Posts Tagged ‘dollar’
“The almighty dollar, that great object of universal devotion”*…
The reigning global financial regime, at the center of which sits the U.S. Dollar, was first formalized at the 1944 Bretton Woods Conference. While the rules have evolved since then, the Dollar remains by far the world’s leading reserve currency and is routinely used to price/settle international transactions around the world.
While there are concerns in the U.S. that a strong dollar can hurt U.S. exports and costs jobs, high global demand for dollars allows the United States to borrow money at a lower cost and amplifies the power of its sanctions.
So recent talk of “the decline of the dollar” (c.f., e.g., here) has concerned many. Not to worry, Noah Smith suggests…
Saudi Arabia recently announced that it’s open to settling trade (i.e., oil sales) in currencies other than the U.S. dollar. This has provoked a fair amount of consternation about the potential end of dollar dominance. This fear has been intensified by all the Bitcoin people who are screaming that the banking system is going to collapse and that this is going to spell the end of the U.S. dollar.
In fact, people shouldn’t be concerned at all. I’ve written two posts — one last year and one this February — explaining why A) de-dollarization is extremely unlikely to happen anytime soon, and B) some degree of diversification away from the dollar would actually be good for the United States. Both posts were paywalled, but I decided to unpaywall them, so that everyone can enjoy the peace of mind of not having to worry about the death of the dollar…
Read them at “Unpaywalled: Two posts about de-dollarization,” from @Noahpinion.
Then contemplate this analysis (by economists at the Federal Reserve Bank of New York) of the consequences of that continuity…
The importance of the U.S. dollar in the context of the international monetary system has been examined and studied extensively. In this post, we argue that the dollar is not only the dominant global currency but also a key variable affecting global economic conditions. We describe the mechanism through which the dollar acts as a procyclical force, generating what we dub the “Dollar’s Imperial Circle,” where swings in the dollar govern global macro developments…
Worth reading in full and pondering: “The Dollar’s Imperial Circle,” from @LibertyStEcon (a newsletter of @NewYorkFed).
* Washington Irving
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As we contemplate currency, we might spare a thought for Leonid Kantorovich; he died on this date in 1986. An economist and mathematician best known for his theory and development of techniques for the optimal allocation of resources, he is regarded as the founder of linear programming— for which he received the Nobel Memorial Prize in Economic Sciences in 1975.
“Exorbitant privilege”*…
Economic history books will commemorate the era we currently live in as the second wave of financial globalization, following the first wave during the Classical Gold Standard period. Our era is characterized by an unprecedented expansion of global financial flows. Partly, these flows form the counterpart to global value chains and the globalization of trade in goods and services. In the last few decades, however, they have been increasingly decoupled from the real sector. The financial infrastructure that enables this expansion is the international monetary system…
In its current shape, [the international monetary system] has a hierarchical structure with the US-Dollar (USD) at the top and various other monetary areas forming a multilayered periphery to it. A key feature of the system is the creation of USD offshore – a feature that in the 1950s and 60s developed in co-evolution with the Bretton Woods System and in the 1970s replaced it. Since the 2007–9 Financial Crisis, this ‘Offshore US-Dollar System’ has been backstopped by the Federal Reserve’s network of swap lines which are extended to other key central banks. This systemic evolution may continue in the decades to come, but other systemic arrangements are possible as well and have historical precedents. This article discusses four trajectories that would lead to different setups of the international monetary system by 2040, taking into account how its hierarchical structure and the role of offshore credit money creation may evolve. In addition to a continuation of USD hegemony, we present the emergence of competing monetary blocs, the formation of an international monetary federation and the disintegration into an international monetary anarchy…
Americans tend to take the global primacy of the U.S. Dollar for granted (indeed, often complaining about the current account imbalances to which huge quantities of off-shore dollars lead). But there’s no mistaking that this system has been been hugely advantageous to the U.S. Yet, as Steffen Murau (@steffenmurau) explains, it may not last: “The evolution of the Offshore US-Dollar System: past, present and four possible futures.”
See also Mernau’s “International Monetary System” (from whence, the image above), and Ben Bernanke’s “The dollar’s international role: An ‘exorbitant privilege’?“
* Valéry Giscard d’Estaing (then the French Minister of Finance; later French President), referring to the benefit that accrues to the U.S. as a result of the U.S. Dollar being the world’s reserve currency
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As we count our blessings, we might recall that it was on this date in 1890 that journalist Nellie Bly completed her 72-day trip around the world.
In 1888, Bly suggested to her editor at the New York World that she take a trip around the world, attempting to turn the fictional Around the World in Eighty Days into fact for the first time. A year later, at 9:40 a.m. on November 14, 1889, with two days’ notice, she boarded the steamer Augusta Victoria, and began her 24,899-mile journey.
She brought with her the dress she was wearing, a sturdy overcoat, several changes of underwear, and a small travel bag carrying her toiletry essentials. She carried most of her money (£200 in English bank notes and gold in total as well as some American currency) in a bag tied around her neck.
Bly traveled through England, France (where she met Jules Verne in Amiens), Brindisi, the Suez Canal, Colombo (Ceylon), the Straits Settlements of Penang and Singapore, Hong Kong, and Japan. Just over seventy-two days after her departure from Hoboken, having used steamships and existing railway lines, Bly was back in New York; she beat Phileas Fogg’s time by almost 8 days.
As we endeavor to stretch our dollars…
… we can thank Shine for help in using them as a direct source of entertainment and enlightenment:
“Fifteen Things You Never Noticed on a Dollar”
As we decide to pay our Masonic dues after all, we might recall that it was on this date in 1690 that the Colony of Massachusetts issued the first paper money in (that is, native to) North America.
Earliest surviving example, from later in 1690
source: University of Notre Dame
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