied their currency to the value of gold.
The U.S. dollar's reserve currency status gives Americans and the U.S. government easier access to low-cost borrowing and also lowers the cost of imports, since there is no need to convert U.S. currency. The stability of the U.S. dollar tends to have the effect of increasing its value relative to other currencies. This actually hurts U.S. exporters because their goods and services are more expensive than competing goods and services in other countries.
How long will the U.S. dollar persist as the global reserve currency?
And what could possibly replace it?
When the pound sterling was the dominant currency, more than half of all world trade was invoiced in pound sterling; British banks were expanding and Britain was the number one foreign investor in the world. But eventually, other countries started to put up tariffs and protectionist policies and the pound sterling lost its dominance. As for the U.S., it is no longer the biggest foreign investor (China is) and instead of being the largest exporter of goods and services, it has the largest amount of debt in the world. Nevertheless, the U.S. economy remains relatively stable, and the dollar's share in foreign exchange trades has actually risen slightly since the financial crisis.
The most important determinants of reserve currency status are the size, stability, and liquidity of financial markets. At this point in time, The U.S.’ capital markets are a lot bigger and more liquid than China’s. Although the Chinese government is working on developing its financial markets, progress is slow and the yuan is not yet fully convertible. Moreover, the government frequently intervenes in the Chinese market — now known first and foremost for its instability.
It's hard to imagine the Chinese yuan becoming the dominant reserve currency anytime soon. Some see the recent establishment of the Asian Infrastructure Investment Bank as a signal of the end of the US and the IMF’s economic dominance. But what is more likely is that the U.S. dollar will decline in prominence as other currencies, like the yuan and the euro, become more widely circulated.
No doubt, China's influence on the global economy is growing. But the U.S. remains a stable place to invest, and holds a lot of influence over the global economy. We’re likely to witness a more diverse set of reserve currencies and a gradual movement away from the U.S. dollar. The truth is, though, that no one really knows what will happen to the dollar's reserve currency status 10 to 20 years from now.
What do you think? Will the Chinese yuan overtake the dollar as the world’s dominant reserve currency? What will be the effect on the US economy?
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Will the Chinese yuan overtake the dollar as the world’s dominant reserve currency? What will be the effect on the US economy
In my humble opinion. I see two titans, with the same problems.
That's why assclowns like Bezo's and Musk keep getting subsidized.
Space travel is pretty KOOL. The Earth and our Sun are young.
Good chirp.
Deflections, from factual problems...
Excess ZIRP, dark pools.
After the big collapse, iether the Yuan or SDR's will come to the fore. Which one will be a function of the oligarchs faith in the comparative advantages of each - and that will be a function of whether the East or the West allows the creative destruction process to fully materialise
Ergo, if America does not reinstate mark to market accounting quicksmart, the Chinese will take the chalice
The reserve currency belongs to whoever has the strongest military. The military is the "influence" enforcer. When the US military is thankfully beaten back to its shores where it belongs the dollar will lose its monopoly (haha get it?) and will need to play nice.
I do not agree.
Reserve currency status goes to those who run surpluses comparable to size of world economy.
You _might_ need parts of the military to protect the mercantile mechanisms that produce those surpluses (see UK navy, historically).
Once your economy stops running surpluses, time starts to run on reserve currency status.
Unfortunately, the military do not get the memo, so (see UK history, US at present) reserve currency status going down the tubes at the same time as ever more guns/planes/ships/ and silly little wars in which to use them...all of which is very expensive for taxpayers.
Watson
I do not agree with the article and all the above comments. Reserve Currency is actually simple to explain: it's the currency others accumulate as... here the word... reserve
so if a currency is held as the predominantly most widely used reserve, it is the global reserve currency
why it is accumulated is a much, much more thornier question, and depends from many issues, including diplomacy
gold used to be the reserve currency during the so called Gold Standards Age
after WWII, we western europeans made a deal with the US and used the United States Dollar (USD) as an alternative to gold. but later France got cold feet, sent warships to collect gold in exchange to dollars... and Nixon replied with an unilateral change to this deal (called Bretton Woods) on August 15th, 1971
so again: if others hold it in vast quantities... it's a reserve currency. if others hold it as the most preferred reserve, it's a global reserve currency
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I agree though with this part of the article: "The truth is, though, that no one really knows what will happen to the dollar's reserve currency status 10 to 20 years from now. "
I c gold and silver as a global reserve currency soon.
War, plain and simple.
Think of it like how gonorrhea spreads....
The next crisis will involve currency. Will Saudi depeg? This wouldn't be good for King $$
The US dollar will be the last fiat currency to die...
Get over it...
Says the utopian? How far have water levels risen?
What's your empirical plan Flak?
You've been destroyed. The Paris summit was just an idea, like that Iranianlow enriched uranium shipment to Russia.
A 'reserve' currency must over the long term belong to a net exporter. The US hasn't been a net exporter in decades, and has little hope, short of a significant drop in the USD$, of ever becoming one.
Exporter of dollars the most valued currency on the planet.
exactly :A 'reserve' currency must over the long term belong to a net exporter
however: the reality of BECOMING the reserve currency slowly erodes the ability to be a net exporter.
thus the wheel of history ever turns
Nothing is inevitable until the very last second. The problems we have are minor, except for the political problems. The political problems are only difficult because we insist on making them negative-sum game, it is so convenient, we believe, to use force.
Whe humans allow themselves to understand positive-sum, freedom, get the government out of the way, no problems are beyond our solution.
Not at all idealism, this is purely practical experience. Stop hating, problems get solved. There are no exceptions. All of the exceptions are the result of hatreds.
So stop hating and start cooperating, problems are solvale. We always have, and we are hybrids of hybrids of hybrids in every gene and culture. Why give up a winning strategy?
How long did it take for England to collapse? They left the gold standard in the 1920s. In the 1940s they still seemed like a great power but after 1945 were eclipsed by the US. They reached their low point in the 1970s when the then Prime Minister said he looked on his job as supervising the liquidation of what was left of the empire.
These things don't happen overnight. It could take 50 years for the US to become irrelevant in world affairs. If you are counting from the abandonment of the gold standard that would be some time in the early 2020s.
<-- $$$ == 666 == WhiteSupremacy
wont go down w/o a big fight
keep ur belt tight & gunpowder dry
The cracks are evident and growing. The trend seems clear.
The next near meltdown will probably reveal the situation for what it is.
Thanks, El' Capitain obvious.
Bitcoin will be the next world reserve currency. The CIA/NSA will covertly support this as a way to cock block a gold-backed renminbi gaining reserve currency status. Monero (XMR) will become the worlds dominant anonymous currency, but Bitcoin will be more liquid and stable.
bitcloin may well emerge as the primary hedge against the yuan or sdr. But they will be gold backed
if neither the imf or the chinese back their currencies with gold, expect monetary chaos for decades until humanity remembers the role of prudence in its fiscal affairs
Who wrote the article?
I am seeing more and more of this: articles that appear to come from the Tylers but contain things that no Tyler would write.
After a little digging.. it is indeed from HowMuch.net and written by a contributer called "Raul". Nice.
Agree. Maybe he left for the valley already...
Whatever it is that the BIS keeps its books in. Used to be Swiss Gold Francs. Now it's the IMF's SDR (Special Drawing Rights). So I guess it will be SDR's. But you & I won't get to spend these. Local currencies for the plebs to spend will be some derivative of the SDR. In Asia-Pac, it will be the CNY or JPY or derivatives of the CNY or JPY. In the Americas, it will be the USD or derivatives of the USD. Basically all the currencies that make up the basket of the IMF's SDR's, and the derivatives of those currencies that make up the SDR, will be what the local plebs get to spend locally.
The hidden truth in all of this is that Physical Gold is still the ultimate currency/asset/extinguisher of debt par excellence, no matter what fiat TPTB put up as the 'world's reserve currency'. And for smaller amounts of money, Physical Silver doesn't do too bad a job either.
This is nonsense.
The world does learn from mistakes. There will not be a new reserve fiat currency. The US has shown that no single country can manage it properly. Triffin saw this in 1960.
The next reserve will probably be gold. It will be marked to market as the ECB does now.
Wondering how that could happen if 'there is not enough gold in the world?' If the world if forced to use gold the the price will just rise until there is enough gold to do the job. Why do yuo think the Euro is structured as it is?
.oh yeah...all those other reserve currencies were gold based (except for a brief period of bimetalism. So this is the first time in history that a fiat currency has been held as a reserve. At first it was a gold currency. In 1971 the clock started ticking. The timer is going off now.
allow me to qualify your remark: the world does learn from mistakes, but after a few generations - depending on the importance of the lessons - eventually forgets them, and requires a crisis in re-education
Wondering how that could happen if 'there is not enough gold in the world?'
That's a popular shibboleth. It's not a matter of quantity; it's a matter of price. The proper question is at what price would gold have to go to to meet international currency needs? I don't know the answer, but it must be awfully high. Local currencies could be any form measured against one common standard for international trade - gold.
It won't happen though.
Tylers, why cannot you post stuff like this?
http://www.veteranstoday.com/2014/07/30/the-coming-return-of-the-real-us...
Against your policy? Against your philosophy? What, we cannot debate it here?
Whatever the problems and faults of the USA regime, you all should pray that the USA and the USD are NOT replaced by China and its fiat - the world would go from bad to very much worse.
Get rid of all those tresuries China and Russia, sell them in huge masses. Lets see this fucker drop.
This article reeks of msm propoganda bullsheite, trying to keep the sheepies in hopium.
Fiat currencies do not have a history of gradual decline...on the contrary more than likely there will be very quick decline...there is absolutely no evidence whatsoever that the US is getting their fiscal shit together at all and their political system is a basket case fit for a third world...their political elites are corrupt, amoral, villiage idiots who cannot run a corner store...their goal is steal as much wealth as they can while in politics. They country is already doomed so the next crisis will bring in the demise of the US petrodollar status....
Question now is do the Saudis depeg against the US dollar and then announce oil priced in Yuan, Euros, Yen, or Gold. Remember the Chinese are now set to open a new oil exchange in the next couple of weeks and they are the new price setter.....
Roger that. I have a 1 billion Reichsmark note in my drawer. Stamped in red is "Eine Milliarde Mark" over a previous 1000 Mark note (in 1923).
I can't imagine any national currency replacing the dollar as an international currency, for generations to come. Once the dollar collapses, it'll take the idea of a national currency down with it.
I'd like to think precious metals would replace the dollar as international money, but I wouldn't count on it.
Just think. We have no choice but to depend on the geniuses who brought this system to its knees to think of a replacement.
Actually most fiat currencies were and to some degree still are pegged to the USD, which until '71 was pegged to gold. So until then gold was the underlying asset. today it is ever growing debts, crony and inflationary policies, and guns (bad politics). Since most of world trade is still denominated in dollars and the US can maintain the mirage of strengths (a mystery to me) this may continue for quite a bit longer, as the rest of the world deflates and crumbles (along with the US real economy)...
Gold.