It can’t, the international value of the dollar is based on international demand for $USD, which is high because US bonds are the most reliable investment in the world. This use of bonds also allows the US government to speed up or slow down the economy through interest rates, which has given us 40 years of the lowest and most stable inflation in US history.
We’re throwing that away because stupid people voted for stupid people who don’t know what they want, much less what policies will get it for them.
It won’t. Trump is fast tracking a transition to the Euro as the Reserve currency. The world doesn’t want a feral clown holding that much power. The dollar is the reserve currency because the US is a huge and stable market, or rather was.
Just one more way Trump is destroying the US’s soft power.
Well other reserve currencies are part of countries that run trade surpluses. It’s been a while since I was in an econ class. Is there a requirement to run a deficit I don’t remember?
The deficit has nothing to do with USD being used as a main currency for international trade/reserve. Demand for dollars is dependent on demand for U.S. issued papers and oil; only after oil trade from the Middle East exploded post WWII did dollar became the dominant currency because those trades were all denominated in dollars.
The truth is that American USD supremacy in the world is on the wane. The USD is back only by being the de facto currency that oil is traded in and by the US military. Nothing else.
Oil trades are now being done in other currencies such as the Chinese Yuan or the EU Euro.
In fact, a while back, Iran made moves to have all future oil trades done in their country be in Euros. The US, however did not like this at all.
Any threat to the primacy of the US Dollar in oil trades means that the US loses a lot of leverage and power as their sanctions won’t hit quite as hard.
As for the trade deficit, I have to say that the US doing something about it is good. Maybe not for the world in general but for the US in particular this will be good news in time.
What folks don’t really want to think about is the sheer power that the Chinese have over everything as they are the world’s producer of much needed technology these days. Technology that the US government really wants to bring back to US shores for much needed jobs and for their security.
The USD will become ONE of the world’s reserve currencies among others, instead of just being the main one. It’s just the way the world is changing.
I don’t understand what one thing has to do with the other.
A country can engage in trade without having a trade deficit. “Trade deficit” means “I give you more stuff than you give me”, or basically, “I need to buy more of your currency than you need to buy of mine”, the effect of that being that I produce more demand for your currency than you produce demand for mine.
The claim of “reserve currency” is simply that the USD is a currency of last resort; prior to 1971 (look up “Bretton Woods” on Wikipedia for additional information), countries held gold, and their currencies were backed by gold, meaning that gold ownership was the backing for currency, and the wealth of a country was measured in the value of their gold. Subsequent to 1971, the backing for the currency was USD, and the backing for USD was gold (hence Fort Knox becoming very important). So, countries’ wealth was measured in USD, rather than in gold.
Because the USD is the reserve currency, other countries must hold supplies of USD to back the wealth of their countries (and value of their currencies). But this has nothing to do with trade, I’m unable to make that connection.
The only connection I can think of is that, if the US has no trade deficit with any country, then how does that country acquire USD to back their own currency (or resupply their stocks of USD to back their currency when they spend that USD to import from the US)? The answer to that is that foreign exchange markets exist; Americans want to buy foreign currencies for lots of reasons, for trade is one, but also for foreign investment, or simply for speculation, or other reasons. There’s lots of reasons Americans may want to sell USD and buy other currencies. And that’s how the currencies circulate, it’s not necessarily through trade.
(And no, before you ask, investment dollars, e.g. buying foreign stocks/bonds is not considered “trade” for the purposes of a “trade deficit”)
The US benefits very little from being the world’s reserve currency, and it isn’t going to hold that title forever as the US share of global trade and gdp shrink. The value of being the reserve currency is vastly overstated now that the US is not 50% of global trade. Other people trading things in US dollars just means they have bought some US dollars at some point. That’s fine, but a low interest loan for a few hundred billion or couple of trillion dollars is not the decisive factor on US borrowing costs when it owes something like 35 trillion dollars in government debt and is adding a 1.7 trillion a year..
Lot’s of people will still want to buy US goods, services and investments, even with tariffs. Things which can be replaced might be, but rest of us are not weaning ourselves off us tech, oil, medicine, aircraft, machinery etc overnight.
Other countries are also trying to be careful here. Driving up costs for goods from the US is a retaliatory measure, but the point is to induce the US to change its behaviour, just making things we need more expensive for us isn’t doing any good. So the Canadian federal approach is a mostly smart one to follow: try and put tariffs on republican supporting businesses that can have their goods or services substituted for something else and then poking at the big guys like tech and pharma to try and persuade the trump admin that keeping control of things like their intellectual property is worth doing.
What other currency would you rather own? Euro? Germany is the only country that actually works in Europe and they have tons of problems from immigration to industrial output. USD is here to stay and DJT syndrome will not change that. Even with the market blazing Red, there is no other country with the innovation, financing, and economy like the US. None.
I’ve got a nephew with pretty severe impulse control issues. Sometimes he just wrecks things. You ask him why, and he’ll say, “I didn’t think it would explode and catch fire and then crash like that.” So you say, “You rigged it to blow up and filled it full of lighter fluid and rolled it off a cliff, why didn’t you think it would do exactly what you obviously wanted it to do?” At this point he’ll admit that, “he waned to see what would happen.” He’s 11. The world economy is in the hands of an adult who has the same level of maturity. The answer to all of these questions is; it won’t. It’s going to explode and catch fire and crash.
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well, the simple version is… it won’t. that’s it. that’s the plan.
It can’t, the international value of the dollar is based on international demand for $USD, which is high because US bonds are the most reliable investment in the world. This use of bonds also allows the US government to speed up or slow down the economy through interest rates, which has given us 40 years of the lowest and most stable inflation in US history.
We’re throwing that away because stupid people voted for stupid people who don’t know what they want, much less what policies will get it for them.
It won’t. Trump is fast tracking a transition to the Euro as the Reserve currency. The world doesn’t want a feral clown holding that much power. The dollar is the reserve currency because the US is a huge and stable market, or rather was.
Just one more way Trump is destroying the US’s soft power.
Well other reserve currencies are part of countries that run trade surpluses. It’s been a while since I was in an econ class. Is there a requirement to run a deficit I don’t remember?
The deficit has nothing to do with USD being used as a main currency for international trade/reserve. Demand for dollars is dependent on demand for U.S. issued papers and oil; only after oil trade from the Middle East exploded post WWII did dollar became the dominant currency because those trades were all denominated in dollars.
The truth is that American USD supremacy in the world is on the wane. The USD is back only by being the de facto currency that oil is traded in and by the US military. Nothing else.
Oil trades are now being done in other currencies such as the Chinese Yuan or the EU Euro.
In fact, a while back, Iran made moves to have all future oil trades done in their country be in Euros. The US, however did not like this at all.
Any threat to the primacy of the US Dollar in oil trades means that the US loses a lot of leverage and power as their sanctions won’t hit quite as hard.
As for the trade deficit, I have to say that the US doing something about it is good. Maybe not for the world in general but for the US in particular this will be good news in time.
What folks don’t really want to think about is the sheer power that the Chinese have over everything as they are the world’s producer of much needed technology these days. Technology that the US government really wants to bring back to US shores for much needed jobs and for their security.
The USD will become ONE of the world’s reserve currencies among others, instead of just being the main one. It’s just the way the world is changing.
It cannot. Unfortunately it’s the younger generation which will pay the price.
I don’t understand what one thing has to do with the other.
A country can engage in trade without having a trade deficit. “Trade deficit” means “I give you more stuff than you give me”, or basically, “I need to buy more of your currency than you need to buy of mine”, the effect of that being that I produce more demand for your currency than you produce demand for mine.
The claim of “reserve currency” is simply that the USD is a currency of last resort; prior to 1971 (look up “Bretton Woods” on Wikipedia for additional information), countries held gold, and their currencies were backed by gold, meaning that gold ownership was the backing for currency, and the wealth of a country was measured in the value of their gold. Subsequent to 1971, the backing for the currency was USD, and the backing for USD was gold (hence Fort Knox becoming very important). So, countries’ wealth was measured in USD, rather than in gold.
Because the USD is the reserve currency, other countries must hold supplies of USD to back the wealth of their countries (and value of their currencies). But this has nothing to do with trade, I’m unable to make that connection.
The only connection I can think of is that, if the US has no trade deficit with any country, then how does that country acquire USD to back their own currency (or resupply their stocks of USD to back their currency when they spend that USD to import from the US)? The answer to that is that foreign exchange markets exist; Americans want to buy foreign currencies for lots of reasons, for trade is one, but also for foreign investment, or simply for speculation, or other reasons. There’s lots of reasons Americans may want to sell USD and buy other currencies. And that’s how the currencies circulate, it’s not necessarily through trade.
(And no, before you ask, investment dollars, e.g. buying foreign stocks/bonds is not considered “trade” for the purposes of a “trade deficit”)
This is not really an ELI5, since the question presupposes knowledge more advanced than most people have
The US benefits very little from being the world’s reserve currency, and it isn’t going to hold that title forever as the US share of global trade and gdp shrink. The value of being the reserve currency is vastly overstated now that the US is not 50% of global trade. Other people trading things in US dollars just means they have bought some US dollars at some point. That’s fine, but a low interest loan for a few hundred billion or couple of trillion dollars is not the decisive factor on US borrowing costs when it owes something like 35 trillion dollars in government debt and is adding a 1.7 trillion a year..
Lot’s of people will still want to buy US goods, services and investments, even with tariffs. Things which can be replaced might be, but rest of us are not weaning ourselves off us tech, oil, medicine, aircraft, machinery etc overnight.
Other countries are also trying to be careful here. Driving up costs for goods from the US is a retaliatory measure, but the point is to induce the US to change its behaviour, just making things we need more expensive for us isn’t doing any good. So the Canadian federal approach is a mostly smart one to follow: try and put tariffs on republican supporting businesses that can have their goods or services substituted for something else and then poking at the big guys like tech and pharma to try and persuade the trump admin that keeping control of things like their intellectual property is worth doing.
What other currency would you rather own? Euro? Germany is the only country that actually works in Europe and they have tons of problems from immigration to industrial output. USD is here to stay and DJT syndrome will not change that. Even with the market blazing Red, there is no other country with the innovation, financing, and economy like the US. None.
I’ve got a nephew with pretty severe impulse control issues. Sometimes he just wrecks things. You ask him why, and he’ll say, “I didn’t think it would explode and catch fire and then crash like that.” So you say, “You rigged it to blow up and filled it full of lighter fluid and rolled it off a cliff, why didn’t you think it would do exactly what you obviously wanted it to do?” At this point he’ll admit that, “he waned to see what would happen.” He’s 11. The world economy is in the hands of an adult who has the same level of maturity. The answer to all of these questions is; it won’t. It’s going to explode and catch fire and crash.