Usd Share as Global Reserve Currency Drops to Lowest Since 1994

My understanding is that has happened. The oil market was tied to the USD. The BRICS have now implemented a payment system as robust as SWIFT system. Oil is now being paid for using that system.

Are you trying to project this unto Trump when the Fed is doing everything it can to oppose his measures?

I'm only the crypto weirdo guy asking.

This is more of a go out with a whimper rather than a bang type thing. Being the world reserve currency (as well as the largest consumer market in the world) previously enabled the US to do things like relatively easily export inflation in spite of relatively reckless monetary policy. Now that inflation is sticking around far more persistently, even long term bonds have gone from 1-2% to 4%+, and so on. Stagflation is a conceivable longer term outcome.

The replacement will probably be a multinational currency with strictly controlled quantity tied to some sort of physical asset(s). Basically Bretton Woods 2.0, except with the learned experience of not just granting a single country immense power and having them pinky swear not to default on their obligations and then abuse that granted power. China's probably betting that that asset will be gold.

The British pound was displaced by the US dollar. Currently, the US dollar just doesn't have a proper rival. The euro, yuan and rupee are considered politically suspect (each for its own unique reasons); the pound and yen have too small a base. Without further transformation of the global financial system, the only alternative is for banks to hold a basket of currencies, and in such a basket the dollar would likely still play a significant, if reduced, role. This is a slow process because it means changing the nature of currency reserves from a single safe haven to a "nest". What this means for USG spending power is not immediately clear.

There’s nothing fundamentally stopping all currencies from floating against gold and gold being the base asset

In some ways, this effect can have a positive impact on US citizens; demand for the US dollar requires supply to satisfy the demand. Where does that supply come from? Oftentimes: Printing. The US generally does not make a habit of telling US dollar buyers "no, we don't have any US dollars to sell you", so less demand on the dollar for reserve holdings can have a deflationary impact on its value. This can be combined with lowering interest rates, which creates more domestic demand for dollars, to help balance out the inflationary impacts from that.

Its only really a crisis for people who are dependent on the US for protection. The whole compact is that you use the dollar, and the US will look after you (ie House of Saud, Europe, taiwan, south korea, etc) But that isn't really certain anymore.

You need to make tributes to the suntan king, and he is most capricious and likley to tariff the fuck out of you. So alternative destination for your goods is a necessity

Also the markets are not convinced that the fed is in good hands. The whole point of the fed is that they are far enough away from the meddling in Washington so that you can rely on the dollar. The fed is being steadily erroded, with the new chair being selected soon. The problem is that present administration is hell bent on loyalty over competence.

Printing dollars to get out of domestic budgetary problems was never a thing (excluding QE, but thats different, nominally) was never an option in the US. but that doesn't seem so far fetched now.

Treasuries are not some kind of artifacts that can be stored indefinitely, they are bonds with maturity dates. As they mature they turn into cash automatically and that cash used to come from selling new treasuries. As the demand dwindles the US has to sell its bonds cheaper thus borrowing at higher interest and that interest will have to be paid by selling even more treasuries at even higher interest so it's already a feedback loop.

US Treasuries have terms, if you aren’t refreshing your treasury buys, it is the same as selling them. US treasuries and by extension USD was useful because it could soak up billions of dollars of savings (debt for America) without taking a huge inflation hit (treasury rates were often less than inflation, so you still take some hit).

As for where that money is going now? Other currencies and saving instruments probably..

Not buying is same as selling with debt. On long enough time horizon. If the debt is not rolled over anymore eventually you run out of lenders.

> What could replace it?

It doesn't necessarily have to be one thing. We've had multi-currency regimes in the past (before one generally took over). See How global currencies work past, present, and future by Barry Eichengreen, Arnaud Mehl, and Livia Chitu:

* https://press.princeton.edu/books/hardcover/9780691177007/ho...

If they stop buying treasuries, that's still a big problem, because the US continues to run a deficit, and therefore continues to need to sell treasuries.

Trend has been negative since 1999 so as much as I like to poke the tango doll, this can not be the reason or only reason.

Trump is the most progressive president we have ever had.

Every time I hear people claiming India and China now not using dollar and the end of dollar’s dominance, I feel it’s coming from mostly clickbait headlines, not data. From a global payments share, dollar is still the single largest currency from a percentage standpoint, and is at historically highest share of global trade. Any changes to currency share are coming from lower volume from the Euro. On top of that, if you look at foreign reserves, yes there has been a recent selloff from the peak, but we are still at 60% of global reserves and its still kind of around the same historical average for the last 30+ years.

https://www.federalreserve.gov/econres/notes/feds-notes/the-...

> get the bloody USD printing machine under control

The amount the US government spends on debt service is already unreasonable. If the US dollar lost reserve status, the first thing that would happen is that the Fed would have to buy the debt with newly created money to prevent bond rates from causing interest payments to explode. Meanwhile the act of other countries unloading US dollar reserves would cause significant inflation in itself.

Basically, loss of reserve status = hyperinflation. At least at the outset.

On the plus side, that would pretty much wipe out the excessive amount of US consumer debt as long as wages stay consistent with the value of the dollar.

Lot of emotion in this comment; not a lot of substance. I think you're misunderstanding how some of these systems work.

> This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.

It is not the case that the US didn't "need" to get the USD printing machine under control because of the reserve status; it is the case that the US "could not" get the USD printing machine under control, because of the reserve status. When there is demand for US dollars, domestic or foreign, US dollars sometimes needed to be printed to satisfy that demand. If the US decides to not print those dollars; this is literally "defaulting on the debt", and would be bad-bad.

This gets at where you're misunderstanding how these systems work, because I think you're imagining that US debt is, like, an account in your Chase app that goes up, then you pay it down. US debt are, obviously, bonds. The USG says "we've got bonds to sell, they're at N year M% interest". Buyers say "we want those bonds we'll buy them". The USG is now in debt, and is obligated to repay those bonds; and sometimes has to print money to do so. This gets at the previous paragraph; money, broadly, is printed to satisfy debt obligations, not directly to service the deficit (proceeds from the initial bond sale are what could be said to directly service the deficit, but that's pennies compared to the size of the overall market).

Extending the Chase app analogy, you have it internalized that if we just get the deficit under control, then we could start "paying down the debt". In fact, probably, even our President understands it like this. But this isn't how it works. To "pay down the debt" would require two things to happen: We stop issuing new treasury bonds, and we pay off the already issued ones over 20/30/etc years as they mature.

The general professional sentiment on what would happen if the US even communicated it wanted to, in totally good faith, begin doing this at some point in the future, is basically armageddon. You have it in your head that, because Dave Ramsey says debt bad, the US should have no debt; but the world wants our debt; it has an insatiable (though, decreasing) appetite for it. Depriving the world of this debt would leave trillions of dollar-equivalents without anywhere to park safe from inflation, which would descend global financial markets into chaos. Tens of millions of people would starve in the first three months, among other undesirable outcomes. Some actively make the argument that the USG refusing to take on new debt would be net-worse for the world than the US defaulting on their existing debt, though its an interesting space to game out; a little game of global-cataclysm worst-thing-to-ever-happen-to-humanity olympics you can play.

But, debt servicing is becoming unmanageable for the US budget; so the best case for the United States is that USG debt demand from the rest of the world drops slowly and naturally, so we can naturally slow the issuance of new debt; and over 100 or so more years let managed inflation catch us up to recover from the utter shitshows that was 2001, 2008, and 2020. Everything I've seen, and I do mean everything, suggests that this is what is happening; but we'll know for sure in 90 more years.