meazza Posted August 13, 2012 Share Posted August 13, 2012 Again, a government that prints its own currency can't technically "go under." As some have said, the central bank can always purchase more debt which could cause a collapse of the dollar and increased inflation. "Could." There is no global substitute for the dollar as reserve currency--yet, so its safe haven status helps maintain its value in an uncertain world; and inflation is being restrained by excess (global) resources. Of course, there's also the possibility of raising taxes and cutting spending... Probably never will be. Link to comment Share on other sites More sharing options...
TPS Posted August 14, 2012 Share Posted August 14, 2012 Probably never will be. It takes awhile for empires (and their currencies) to die... Link to comment Share on other sites More sharing options...
meazza Posted August 14, 2012 Share Posted August 14, 2012 It takes awhile for empires (and their currencies) to die... The Euro was supposed to be the new reserve currency. How did that pan out? Link to comment Share on other sites More sharing options...
GG Posted August 14, 2012 Share Posted August 14, 2012 It takes awhile for empires (and their currencies) to die... I recall reading something about the yuan's emergence as the reserve currency. Forget who wrote it though. Link to comment Share on other sites More sharing options...
meazza Posted August 14, 2012 Share Posted August 14, 2012 I recall reading something about the yuan's emergence as the reserve currency. Forget who wrote it though. http://online.wsj.com/article/SB10001424052702303561504577496233362694486.html I suppose there would be enough volume but what about stability? After the mess of the Euro, will investors really turn towards China without at least a decade of stability in their currency? Link to comment Share on other sites More sharing options...
GG Posted August 15, 2012 Share Posted August 15, 2012 http://online.wsj.co...3362694486.html I suppose there would be enough volume but what about stability? After the mess of the Euro, will investors really turn towards China without at least a decade of stability in their currency? Or maybe a bit longer http://online.wsj.com/article/SB10000872396390444042704577589253328919714.html?mod=WSJ_World_LEFTSecondNews Investors and companies are increasingly pulling money out of China and its currency in a vote of concern over its growth prospects, a development that could hinder Beijing's efforts to spark a turnaround. New data published by China's central bank Tuesday showed China's banks were net sellers of 3.8 billion yuan ($597 million) in foreign exchange in July, suggesting that China's exporters aren't converting their dollar earnings into yuan and some investors are taking funds out of the country. China's banks have been sellers of dollars in five of the last 10 months, purchasing a paltry 145 billion yuan in foreign exchange over that combined period, considerably less than the 905 billion yuan that flowed into the country through the trade surplus. That is a stark contrast with much of the past decade, when confidence in China's growth and hunger for yuan meant China's banks were buying up not just the entire trade surplus, but also considerable inflows of speculative capital, known as hot money. In the first 10 months of 2008, China's banks were net purchasers of 3.6 trillion yuan in foreign exchange. Massive inflows of capital were a key factor behind China's runaway bank lending, rising asset prices and yuan appreciation. Now, money is flowing in the other direction, contributing to falling prices for everything from real estate to equities and China's currency. Link to comment Share on other sites More sharing options...
TPS Posted August 15, 2012 Share Posted August 15, 2012 http://online.wsj.co...3362694486.html I suppose there would be enough volume but what about stability? After the mess of the Euro, will investors really turn towards China without at least a decade of stability in their currency? GG was referring to a paper I wrote in 2005 on the end of the dollar as reserve currency. I said the euro wasn't really an option, and that the likely candidate was China and the yuan, since historically the reserve currency was established by the dominant economic/military power of the time (pound from mid part of 19th c. to 1944; and the dollar from then until ...?). However, I also said it's likely that an international currency (like the SDR) could take its place. Regardless, "historical" changes like these don't happen with a flip of the switch. While I say the pound's reign ended in 1944 (because the $ was given reserve status from the Bretton Woods agreement), it actually took another 15-20 years for the $ to really become established and for the pound to lose its role. Let's see how things look in another 10-15 years. Link to comment Share on other sites More sharing options...
GG Posted August 15, 2012 Share Posted August 15, 2012 GG was referring to a paper I wrote in 2005 on the end of the dollar as reserve currency. I said the euro wasn't really an option, and that the likely candidate was China and the yuan, since historically the reserve currency was established by the dominant economic/military power of the time (pound from mid part of 19th c. to 1944; and the dollar from then until ...?). However, I also said it's likely that an international currency (like the SDR) could take its place. Regardless, "historical" changes like these don't happen with a flip of the switch. While I say the pound's reign ended in 1944 (because the $ was given reserve status from the Bretton Woods agreement), it actually took another 15-20 years for the $ to really become established and for the pound to lose its role. Let's see how things look in another 10-15 years. Oh yes, now I remember You probably also remember my reply at the time that in order for the markets to accept the reserve currency, in addition to military might, you need to have the regulatory/legal framework to protect investors and property rights, and a vibrant open market. Wake me when China is close to the last two. SDR is also doomed to fail, because there's no way it will be supported in difficult economic conditions like we're seeing in EU right now. It's not a coincidence that the greenback followed the pound as the reserve. In effect, the student grew up and took over the teacher's role. You can't say that about any other budding currency at the moment. Link to comment Share on other sites More sharing options...
TPS Posted August 15, 2012 Share Posted August 15, 2012 Oh yes, now I remember You probably also remember my reply at the time that in order for the markets to accept the reserve currency, in addition to military might, you need to have the regulatory/legal framework to protect investors and property rights, and a vibrant open market. Wake me when China is close to the last two. SDR is also doomed to fail, because there's no way it will be supported in difficult economic conditions like we're seeing in EU right now. It's not a coincidence that the greenback followed the pound as the reserve. In effect, the student grew up and took over the teacher's role. You can't say that about any other budding currency at the moment. Again, it's a long process, and I tried to envision what comes next; not something you can readily see "at the moment." No disagreements about the institutional needs to make the yuan a viable store of value (and safe haven currency), but that's not the only function of a currency. The $ also serves as a medium of exchange and unit of account for globally traded commodities, and it is used a vehicle currency for interventions. While the SDR could take over those functions, you are correct that it probably could not serve as a store of value, especially in a crisis when there is a flight to safety. Btw, China is slowly liberalizing its financial markets. I hope we're around in 15 years so you can buy me a beer when the yuan over takes the $... back. Link to comment Share on other sites More sharing options...
GG Posted August 15, 2012 Share Posted August 15, 2012 Btw, China is slowly liberalizing its financial markets. I hope we're around in 15 years so you can buy me a beer when the yuan over takes the $... back. By that time you'll owe me a keg. Link to comment Share on other sites More sharing options...
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