Thread

1. Arubis · 1789753289 · focus · HN ↗

   Dedollarizing the world economy has more net losers than the US (though that's the obvious one).

   It's not without its benefits -- over the last couple decade, the US has found ways to weaponize access to USD, so if you're not a fan of having a country other than your own able to effectively regulate or sanction you and your business, there's some niceties here.

   Being able to trade and invest in a stable, highly liquid, easily converted, low risk currency was a net win for most of the world for about half a century. There isn't an obvious replacement, so we'll just see more friction.

   1. nostrademons · 1789753559 · focus · HN ↗

      It's kind of a prelude to a Thucydides Trap.

      The problem with replacing the world reserve currency with something else is that nobody can agree on what that something else should be. Expect to see a lot of jockeying for power as people realize the U.S. isn't the world hegemon anymore. Jockeying, on a state level, usually means war.

      1. gumby · 1789758442 · focus · HN ↗

         > The problem with replacing the world reserve currency with something else is that nobody can agree on what that something else should be.

         It isn’t a decision made by some sort of vote, or done overnight. It’s an emergent phenomenon. Sterling had already lost the role de facto by the time Bretton Woods blessed the role of the dollar de jure.

         Whatever replaces the dollar will be messy because it won’t have the set of systems the dollar had at its peak (large, highly liquid markets; complete convertibility; bonds backed by huge government spending coupled with huge GDP).

         There is really only one alternative and it’s not a great one. It’s not China, as the government is afraid of letting go of control (thus no complete convertibility) and markets lack credibility which impairs liquidity.

         The only other opening is unfortunately the Euro. Large, liquid markets yes in aggregate but national markets (e.g. France, Germany) are not unified. They weren’t in the US when the dollar became the reserve currency either, but times have changed. The bond markets are likewise not unified, so risk is higher. But they do have complete liquidity, which is the most important of all after GDP size.

         So there will be chipping away at the dollar for years.

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