For those who are not bothering to read this,the article essentially states that de-dollarization is happening in pockets (e.g., reserves down to ~58-60%, Treasuries foreign ownership at 30%), but the dollar's core dominance persists.
What would replace it? I guess the options are Yuan, Gold, Oil or maybe BRICS in the future, none of which are safe, stable, and liquid.
HN is great for technical discussions, but is below average for political or macroeconomic discussions. A HN comment thread on those topics is essentially indistinguishable from a NYT comments section, which I mean as an unfavourable comparison.
Turns out that being good at SQL does not make one good at the subtle social art / science of power and governance. If anything, the correlation is inverse. This shouldn't be surprising.
>BRICS has implemented initiatives that could reform the global financial system, such as the New Development Bank, the BRICS Contingent Reserve Arrangement, BRICS PAY and the BRICS Joint Statistical Publication. BRICS has also advanced de-dollarization to reduce the use of the U.S. dollar as reserve currency. In its first 15 years, BRICS has established almost 60 intragroup institutions and an extensive network including think tanks and dialogues.
It'll be fractured for a while, which isn't great.
Africa will likely primarily use the yuan, Europe the euro, and a smattering of states will use the dollar.
This sort of fracturing is bad because the cost of goods will be pretty much unpredictable. Trade routes may once again determine how something is priced. It also means goods that are cheap today may become massively expensive tomorrow.
There might be some regional stability, but things like electronics that use a global market are going to be heavily disrupted.
Your linked page doesn't actually appear to render any sort of compelling argument for this.
In fact - the entire argument seems to more accurately hinge the conditional left off the main saying, so the full description is:
"Bad money drives out good if they exchange for the same price."
But that requires a legal structure that enforces the disparity, and the summary of the whole thing basically boils down to:
---
If given the choice of what money to accept, people will accept the money they believe to be of highest long-term value and not accept what they believe to be of low long-term value. If not given the choice and required to accept all money, good and bad, they will tend to keep the money of greater perceived value in their own possession and pass the bad money to others.
---
But if anything - this is exactly an argument for the value of soft power to the US, because we can't enforce how other nations transact, except through soft power.
In practice, everyone wants to spend their dollars, not their gold, or their bitcoin, or their Euros, and so dollars it will be. What else is there that anyone both with pay with and will be accepted by the other party?
Again - you skip the full statement of the economic principle at hand.
No one cares that everyone wants to spend their dollars. They care whether the seller takes them, and is forced to take them at the same value as more cherished coin.
There is no functional mechanism to enforce this internationally - we already see the value of the dollar declining.
It's entrenched, so I expect the withdrawal to be relatively slow for the same reason you don't rip the bandaid off - you avoid a lot of pain. But there is nothing stopping the bandaid from coming off.
> you skip the full statement of the economic principle at hand.
Hence "In practice".
To the meat of your argument: sure, there's no mechanism to coerce it internationally, but it's self-perpetuating. Everybody could quit using dollars tomorrow. But they won't.
> we already see the value of the dollar declining.
This is not clearly the case. Its value relative to other currencies (as of this month), while subject to cyclical fluctuations, is on par for the post-Covid cycles and higher than pre-2020 levels [0].
Soon dollars might not be accepted if US companies wants to buy things in the EU, they will have to pay in euros (part of the anti coercion instrument that Macron and others have been talking about the last couple of days)
I don't think it will happen. 10% of EU bank loans that are dollar-denominated [0]. If they cut the flow of dollars into the EU, the debtors of those loans would wind up offering a premium for their goods and services to non-US companies, making them uncompetitive. It would be a roundabout tariff that would hurt the EU countries too much.
Ok, good for Taleb, he made a good investment potentially, but gold increasing in value relative to the dollar doesn't make it the reserve currency. Being used in transactions makes it the world currency. Otherwise, nvidia stock would be the new world reserve currency.
Prior reserve currency failures involved currency collapses. I think Gresham accounts for this. Looking at the particular mechanisms of collapse, I think they all involve a failed transition to fiat. Can you name another example of a currency that survived the transition to pure fiat (i.e. not backed by metals in any respect)? The dollar did this in the 70s and continued to increase its dominance in the decades that followed. In all cases of prior world currencies, I don't think any survived the transition to pure fiat. Sure, a theoretical dollar collapse could spell a return to gold or silver, but you'd have to make a case for total collapse, rather than just the dollar being eclipsed by some other currency.
I agree the dollar is uniquely successful, but the Pound ended convertibility in 1931, and limped as a reserve currency into the 70s. While not a reserve currency, another example is Chinese currencies like the second zhiyuanchao going off silver convertibility, which lasted for a bit over 50 years.[1]
When the Dutch for example did try to go off a metallic standard it was essentially a last ditch effort as they were completely broke. The US on the other hand had the advantage of still controlling global trade/it's military, liquid markets and the petrodollar system. The dollar's floating exchange rate also served as a release valve, allowing devaluation to occur gradually over the decade that followed versus all at once.
Re a dollar collapse I see a gradual shift towards a more multipolar world with no clear singular reserve currency and no currency which eclipses the dollar as more likely than a collapse or eclipse. For example where the Americas still primarily transact in dollars, the Yuan becomes an increasing percentage of belt and road trade, and the Euro in it's sphere.
Thanks for a good reply with lots of interesting historical examples. I think your conclusion is sound. I suppose this is a likely counter scenario to my assertion that nothing will replace the dollar, but rather that it will be partially replaced by a little bit of everything over the course of decades.
Likewise, it's always good to think through different perspectives. For what it's worth there are definitely people who think it will take much longer than most expect, due to for example the creation and growth of US Stablecoins, China wanting to be an exporter more than wanting the Yuan to be a reserve currency, or greater relative weakness in other countries for example.
The harsh reality is that a federated state system with a very weak governing body economically and politically is extremely unlikely to be the global trade currency.
Let's what-if a scenario where the Fed is made subservient to the President and the President wants the dials turned to 11, let the next guy deal with the consequences.
The dollar isn't indestructible. If not the Euro, what?
I was referring to Europe and america together -- and I think your conjecture is real -- what if we move to a projection of holographic economy over the real one. The answer is, whichever gets the most people to cooperate and support that holographic system will survive. In general collective weak systems tend to not work well there. But hyper centralized systems tend to over index on projection. Which is why we have the separation.
the BRICS Unit was proposed to resolve the "Triffin dilemma", which is that the structural deficit necessary to maintain reserve status inevitably erodes trust in the currency over time. China's economy also relies on exports which would not be helped by reserve status. which is to say an eventual replacement may not be the yuan or any other single currency
It’s dumb because it requires uninterrupted access to an incredibly complex system. The cognitive dissonance of people who see bitcoin as resilient is hilarious.
If a sovereign government declared bitcoin illegal, it becomes illegal. There is nothing unique about any asset to stop this because the rules are all made up and can change anytime.
Crypto is arguably among the worst assets for that threat model though.
When they called in the physical gold, people could squirrel away their $10 and $20 coins in wallsafes and shoeboxes to trade with trusted partners later. Declaring the coins illegal didn't cause them to disappear from people's hands directly.
Crypto doesn't have that physical anchor. If a major world government declared it illegal tomorrow, how would you, as a resident of that country, access the value in your favourite blockchain wallet?
Law enforcement could monitor the remnants of the network and trying to trigger transactions is obvious probable cause. That assumes the remnants still function-- they aren't being blocked by DPI/filtering, or just the functional destabilization caused by a large number of participants being unplugged from the network.
At best, you'd have to go off-ledger and trade talismans (handing over a document with the private keys for an existing wallet like a bearer instrument and hoping they didn't run off multiple copies, or just trying to keep records of transactions and balances elsewhere and hoping to resynch eventually)
This is also why the paper dollar is so important to its reserve-currency status. An enterprising bank in the developing world might say "we offer USD-denominated accounts, all digital, it's 20xx" for customers who don't trust the local currency, but those are a lot easier for the local government to deactivate than a coffee can full of greenbacks buried in their backyard.
The context of my comment was Bitcoin as an alternative to traditional reserves. I’m saying that in a domain as lawless as international law, gold bars make sense in a way that bitcoin does not.
It has at least one fatal flaw: the math it is based on. I feel like it won't be too long before a few major weaknesses are found and bitcoin will lose all security.
Bitcoin has been running since 2009 with plenty of incentive for hackers to find flaws in it and they haven't found any. It uses standard cryptography that is used by all our computer systems. If a flaw exists it's not just bitcoin that will be damaged but everything we use.
OK, how do I know that gold is pure and real? What if you live on the other side of the world and I want to buy that gold from you?
And there isn't any "hope" involved in bitcoin transactions. Connecting to the peer to peer network is super simple (way, way easier than creating a brokerage or bank account, and no ID or approval is required). Miners will pick up your transaction (and yes fees will help speed that up, as with any financial transaction) and it will be included in a block. Bitcoin has been doing this non-stop, flawlessly since 2009.
Bitcoin doesn't really solve the trust issue, because it covers half the transaction. If I send you a bunch of bitcoin in exchange for oil, how do I ensure the oil shows up?
There are fixes to that problem, of course, but it's not bitcoin itself that's the solution.
OP was literally comparing payments in gold and in crypto. For which kind of transactions? I admit, it was unspecified, and it might have read too much into it.
By it sure does sound simpler to type some numbers that to cut up pieces of metal.
> If it can't be _your_ currency let it at least be a currency no other nation controls
At that point just hoard resources. Holding a bunch of Bitcoin in a crisis is useless for a country if no other country will buy them off you in exchange for tradeable hard currency.
"just hoard resources" really has nothing to do with a world currency to replace the dollar, which is what we are talking about here. In a crisis you can't eat dollars, gold, oil, or bitcoin, so yeah, you kinda have a point, but an orthogonal one.
> In a crisis you can't eat dollars, gold, oil, or bitcoin
But you can easily trade dollars for stuff Americans will sell you. That's the advantage of a national backer. In a crisis, they'll welcome the influx of capital in exchange for goods and services. Precisely what you need it you want to spend it.
This is why sanctions fuck up reserve calculations. If, in a crisis, America will sanction you, you might as well have held gold or Bitcoin.
You are right. My point is that if you have international trade of even mild complexity, having a currency is very convenient so trade will end up being denominated in one. No reason it can't be some crypto that is not backed by any nation.
> No reason it can't be some crypto that is not backed by any nation
There is a great reason: a state-backed currency should always be accepted by that state. If the world is in crisis, you may wind up stuck with your Bitcoins.
> thought we were talking about World reserve currency here i.e. international trade
Yes. If you're a random country, you can use your dollars to buy shit from America. Countries hold reserves for basically two direct reasons: to intervene in FX markes and protect their imports. The latter is the main one. At the end of the day, your ideal reserve composition matches your import portfolio because you want currency you can send to the people who are selling you shit.
Is it a conspiracy theory that Bitcoin was developed by the US military as a hedge against US dollar hyperinflation? I've heard that argument made somewhere but maybe it was just a rumor to try to legitimize Bitcoin?
> Is it a conspiracy theory that Bitcoin was developed by the US military as a hedge against US dollar hyperinflation?
Yes, none of that makes an iota of sense. If a military wants to take inflation into its own hands, it has far-better options. From hoarding to, you know, taking shit.
Just because frivilous money printing is bad does not mean that a fixed supply is good. A fixed supply is a terrible property to have in a money system. It's very beneficial to have a money supply that can grow or shrink according to demand.
This is a tough argument to engage with. Define "frivolous" when it comes to money printing. Define beneficial, and define beneficial to whom. Talk about who decides how much money to print. And you said it's beneficial to have the supply grow or shrink. We know "printing more" is how you grow the supply, but how do you shrink the supply?
Whenever Bitcoin is brought up, the same arguments against it are made by people who are too arrogant to look up credible counterarguments. I've decided to stop bringing it up to the HN crowd since it seems like a magnet for downvotes.
What would replace it? I guess the options are Yuan, Gold, Oil or maybe BRICS in the future, none of which are safe, stable, and liquid.