Rancid wrote:
People seems to misunderstand what makes a reserve currency the reserve currency.
Lot's of misconceptions, which is why these people are consistently wrong when they say "the dollar is dead/dying/whatever". We've been hearing this claim since the 90s....
Absafragginglutely..
"A reserve currency (or anchor currency) is a foreign currency that is held in significant quantities by central banks or other monetary authorities as part of their foreign exchange reserves. The reserve currency can be used in international transactions, international investments and all aspects of the global economy. It is often considered a hard currency or safe-haven currency.
The United Kingdom's pound sterling was the primary reserve currency of much of the world in the 19th century and first half of the 20th century.[1] However, by the middle of the 20th century, the United States dollar had become the world's dominant reserve currency.[2] The world's need for dollars has allowed the United States government to borrow at lower costs, giving the United States an advantage in excess of US$100 billion per year."
https://en.wikipedia.org/wiki/Reserve_currency"The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. This dilemma was identified in the 1960s by Belgian-American economist Robert Triffin, who pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, leading to a trade deficit.[1]
The use of a national currency, such as the U.S. dollar, as global reserve currency leads to tension between its national and global monetary policy. This is reflected in fundamental imbalances in the balance of payments on the current account, as some goals require an outflow of dollars from the United States, while others require an inflow.
The Triffin dilemma is usually cited to articulate the problems with the role of the U.S. dollar as the reserve currency under the Bretton Woods system. John Maynard Keynes had anticipated this difficulty and had advocated the use of a global reserve currency called 'Bancor'. Currently, the IMF's SDRs are the closest thing to the proposed Bancor but they have not been adopted widely enough to replace the dollar as the global reserve currency.
In the wake of the financial crisis of 2007–2008, the governor of the People's Bank of China explicitly named the Triffin Dilemma as the root cause of the economic disorder, in a speech titled Reform the International Monetary System. Zhou Xiaochuan's speech of 29 March 2009 proposed strengthening existing global currency controls, through the IMF.[5][6]
This would involve a gradual move away from the U.S. dollar as a reserve currency and towards the use of IMF special drawing rights (SDRs) as a global reserve currency.
Zhou argued that part of the reason for the original Bretton Woods system breaking down was the refusal to adopt Keynes' bancor which would have been a special international reserve currency to be used instead of the dollar.
American economist Brad DeLong claims that on almost every point where Keynes was overruled by the Americans during the Bretton Woods negotiations, he was later proved correct by events.[7]
Zhou's proposal attracted much international attention;[8] in a November 2009 article published in Foreign Affairs magazine, economist C. Fred Bergsten argued that Zhou's suggestion or a similar change to the International Monetary System would be in the best interests in both the United States and the rest of the world.[9] While Zhou's proposal has not yet been adopted, leaders meeting in April at the 2009 G-20 London summit agreed to allow 250 billion SDRs to be created by the IMF, to be distributed to all IMF members according to each country's voting rights."
https://en.wikipedia.org/wiki/Triffin_dilemma#cite_note-1
- By Pants-of-dog
- By Saeko
- By QatzelOk