The forces at play in de-dollarisation(reuters.com)
reuters.com
The forces at play in de-dollarisation
https://www.reuters.com/markets/currencies/end-king-dollar-forces-play-de-dollarisation-2023-05-25/
51 comments
>Basically China would need to abandon an administered financial system, and move to a market based economy.
I don't see why. It just needs to be making enough stuff that the rest of the world needs to justify holding their currency in reserve.
He repeats the thing about them running a deficit which I've heard a lot but doesn't make any sense. When the US became the reserve currency it didn't run a deficit. It's a benefit of being a reserve currency that you can do that, not a prerequisite.
I don't see why. It just needs to be making enough stuff that the rest of the world needs to justify holding their currency in reserve.
He repeats the thing about them running a deficit which I've heard a lot but doesn't make any sense. When the US became the reserve currency it didn't run a deficit. It's a benefit of being a reserve currency that you can do that, not a prerequisite.
> It just needs to be making enough stuff that the rest of the world needs to justify holding their currency in reserve.
If you're holding a currency in reserve, you're explicitly not using it to purchase goods and services. I don't remember if it was in this video, or the "Weaponization of the Dollar" video that he discusses this.
> When the US became the reserve currency it didn't run a deficit. It's a benefit of being a reserve currency that you can do that, not a prerequisite.
The non-deficit was under Bretton Woods, where gold was the ultimate reserve underlying the dollar. Is it coincidental that the US started running a trade deficit in the decade it abandoned Bretton Woods?
https://research.stlouisfed.org/publications/economic-synops...
"Starting in about 1970, the United States began to run trade deficits again, which have continued to this day. These shifts in the long-term U.S. trade balance appear to correspond well with U.S. industrialization in a global setting."
If your currency becomes a reserve currency it tends to appreciate in value, which makes your own products more expensive (especially as exports). You can call being able to import things cheaply a benefit, but it's a detriment to those in the reserve currency country who make their living as producers. For instance, the US farm system is, in part, propped up by subsidies. And even those didn't save the small farms.
https://usafacts.org/articles/federal-farm-subsidies-what-da...
"Government payments (excluding crop insurance payments) to farms have fluctuated since 1933, from a low of $1.5 billion in 1949 to $32.1 billion in 2000. In 1949, government payments made up 1.4% of total net farm income — a measure of profit — while in 2000 government payments made up 45.8% of such profits.
In 2019, farms received $22.6 billion in government payments, representing 20.4% of $111.1 billion in profits."
If you're holding a currency in reserve, you're explicitly not using it to purchase goods and services. I don't remember if it was in this video, or the "Weaponization of the Dollar" video that he discusses this.
> When the US became the reserve currency it didn't run a deficit. It's a benefit of being a reserve currency that you can do that, not a prerequisite.
The non-deficit was under Bretton Woods, where gold was the ultimate reserve underlying the dollar. Is it coincidental that the US started running a trade deficit in the decade it abandoned Bretton Woods?
https://research.stlouisfed.org/publications/economic-synops...
"Starting in about 1970, the United States began to run trade deficits again, which have continued to this day. These shifts in the long-term U.S. trade balance appear to correspond well with U.S. industrialization in a global setting."
If your currency becomes a reserve currency it tends to appreciate in value, which makes your own products more expensive (especially as exports). You can call being able to import things cheaply a benefit, but it's a detriment to those in the reserve currency country who make their living as producers. For instance, the US farm system is, in part, propped up by subsidies. And even those didn't save the small farms.
https://usafacts.org/articles/federal-farm-subsidies-what-da...
"Government payments (excluding crop insurance payments) to farms have fluctuated since 1933, from a low of $1.5 billion in 1949 to $32.1 billion in 2000. In 1949, government payments made up 1.4% of total net farm income — a measure of profit — while in 2000 government payments made up 45.8% of such profits.
In 2019, farms received $22.6 billion in government payments, representing 20.4% of $111.1 billion in profits."
>If you're holding a currency in reserve, you're explicitly not using it to purchase goods and services.
Right. The point is you need confidence that it will be possible to use it for that in the future for a large portion of your (or somebody else's) basic needs.
The US gained reserve currency status when it became the world's factory in the aftermath of WW2 while the rest of the world's factories had been destroyed.
>Is it coincidental that the US started running a trade deficit in the decade it abandoned Bretton Woods?
After it became the world's reserve currency? No, it's not coincidental. As I said before it's a perk of being a reserve currency. How could they resist?
Well, they couldn't.
>If your currency becomes a reserve currency it tends to appreciate in value, which makes your own products more expensive (especially as exports). You can call being able to import things cheaply a benefit, but it's a detriment to those in the reserve currency country who make their living as producers.
I never said that being the world's reserve currency was good for America. It went from the world's industrial powerhouse (a title now claimed by China) to a having its entire industrial ecosystem hollowed out for profit.
It did take a long time though. That could be the case for China also. This is the kind of shift that can take up to 2-3 generations though, whereas a run on a currency takes a day.
Right. The point is you need confidence that it will be possible to use it for that in the future for a large portion of your (or somebody else's) basic needs.
The US gained reserve currency status when it became the world's factory in the aftermath of WW2 while the rest of the world's factories had been destroyed.
>Is it coincidental that the US started running a trade deficit in the decade it abandoned Bretton Woods?
After it became the world's reserve currency? No, it's not coincidental. As I said before it's a perk of being a reserve currency. How could they resist?
Well, they couldn't.
>If your currency becomes a reserve currency it tends to appreciate in value, which makes your own products more expensive (especially as exports). You can call being able to import things cheaply a benefit, but it's a detriment to those in the reserve currency country who make their living as producers.
I never said that being the world's reserve currency was good for America. It went from the world's industrial powerhouse (a title now claimed by China) to a having its entire industrial ecosystem hollowed out for profit.
It did take a long time though. That could be the case for China also. This is the kind of shift that can take up to 2-3 generations though, whereas a run on a currency takes a day.
> armchair doomerism
Exactly.
For years the cranks and conspiracy theorists have been whingeing about rumors of oil being traded in currencies other than dollars, as if that would somehow wipe out US global power.
This argument never made sense to me since forex trading is extraordinarily liquid and cheap.
If the seller of oil wants to receive euros or yen instead of dollars, and the buyer of oil wants to pay in francs or pounds, the cost of the forex conversion is measured in hundredths of a percentage point.
Exactly.
For years the cranks and conspiracy theorists have been whingeing about rumors of oil being traded in currencies other than dollars, as if that would somehow wipe out US global power.
This argument never made sense to me since forex trading is extraordinarily liquid and cheap.
If the seller of oil wants to receive euros or yen instead of dollars, and the buyer of oil wants to pay in francs or pounds, the cost of the forex conversion is measured in hundredths of a percentage point.
The US being run by the libs at a given moment brings on the contrarian doomerism
What does the arbitrary (fictional) debt ceiling have to do with the dollar? Other countries have successfully kicked the ball down the road (via a number of financial tricks) for longer. This feels like a pretty thin element of the rationale.
Most dollar reserves are held in treasury securities. They're as good as dollars and easier to transfer. But, only if payment is on time.
If treasury debt repayment is ocassionally late, it becomes a much more complex asset to manage. A dollar tomorrow isn't the same as a dollar today, and sometimes a dollar today is what's needed.
If treasury debt repayment is ocassionally late, it becomes a much more complex asset to manage. A dollar tomorrow isn't the same as a dollar today, and sometimes a dollar today is what's needed.
Or in case of default, no guarantee the debt will be paid at all.
Technically, the debt is in default when it is not timely paid. There's clearly a danger of that if a deal isn't struck in time. Assuming it's resolved quickly each time, it's more complex, but not a huge deal.
I don't think there's much danger of the debt not being paid at all, or paid at less than agreed face value and coupons. That would be a whole different thing, the 14th amendment says all public debts of the United States are valid, and to do otherwise would be a huge change, with major consequences. People don't buy long term Treasury securities because they think it's a good credit risk, they do it because they think there's no credit risk. If that changes, the whole game changes.
I don't think there's much danger of the debt not being paid at all, or paid at less than agreed face value and coupons. That would be a whole different thing, the 14th amendment says all public debts of the United States are valid, and to do otherwise would be a huge change, with major consequences. People don't buy long term Treasury securities because they think it's a good credit risk, they do it because they think there's no credit risk. If that changes, the whole game changes.
The fact that other countries have defaulted and the US never has is one of the key reasons why US govt bonds are considered "riskless", and contributes hugely to reserve currency status. Which is to say, market actors use it for lots of stuff they don't even think twice about b/c there is an implicit assumption that the US will never default on it's obligations.
Other countries continued to use the dollar even after the Usa defaulted on its obligation by closing the gold window. There’s a bit more going on that trust in USA - most dollars are issued by private entities in overseas markets.
They didn't. They mostly didn't use US govt bonds at that time, and the change was made by disconnecting other currencies from the dollar (but, granted, not at once).
What does it mean to privately issue a dollar?
Run an offshore bank or shadow bank with dollar accounts then credit the account with dollars. Ideally backed by dollar denominated assets so you don’t get a bank run.
It simply shows growing political instability of the US. We see this all over the place: the inability to successfully tackle major issues (shown by yearly fights over debts), bizarre socio-political ideas on the rise, and the last two holders of highest political office being a former gameshow host and an 80 year old who's main qualification was being second in command to a former leader. If you're a major CEO of a French finical firm, all these factors will start to influence your internal model of how stable the nation state will be in the coming decades
the inability to successfully tackle major issues (shown by yearly fights over debts)
I’d argue that it shows the opposite. That when it matters most, the US Congress can muster up a compromise and do so year after year.
I’d argue that it shows the opposite. That when it matters most, the US Congress can muster up a compromise and do so year after year.
> matters most
This is like the least significant thing they could work together on. There are SO many more issues they could tackle together but won't.
This is like the least significant thing they could work together on. There are SO many more issues they could tackle together but won't.
Biden had been a U.S. Senator for decades and chaired powerful committees.
Age may be an issue but I don’t think his experience should be in question.
Age may be an issue but I don’t think his experience should be in question.
I actually agree, but it seemed extremely obvious that he had no real desire to run and really wanted to step away from politics. But the current political system has become such that the only way one can become the top official is via "celebrity" status (i.e. we treat politicians as an entertainment commodity in the US); it's very arguable this became an issue with televised debates and the Reagan presidency (he was a very popular actor).
Basically we're past the point of finding extremely qualified individuals as leaders, now it's much more of a popularity contest
Basically we're past the point of finding extremely qualified individuals as leaders, now it's much more of a popularity contest
Isn’t Biden a counterexample to this point?
Also, I’m not sure that this country has ever really selected leaders based on innate leadership potential (whatever that may be). Sometimes it selects for celebrity (I think GWB and Obama were arguably both in this bucket, despite traditional-ish political backgrounds), sometimes generals, sometimes Republican senators from Ohio.
But even for the presidents who turned out to be tremendously powerful leaders (Lincoln, FDR, LBJ), I’m not sure that was a deliberate choice by the voters ex ante (and obviously not in the case of LBJ).
Also, I’m not sure that this country has ever really selected leaders based on innate leadership potential (whatever that may be). Sometimes it selects for celebrity (I think GWB and Obama were arguably both in this bucket, despite traditional-ish political backgrounds), sometimes generals, sometimes Republican senators from Ohio.
But even for the presidents who turned out to be tremendously powerful leaders (Lincoln, FDR, LBJ), I’m not sure that was a deliberate choice by the voters ex ante (and obviously not in the case of LBJ).
Yeah, democracy is a fundamentally flawed system in that way, the Greeks were heavily aware of the popularity contest potential of it as a governing system. It's essentially the job of the "political elites" who heavily manipulate the system (through mechanisms like primaries and candidacy criteria) to not let too many elderly plutocrats get into office; because that signals instability to the rest of the geopolitical players. The fact that our political elites can no longer maintain the steady state of "respectable" leadership in America, and are being forced to compromise for goofy polarizing candidates is actually very concerning for long term view of the nation
> Yeah, democracy is a fundamentally flawed system in that way
As long as the elections keep on happening in a timely manner it's a "flaw" that can fix itself.
As long as the elections keep on happening in a timely manner it's a "flaw" that can fix itself.
That's mostly assuming that "decorum" is kept, which is essentially the hallmark bellwether for geopolitical stability. A populis leader could hypothetically take and maintain power outside of established rules and laws (i.e. imposed term limits, respecting results of elections, being physically and mentally fit to serve). Every nation state is basically constantly on the knife's edge of falling into political disarray; decorum/external optics is basically the temperature you can use to measure stability
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Adding Peter's views [1][2]
[1] - https://www.youtube.com/watch?v=xTwwNoh0E6Q [video][6 mins]
[2] - https://www.youtube.com/watch?v=4V2s5-lOKAA [video][5 mins]
[1] - https://www.youtube.com/watch?v=xTwwNoh0E6Q [video][6 mins]
[2] - https://www.youtube.com/watch?v=4V2s5-lOKAA [video][5 mins]
Has Zeihan really surpassed Thiel on HN for who gets to be called by the first name Peter?
This dude is the absolute most entertaining geopolitical analyst, perhaps because no one else is filling this niche?
Is anyone else filling it? Any reason they aren't blowing up right now?
The thing is, Zeihan seems to be wrong a lot or most of the time about the particularities of his claims, yet his delivery is in a tone that is almost confident to the point of parody. Why doesn't he ever show any self doubt? I guess because that's a big part of his entertainment value, the showmanship. It doesn't stand up to scrutiny though if you watch for a couple years and then go back and look at the old videos.
We've yet to hear him really explain in a coherent way why piracy will suddenly plague the global oceans just because the US Navy won't patrol as consistently.
This dude is the absolute most entertaining geopolitical analyst, perhaps because no one else is filling this niche?
Is anyone else filling it? Any reason they aren't blowing up right now?
The thing is, Zeihan seems to be wrong a lot or most of the time about the particularities of his claims, yet his delivery is in a tone that is almost confident to the point of parody. Why doesn't he ever show any self doubt? I guess because that's a big part of his entertainment value, the showmanship. It doesn't stand up to scrutiny though if you watch for a couple years and then go back and look at the old videos.
We've yet to hear him really explain in a coherent way why piracy will suddenly plague the global oceans just because the US Navy won't patrol as consistently.
He's the Jim Cramer of geopolitics...
> We've yet to hear him really explain in a coherent way
It's hard to explain geopolitics in a coherent way in a five minute video...
I listened to one of his videos on China, and as a long-time China-watcher, I was not impressed. In fact, I closed the tab and wrote him off. He identified most of the factors influencing China's political situation, which he confidently extrapolated as actual fact. Much of what he said was not unreasonable as a working hypothesis of what might be going on specific to that area, but it was certainly highly unlikely to be accurate. The whole picture was definitely not accurate.
Compared to the clarity of thought of, say, John Mearsheimer or Ian Shapiro, who are scholars, I found Zeihan to be a waste of time.
> We've yet to hear him really explain in a coherent way
It's hard to explain geopolitics in a coherent way in a five minute video...
I listened to one of his videos on China, and as a long-time China-watcher, I was not impressed. In fact, I closed the tab and wrote him off. He identified most of the factors influencing China's political situation, which he confidently extrapolated as actual fact. Much of what he said was not unreasonable as a working hypothesis of what might be going on specific to that area, but it was certainly highly unlikely to be accurate. The whole picture was definitely not accurate.
Compared to the clarity of thought of, say, John Mearsheimer or Ian Shapiro, who are scholars, I found Zeihan to be a waste of time.
> Is anyone else filling it? Any reason they aren't blowing up right now?
This is my first exposure to Peter Zeihan (and geopolitical youtubers in general), so I can't really say. From a purely financial point of view Patrick Boyle covers stuff like this (with understated humor), and he's got 100k more subscribers.
Relevant recent videos:
Would a BRICS common currency work? 22 minutes - https://www.youtube.com/watch?v=JHZnVdBZJfA
The Weaponization Of The Dollar 20 minutes - https://www.youtube.com/watch?v=y9HoPF0_a6A
Brazil and Argentina - A Common Currency? 18 minutes - https://www.youtube.com/watch?v=e4H5X4fjq90
The Death of Globalization! 23 minutes - https://www.youtube.com/watch?v=H5ejv-dTAaU&t=185s
China's Overseas Bailouts! 18 minutes - https://www.youtube.com/watch?v=wfeDXy0bJb8
This is my first exposure to Peter Zeihan (and geopolitical youtubers in general), so I can't really say. From a purely financial point of view Patrick Boyle covers stuff like this (with understated humor), and he's got 100k more subscribers.
Relevant recent videos:
Would a BRICS common currency work? 22 minutes - https://www.youtube.com/watch?v=JHZnVdBZJfA
The Weaponization Of The Dollar 20 minutes - https://www.youtube.com/watch?v=y9HoPF0_a6A
Brazil and Argentina - A Common Currency? 18 minutes - https://www.youtube.com/watch?v=e4H5X4fjq90
The Death of Globalization! 23 minutes - https://www.youtube.com/watch?v=H5ejv-dTAaU&t=185s
China's Overseas Bailouts! 18 minutes - https://www.youtube.com/watch?v=wfeDXy0bJb8
I had no idea who he was before picking up End of the World Is Just the Beginning and I read it cover to cover. He is just very entertaining.
Not even the slightest bit self-doubt when he says China won't exist in 10 years lol.
The amount of salt I take him with would be deadly for anyone with high blood pressure but he is so much fun.
I think a big part of his act is telling Americans what we hope will happen while not believing it will. Also plays on the idea "everything you know is wrong" .
I would recommend Niall Ferguson and especially the Good Fellas show/podcast/youtube show from Stanford Hoover Institution.
To contrast Niall with Zeihan on China, we are in Cold War 2 that will last multiple generations. When debt payments surpass military spending it tends to be the beginning of the end for an empire. The problem with Niall is I think he is actually talking about reality.
Not even the slightest bit self-doubt when he says China won't exist in 10 years lol.
The amount of salt I take him with would be deadly for anyone with high blood pressure but he is so much fun.
I think a big part of his act is telling Americans what we hope will happen while not believing it will. Also plays on the idea "everything you know is wrong" .
I would recommend Niall Ferguson and especially the Good Fellas show/podcast/youtube show from Stanford Hoover Institution.
To contrast Niall with Zeihan on China, we are in Cold War 2 that will last multiple generations. When debt payments surpass military spending it tends to be the beginning of the end for an empire. The problem with Niall is I think he is actually talking about reality.
He gets massive credit for predicting that Russia would invade Ukraine when everybody else was predicting the opposite.
Everybody just ignores that he's had far more wrong predictions than correct ones.
For instance, he's been predicting the collapse of China within a decade for almost 20 years now.
Everybody just ignores that he's had far more wrong predictions than correct ones.
For instance, he's been predicting the collapse of China within a decade for almost 20 years now.
Not to mention that experts[0][1] that understood the regions political situation and history were calling out that there would be issues between Russia and the Ukraine that may ultimately lead to war as we see now, especially after the initial annexations of parts of the Ukraine by Russia in the 2010s
[0]: https://www.youtube.com/watch?v=JrMiSQAGOS4
[1]: https://www.mearsheimer.com/wp-content/uploads/2019/06/Why-t...
[0]: https://www.youtube.com/watch?v=JrMiSQAGOS4
[1]: https://www.mearsheimer.com/wp-content/uploads/2019/06/Why-t...
“Why the Ukraine Crisis Is the West’s Fault”
Just beyond parody. Such expertise.
Just beyond parody. Such expertise.
The difference is the certainty. Zeihan says something will happen. Real experts say something might happen.
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> We've yet to hear him really explain in a coherent way why piracy will suddenly plague the global oceans just because the US Navy won't patrol as consistently.
Ostensibly, because it's profitable to do so. Probably more profitable than before the US got tough on pirates.
Ostensibly, because it's profitable to do so. Probably more profitable than before the US got tough on pirates.
I think the bigger concern for America (really free speech) is that if America isn't keeping international trade safe and secure then another nation or entity will be.
That entity might not like the idea of freedom of speech and expression as much as Good Ol' Uncle Sam does. Then they can start dictating terms and sanctions since they control trade.
That entity might not like the idea of freedom of speech and expression as much as Good Ol' Uncle Sam does. Then they can start dictating terms and sanctions since they control trade.
Does he explain why all the other navies in the world disappear? Much of the anti-piracy patrols are done by other navies, like EU, India, and China. Any of the blue water navies are strong enough to prevent piracy. As are regional navies in the area. If they get together, as the European or Asian ones are likely to do, then they can suppress it worldwide.
I saw him on a recent interview after my YT algo started sending me his stuff, and he seemed to almost suggest the possibility of privateers (state-sponsored piracy) by local regional powers (he also predicts the collapse of the superpower structure into a model of more local/regional powers), or that in cases where it benefited regional powers they'd turn a blind eye?
Still makes no sense to me.
Still makes no sense to me.
> We've yet to hear him really explain in a coherent way why piracy will suddenly plague the global oceans just because the US Navy won't patrol as consistently.
He always explains it in very coherent terms that no other country has a navy capable of overpowering pirates on the deep sea. The fact that it's plain obvious bullshit doesn't make it incoherent.
Personally, I think it's very valuable that he puts it on every video of his. It has a very effective impact on audience selection.
He always explains it in very coherent terms that no other country has a navy capable of overpowering pirates on the deep sea. The fact that it's plain obvious bullshit doesn't make it incoherent.
Personally, I think it's very valuable that he puts it on every video of his. It has a very effective impact on audience selection.
The US Navy isn't special for privacy prevention. The things that make it special, carriers, Marines, and submarines, don't help with piracy. Without those, it is a large (but not the largest) navy. It is missing smaller ships that are most useful.
For the Malacca Strait, the most important navies are Indonesia, Malaysia, and Singapore. They could all police it together now, and with the some cooperation and improvement could each do it separately.
For the Malacca Strait, the most important navies are Indonesia, Malaysia, and Singapore. They could all police it together now, and with the some cooperation and improvement could each do it separately.
Predicting the future is hard, and you don't have to necessarily be right, only have helped prepare for the outcome (even if not what you predicted). Peter sells motivation to manage risk.
Hmm. I haven't watched Peter before, but as a (retired) career military officer who was well involved in those regions while serving, I find nothing to disagree with on these two videos other than perhaps matters of degree and where emphasis might shift.
This is a profoundly myopic analysis, and I’m surprised it holds any sway on a forum which prizes itself on “disruption” thinking. This is the equivalent of predicting Facebook will never overtake MySpace in 2006.
The immediate trend is towards trade denominated in various national currencies, but the ultimate trend is towards bootstrapping a new commodity-backed reserve currency via an international organization such as BRICS.
Arguing that USD won’t be displaced because it’s entrenched in various systems and used a lot completely misses the point that the underlying factors which created that state of affairs in the first place have collapsed.
The immediate trend is towards trade denominated in various national currencies, but the ultimate trend is towards bootstrapping a new commodity-backed reserve currency via an international organization such as BRICS.
Arguing that USD won’t be displaced because it’s entrenched in various systems and used a lot completely misses the point that the underlying factors which created that state of affairs in the first place have collapsed.
I may have a too simple perspective (in which case do point me in the right direction; instead of flagging yet another of my comments)
but as the world de-dollarizes, there's the idea that the we are going go the so-called "multipolar world" which I think means that there won't be a global reserve currency anymore; but many of them... but isn't this how the world worked in the 19th century?
However, as China catches up, and begins to overtake USA as the world's most powerful nation, doesn't this suggest that we are going to a world in which chinese renminbi (not yuan) is the new world's reserve currency?
curiously, renminbi is only mentioned once in this article, in the description of a graph.
also, I have very little access to quality information about renminbi, so I wonder how much is it a digital central bank currency? how much blockchain technology has been incorporated into its foundation?
but as the world de-dollarizes, there's the idea that the we are going go the so-called "multipolar world" which I think means that there won't be a global reserve currency anymore; but many of them... but isn't this how the world worked in the 19th century?
However, as China catches up, and begins to overtake USA as the world's most powerful nation, doesn't this suggest that we are going to a world in which chinese renminbi (not yuan) is the new world's reserve currency?
curiously, renminbi is only mentioned once in this article, in the description of a graph.
also, I have very little access to quality information about renminbi, so I wonder how much is it a digital central bank currency? how much blockchain technology has been incorporated into its foundation?
From what I've read, the 19th century experienced considerable price instability. I'm not sure I'd say that they had a working money system.
> Doesn't this suggest that we are going to a world in which Chinese renminbi [...] is the new world's reserve currency?
I don't think it is as necessarily as clear as "whoever is the most powerful nation gets to be in charge of the reserve currency." Nor do I think you were necessarily making that assumption.
There are pros and cons to having one's national currency be the world's reserve currency. For one, it provides more liquidity and easier access for US firms to capital markets. On the other hand, it can be argued that the US's trade deficit can be in part attributed to the need for more US dollars to exist(so that other nations can hold them in reserve) than goods it produces. This is called the Triffin Dilemma[1].
Additionally, the trade deficit has an interesting effect, namely the goods traded tend to be commodities which over time because easier and cheaper to produce ie: productivity increases naturally compound over time to lower their manufacturing cost. The CPI changes over the last 20 years[2] clearly indicate that TVs, computers, phones have benefited from productivity increases, while healthcare, education, and childcare have not. The latter group, is both resistant to outsourcing via international trade and (importantly) is resistant to scaling by increased productivity measure. This last component is known as the Baumol Effect[3].
With these in mind, you have a rough guide on what could happen if the Renminbi because the world's reserve currency - China would issue more Renminbi so that others could hold them in reserve, this could impact the US trade deficit, capital could be more difficult to find for US firms(bad for the economy), but US manufacturing could make a comeback(for better or worse), and this could mean fewer US dollars chasing services which could impact the Baumol Effect and shift the trajectory of cost disease. Mirror this for China.
The US, keeping these in mind, would have to make a calculation: is this a net positive or negative? There are, however, other strategies they could pursue. One of the ideas floated around by Keynes (in order to address the factors leading to the Triffin Dilemma) is the creation of the Bancor[4], a supernational unit of account structured to incentivize small trade deficits, or in more recent times the idea of a Carbon coin[5] structured to avoid civilization collapse from climate change.
The issue with the Bancor and Carbon coin is always one of was that a new international clearing union would necessarily need to be created to facilitate Bancor accounting. And the issue with a Carbon coin is fundamentally a coordination problem among central banks and national policy. They simply don't work if you're the only one doing it. And frankly, nations like the US have a difficult time when it comes to accepting a world where they aren't in charge. When faced with the question of a Renminbi-dominated future through inaction, or having to overcome the coordination problem of a supernational unit of accounting, the US finds itself between two seemingly impossible choices.
1. https://www.bis.org/publ/work684.pdf
2. https://i.pinimg.com/originals/88/7f/f0/887ff07f61b1b635ffac...
3. https://en.wikipedia.org/wiki/Baumol_effect
4. https://en.wikipedia.org/wiki/Bancor
5. https://globalcarbonreward.org/carbon-currency/
I don't think it is as necessarily as clear as "whoever is the most powerful nation gets to be in charge of the reserve currency." Nor do I think you were necessarily making that assumption.
There are pros and cons to having one's national currency be the world's reserve currency. For one, it provides more liquidity and easier access for US firms to capital markets. On the other hand, it can be argued that the US's trade deficit can be in part attributed to the need for more US dollars to exist(so that other nations can hold them in reserve) than goods it produces. This is called the Triffin Dilemma[1].
Additionally, the trade deficit has an interesting effect, namely the goods traded tend to be commodities which over time because easier and cheaper to produce ie: productivity increases naturally compound over time to lower their manufacturing cost. The CPI changes over the last 20 years[2] clearly indicate that TVs, computers, phones have benefited from productivity increases, while healthcare, education, and childcare have not. The latter group, is both resistant to outsourcing via international trade and (importantly) is resistant to scaling by increased productivity measure. This last component is known as the Baumol Effect[3].
With these in mind, you have a rough guide on what could happen if the Renminbi because the world's reserve currency - China would issue more Renminbi so that others could hold them in reserve, this could impact the US trade deficit, capital could be more difficult to find for US firms(bad for the economy), but US manufacturing could make a comeback(for better or worse), and this could mean fewer US dollars chasing services which could impact the Baumol Effect and shift the trajectory of cost disease. Mirror this for China.
The US, keeping these in mind, would have to make a calculation: is this a net positive or negative? There are, however, other strategies they could pursue. One of the ideas floated around by Keynes (in order to address the factors leading to the Triffin Dilemma) is the creation of the Bancor[4], a supernational unit of account structured to incentivize small trade deficits, or in more recent times the idea of a Carbon coin[5] structured to avoid civilization collapse from climate change.
The issue with the Bancor and Carbon coin is always one of was that a new international clearing union would necessarily need to be created to facilitate Bancor accounting. And the issue with a Carbon coin is fundamentally a coordination problem among central banks and national policy. They simply don't work if you're the only one doing it. And frankly, nations like the US have a difficult time when it comes to accepting a world where they aren't in charge. When faced with the question of a Renminbi-dominated future through inaction, or having to overcome the coordination problem of a supernational unit of accounting, the US finds itself between two seemingly impossible choices.
1. https://www.bis.org/publ/work684.pdf
2. https://i.pinimg.com/originals/88/7f/f0/887ff07f61b1b635ffac...
3. https://en.wikipedia.org/wiki/Baumol_effect
4. https://en.wikipedia.org/wiki/Bancor
5. https://globalcarbonreward.org/carbon-currency/
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If only we had some kind of technology that could be used to unify and modernize the global financial system. Perhaps there will be a way to integrate math and computer science for secure and fair transactions. One can hope. Some day we will have an advanced technology like that. Perhaps in a 100 years?
I guess we live in these distant countries and speak different languages, how could we possibly agree on anything if we can't even understand each other.
Maybe some day they will invent a type of communication that spans continents. Perhaps even nearly instantaneous communications across the other side of the world! Imagine if something that incredible were real? And then we might even have software what can translate between any major language automatically.
If only such a science-fiction world were possible. Maybe someday in the far future we will have the tools for some level of civilized geopolitical resolution.
But who am I kidding..computers will probably write poetry, songs, and computer programs before we get all of that stuff. Or maybe never. Maybe some day.
I guess we live in these distant countries and speak different languages, how could we possibly agree on anything if we can't even understand each other.
Maybe some day they will invent a type of communication that spans continents. Perhaps even nearly instantaneous communications across the other side of the world! Imagine if something that incredible were real? And then we might even have software what can translate between any major language automatically.
If only such a science-fiction world were possible. Maybe someday in the far future we will have the tools for some level of civilized geopolitical resolution.
But who am I kidding..computers will probably write poetry, songs, and computer programs before we get all of that stuff. Or maybe never. Maybe some day.
Personally it seems there's a recent uptick in "armchair doomerism" articles around the idea of de-dollarisation.
[1] https://www.youtube.com/watch?v=JHZnVdBZJfA