End of US dollar as reserve currency near?

[dre]

This is very interesting stuff...

http://www.cnn.com/2010/BUSINESS/06/29/un.report.dollar/index.html?hpt=T2

Because of the reserve status of the US dollar the US has essentially been able to steal hundreds of billions of dollars from the rest of the world. This would put an end to the scam.

[Bonam]

From the article...

Under this proposed system, countries would no longer have to buy up foreign currencies, as China has long done with the U.S. dollar. Rather, they would accumulate the right to claim foreign currencies, or special drawing rights, or SDRs, rather than the currencies themselves.

The special drawing rights would be backed by a basket of currencies, which would make them less susceptible to volatility in any one currency. And because the value of a special drawing right is defined by the IMF, changes in the value of any one currency could be adjusted for.

Yes, just what we need, IMF "claims" on various currencies, all being decided by some idiotic bureaucracy at the UN instead of by free market forces.

If people want to hold (all or part of) their reserve currency as something other than US dollars, let them. They can buy euros, pounds, Canadian dollars, yen, dinars, shekels, rubles, whatever the heck they want. There are plenty of options. An IMF controlled scam is not one of them.

[Topaz]

I'm just waiting for the need for "one world currency", may not be that far down the road, then wht will they target next.

[Shady]

End of US dollar as reserve currency near?

If Obama keeps destroying the US dollar and the economy, then yes, it may be replaced. But I doubt it.

[Sir Bandelot]

From the article...

Yes, just what we need, IMF "claims" on various currencies, all being decided by some idiotic bureaucracy at the UN instead of by free market forces.

"free market forces"...

[Yesterday]

http://www.cbc.ca/money/story/2010/06/16/russia-loonie-reserve-currency.html

It will be interesting to see who holds what position in the IMF after the membership standing gets revised next year.

http://www.financialpost.com/news-sectors/economy/story.html?id=2463910

China wants the SDR but I'm not so sure about Canada or Russia.

Edited June 30, 2010 by Yesterday

[Shady]

I think it should be the Canadian dollar.

[August1991]

From the OP:

The dollar is an unreliable international currency and should be replaced by a more stable system, the United Nations Department of Economic and Social Affairs said in a report released Tuesday.

If the UN proposes something, particularly anything related to economics, it's generally a good idea to believe the opposite.

----

The US dollar is a reserve currency in the sense that many private banks around the world hold US dollars cash or other types of financial paper denominated in US dollars, some of which is issued by the US government. These banks do this because their customers want access to US dollars or engage in transactions denominated in US dollars. In very simple terms, you can walk into almost any bank anywhere in the world and and the branch will have US dollars cash on hand. This is the sense of a reserve currency and the reason the US dollar is one is because billions of ordinary people around the world use US dollars to denominate transactions.

This state of affairs is unlikely to change any time soon. I think the euro has largely taken up whatever space was previously occupied by Deutschmarks and with the recent problems in Greece, the euro may have lost some attractiveness.

[Machjo]

I'm just waiting for the need for "one world currency", may not be that far down the road, then wht will they target next.

Seeing how interrelated the world is today, that is pretty much what we need.

[Machjo]

I think it should be the Canadian dollar.

The Canadian dollar as a reserve currency also brings with its its own problems. On the one hand, with more people buying it, it becomes possible to print more Canadian dollars without risk of inflation, thus making Canada seem richer than it really is. The problem though is that eventually people catch on to the illusion, and once people dump the Canadian dollar, all the cards come crashing down and the value of the dollar collapses. The US is facing such a risk now. Do we really want to follow in the same footsteps?

[dre]

From the OP:

If the UN proposes something, particularly anything related to economics, it's generally a good idea to believe the opposite.

----

The US dollar is a reserve currency in the sense that many private banks around the world hold US dollars cash or other types of financial paper denominated in US dollars, some of which is issued by the US government. These banks do this because their customers want access to US dollars or engage in transactions denominated in US dollars. In very simple terms, you can walk into almost any bank anywhere in the world and and the branch will have US dollars cash on hand. This is the sense of a reserve currency and the reason the US dollar is one is because billions of ordinary people around the world use US dollars to denominate transactions.

This state of affairs is unlikely to change any time soon. I think the euro has largely taken up whatever space was previously occupied by Deutschmarks and with the recent problems in Greece, the euro may have lost some attractiveness.

This is the sense of a reserve currency and the reason the US dollar is one is because billions of ordinary people around the world use US dollars to denominate transactions.

No, the US dollar is the reserve currency because they forced it on the rest of the world. In 1971 the US collapsed Bretton Woods by suspending convertability of the US dollar to gold. Under BW currency was pegged to gold within 5% in either direction, but the US was already the reserve currency. Once convertability was suspended the 200 or so nations in the Bretton Woods pact were stuck sitting on massive ammounts of US dollars that were no longer pegged to any kind of standard. Fiat currency was born. After that all kinds of international deals and exchanges became denominated in US dollars forcing countries to hold even more US dollars.

Ever since then the US has basically been stealing money from the rest of the world by deflating their own currency. They sell long term bonds and other instruments denominated in US dollars, but by the time those bonds mature and can be cashed in, the dollar has depreciated to the point where the US government is returning less purchasing power to the bond holder than the bond holder origionally surrendered to buy the bond.

[Shady]

The problem though is that eventually people catch on to the illusion, and once people dump the Canadian dollar, all the cards come crashing down and the value of the dollar collapses. The US is facing such a risk now. Do we really want to follow in the same footsteps?

No that's not what happens. Fiscal responsibility prevents the dumping of a currency. The US is facing a risk now because of unsustainable deficits and an immensely increasing debt.

[Machjo]

No, the US dollar is the reserve currency because they forced it on the rest of the world. In 1971 the US collapsed Bretton Woods by suspending convertability of the US dollar to gold. Under BW currency was pegged to gold within 5% in either direction, but the US was already the reserve currency. Once convertability was suspended the 200 or so nations in the Bretton Woods pact were stuck sitting on massive ammounts of US dollars that were no longer pegged to any kind of standard. Fiat currency was born. After that all kinds of international deals and exchanges became denominated in US dollars forcing countries to hold even more US dollars.

Ever since then the US has basically been stealing money from the rest of the world by deflating their own currency. They sell long term bonds and other instruments denominated in US dollars, but by the time those bonds mature and can be cashed in, the dollar has depreciated to the point where the US government is returning less purchasing power to the bond holder than the bond holder origionally surrendered to buy the bond.

Countries were never 'forced' to buy US dollars in any legal sense. That said, the US also put them in a difficult bind, granted. Clearly the US understood mass psychology. If they all dumped the US dollar, they'd all lose much in the short term but would recover afterwards. If they held onto it, they'd lose less in the short term but of course keep losing as long as the US dollar inflates. Most politicians think short term, and so the US dollar stuck and the US benefited. However, a countries turn away from the US dollar, the US will find its currency falling in value. The trade off was that the US currency is now much more vulnerable to the world market. I'd hate to see Canada fall into the same trap. Tempting in the short term, makes Canada wealthier too, but sooner or later it will come crashing down, as will happen with the US. It's better to stay small and stable than big and tipsy.

[Machjo]

No that's not what happens. Fiscal responsibility prevents the dumping of a currency. The US is facing a risk now because of unsustainable deficits and an immensely increasing debt.

Agreed in part. But if everyone starts to buy Canadian dollars, then Canada has to print more dollars to counter deflation. In the short term it looks good since we can print more money with impunity, making us seem richer than we really are. But when the day comes where we become arrogant (and certainly that day would come as we become spoilt by this), we would start to spend beyond our means and so sooner or later it would come crashing down. Part of the reason for the US debt is that they'd become used over the years to living beyond their means on the illusion of wealth brought on by the US dollar as foreign reserve. Sooner or later that has to catch up. The bigger they are the bigger they call. I'd rather Canada never fall into that trap.

[dre]

Countries were never 'forced' to buy US dollars in any legal sense. That said, the US also put them in a difficult bind, granted. Clearly the US understood mass psychology. If they all dumped the US dollar, they'd all lose much in the short term but would recover afterwards. If they held onto it, they'd lose less in the short term but of course keep losing as long as the US dollar inflates. Most politicians think short term, and so the US dollar stuck and the US benefited. However, a countries turn away from the US dollar, the US will find its currency falling in value. The trade off was that the US currency is now much more vulnerable to the world market. I'd hate to see Canada fall into the same trap. Tempting in the short term, makes Canada wealthier too, but sooner or later it will come crashing down, as will happen with the US. It's better to stay small and stable than big and tipsy.

Countries were never 'forced' to buy US dollars in any legal sense.

The Bretton Woods nations already had huge US dollar reserves. They felt they were safe because the US dollar was pegged to gold (within 5%). When Convertability was suspended they suddenly found themselves in a position where the US government could dictate the value of these vast reserves literally with the stroke of a pen.

They were completely fucked... and the whole Bretton Woods agreement fell apart within about 24 hours.

After that the dollar was insitutionalized as well and built into more and more exchanges. Countries had little choice but to hold US dollars. March on down to the petoleum exchange with a fist full of Eritrean Nakfas, and see how much oil you can buy.

Tempting in the short term, makes Canada wealthier too, but sooner or later it will come crashing down, as will happen with the US. It's better to stay small and stable than big and tipsy.

It cuts both ways. Fiat currency has been a huge boon for the US allowing them to literally steal trillions of dollars. You have to realize that in 1971 the US was essentially bankrupt. They were unable to settle all their debts in currency that was pegged to gold. The FIAT currency scam allowed them to stave off bankruptcy for decades and fund enprecidented economic expansion with other peoples money.

But I agree with you... Thats the last thing we need.

Edited June 30, 2010 by dre

[Machjo]

The Bretton Woods nations already had huge US dollar reserves. They felt they were safe because the US dollar was pegged to gold (within 5%). When Convertability was suspended they suddenly found themselves in a position where the US government could dictate the value of these vast reserves literally with the stroke of a pen.

They were completely fucked... and the whole Bretton Woods agreement fell apart within about 24 hours.

After that the dollar was insitutionalized as well and built into more and more exchanges. Countries had little choice but to hold US dollars. March on down to the petoleum exchange with a fist full of Eritrean Nakfas, and see how much oil you can buy.

It cuts both ways. Fiat currency has been a huge boon for the US allowing them to literally steal trillions of dollars. You have to realize that in 1971 the US was essentially bankrupt. They were unable to settle all their debts in currency that was pegged to gold. The FIAT currency scam allowed them to stave off bankruptcy for decades and fund enprecidented economic expansion with other peoples money.

But I agree with you... Thats the last thing we need.

I won't deny the US was underhanded with Breton Woods. But here's the thing; No one was forced to buy US dollars, and the US has jurisdiction over its currency and so is free to do what it wants with it, even if it is less than moral, technically speaking. And yes the US benefited much from its position, but it also suffered in a less obvious way. This sudden wealth allowed the US to print much money with impunity, making it arrogant, resulting in more spending, addiction to wealth, and now it's coming home to roost. Let's not think for a moment that Canada would not be immune from the arrogance rising expectations that would come from the wealth resulting from a Canadian fiat currency. It would not take long for us to increase our spending and bask in this new found wealth, only to pay later when it all comes crashing down. Small and stable is the way to go.

[eyeball]

The Canadian dollar as a reserve currency also brings with its its own problems. On the one hand, with more people buying it, it becomes possible to print more Canadian dollars without risk of inflation, thus making Canada seem richer than it really is. The problem though is that eventually people catch on to the illusion, and once people dump the Canadian dollar, all the cards come crashing down and the value of the dollar collapses. The US is facing such a risk now. Do we really want to follow in the same footsteps?

That depends, will the illusion last as long as an election cycle or two or maybe even the boomer generation?

[Machjo]

That depends, will the illusion last as long as an election cycle or two or maybe even the boomer generation?

Well, the US illusion lasted a good generation after all, no? Hmmm... No, don't give politicians any ideas.

I see this as a catch 22. On the one hand, we ought to be fiscally responsible. On the other hand, that naturally makes our currency an attractive reserve currency, thus risking complacency later on.

In the end, if it's a choice between the to, I'd say let's be fiscally responsible anyway and try to stave off our arrogance as long as possible. Or, alternatively, let's promot a world currency so as to avoid such asymmetrical trade.

My guess is many Canadians would welcome such asymmetrical trade seeing that it could likely last a generation at least, as had happened with the US dollar.

[Shady]

allowing them to literally steal trillions of dollars

Complete nonsense.

[August1991]

No, the US dollar is the reserve currency because they forced it on the rest of the world.

No one forced anyone to use US dollars.

There are few things as democratic as money. Indeed, the ability to count allowed us to have prices, and prices allowed us to have money. And money allowed us to have democracy.

----

dre, you seem to have little experience with the world if you don't understand how billions of people go about daily life. For many, they choose the US dollar because it makes their life easier.

Let's call it an accident of nature, and say that you have been fooled by randomness.

[bush_cheney2004]

I won't deny the US was underhanded with Breton Woods.

Not underhanded at all...BW failed because of several factors leading up to the Nixon Shock...other nations were quite happy engaging in dollar arbitrage.

But here's the thing; No one was forced to buy US dollars, and the US has jurisdiction over its currency and so is free to do what it wants with it, even if it is less than moral, technically speaking.

It is completely "moral"....whatever that means for a nation state. Canada was certainly in no position to lead monetarily or morally post WW2.

And yes the US benefited much from its position, but it also suffered in a less obvious way. This sudden wealth allowed the US to print much money with impunity, making it arrogant, resulting in more spending, addiction to wealth, and now it's coming home to roost.

And so did many other nations...including Canada...which has benefitted from US economic largesse more than any other nation.

[dre]

Complete nonsense.

Its not nonsense at all. I explained exactly how the scam works.

The US sells bonds delimited in US dollars which convey a given ammount of purchasing power at that time. Once those bonds are mature the holder can cash those bonds in for US dollars... the problem is that during the time it took the bonds to mature there has been steady and consistant inflation in the US dollar, so by the time you cash your bonds in, the instrument thats delimiting the deal has lost much of its purchasing power.

Picture you lend me 10 dollars, and at that time that 10 dollars has the value required to buy 10 units of a basket of goods and services. I agree to pay you that 10 dollars back in a years time... the CATCH is that I get to control the value of those dollars, and by the time I pay you back those 10 dollars, my policies have caused inflation, and by the time you get your 10 dollars back, it can only purchase 5 units of that same basket of goods and services. I HAVE JUST STOLEN HALF OF YOUR PURCHASING POWER.

[August1991]

Not underhanded at all...BW failed because of several factors leading up to the Nixon Shock...other nations were quite happy engaging in dollar arbitrage.

Let me have some fun, here. Bretton Woods was an attempt to recreate the pre-War European order. Not surprisingly, it failed (and Nixon declared its death).

Then, Europe created the EMS, Snake and eventually the euro. Greece (and Spain) are about to show what happens with that idea - although there is no Nixon around to dramatically declare its end.

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We Canadians have perhaps wisely maintained our own currency despite sharing a continent with Americans. (But then, I think Newfoundland should have not only its own constabulary, but also its own currency. I also favour to a degree a Quebec currency. IMV, the Quebec government should pay State employees in Quebec money. But Ontario would probably be better off using US dollars.)

When it comes to currencies, the people most likely to trade together on a daily basis should use the same currency. I don't know how else to describe this "Optimal Currency Area" idea.

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Bottom line? Let people choose their currency. If you have travelled outside of civilized societies, you will understand well what I mean, and how people choose what money to use for different means.

dre, I suspect that you've never been abroad. True?

Edited June 30, 2010 by August1991

[dre]

No one forced anyone to use US dollars.

There are few things as democratic as money. Indeed, the ability to count allowed us to have prices, and prices allowed us to have money. And money allowed us to have democracy.

----

dre, you seem to have little experience with the world if you don't understand how billions of people go about daily life. For many, they choose the US dollar because it makes their life easier.

Let's call it an accident of nature, and say that you have been fooled by randomness.

No one forced anyone to use US dollars.

Wrong again. Richard Nixon forced over 200 countries to accept the US dollar as Fiat currency in 1971 by suspending the convertability of the US dollar to gold, and shit-canning bretton woods.

Under BW the US dollar was the "anchor" currency. The system was a loose gold standards but instead of using gold for reserve value, it used US dollars based on the promise of the US to peg its currency to gold.

But in the early 70's countries around the world got scared and began to doubt that the US would honor their promise of convertability under Bretton Woods in part due to spending on the Vietnaam war, and the US's trade defecit, countries began demanding that the government redeem their US dollars with gold as the US had promised. Countries like Switzerland and France were some of the first ones.

When Nixon suspended convertability later that year it was essentially an act of bankcruptcy. The US refused to pay its debt to the world in the terms it had agreed to (convertability within 5%) and now all Bretton Woods nations were stuck with huge piles of paper currency that was already in an inflationary spiral. They got hosed for a LOT of money and the HOSE JOB has continued up to present day.

dre, you seem to have little experience with the world if you don't understand how billions of people go about daily life. For many, they choose the US dollar because it makes their life easier.

You seem to have zero knowledge of how Fiat Currency came to be, or the history of our monetary system.

Edited June 30, 2010 by dre

[dre]

dre, I suspect that you've never been abroad. True?

More stupid bullshit. This thread isnt about me.

Canada, the US, Netherlands, and France are the countries Iv been to so far THIS YEAR.