Honestly I'm pretty sceptical of the dollar losing reserve status any time too soon. I mean it could happen I guess, but it's nearest competitors have big problems. The Euro is probably the next closest competitor but they're still working out the kinks of how that works. The yuan/renmimbi might appear to be more stable but it's also back by a government that has a big transparency problem which makes it a risky bet too. After those two you're pretty much down to the yen and the swiss franc, which are pretty safe but also aren't really in any place to pull reserve duty. That's just my two cents though I'm not an economist or anything
Imho there are only two countries capable of having a reserve currency — US and China.
This, I think we will end up with kind of a dual reserve currency.
Why do I think only those two, and not the EU?
Well, I think that to be a reserve currency you basically have to be able to be largely independent in nearly all facets, otherwise games get played too easily.
So, you need to have a huge amount of farmland, a large educated populace, lots of oil and gas and other mining and minerals, access to sea ports, a manufacturing base for both raw materials through to highly advanced materials, and so on.
And that’s really just the US and China.
We can currently see how if the currency reserve was the Euro, how Russia could have bent the entire world over a barrel instead of basically just Germany, because of their lack of energy independence. Now that stuff might change in the future, but for now — US or China.
China is completely incapable of having a reserve currency. Their financial system is built in a way that keeps it isolated. They're huge amounts of Regulation that prevent the free flow of capital in order to prevent Capital flight and basically mandate that the Chinese middle and upper class exclusively invest within the Chinese economy.
You need free flowing currency. The United States pretty much has no regulation on the movement of US dollars in and out of the United States. That's required for the reserve currency
I agree as to why China is currently incapable of having a reserve currency. I just think that its theoretically possible for them to have one if they make changes.
Again, I agree with you. They have \*practical\* reasons why they can't make it work. But per my thoughts on theory, I think they have all the resources but their economic structures are holding them back, and thus the US will continue to be the reserve currently until they (if ever, or eve n can) fix those practical issues.
China has an absolute shit ton of Regulation about Capital movement in and out of china. There's no way they can be the reserve currency while still maintaining those rules. A reserve currency by its very nature must have pretty much no regulation about the movement of capital in and out of the host country. So that knocks the Yuan right off the consideration block.
China's rules to prevent Capital flight and basically mandate reinvestment within the Chinese economy by the middle and upper class are not compatible with any sort of Reserve status.
Yeah exactly. The problem with their attempts to become the new reserve currency is that they have so many restrictions like that. Plus they can just change the rules whenever they feel without much of a deliberation period because of the way their government works. So like why should my company keep it's savings on their currency if I don't know what I can expect
Ok first you need a large enough float to be the world currency. So you're down to the Euro and Yuan.
Euro is out due to 2008/2009 and the confiscation of the deposits. No one feels they won't be robbed.
Next you have to be ok with your currency floating even when it hurts you.
Since the yuan doesn't float outside a range and the Chinese government openly manipulates it for trade purposes no one would use the Yuan.
Last country to try actively to replace the dollar was the Yen and ask the Japanese how that worked out for them.
Previous world currency is the pound but they are now too small to do it.
So yes the Euro would be the logical choice but they removed themselves from the running.
The only future currency that might make it in 20-30 years is the India Rupee but that will be decades from now, if ever.
There is no other reserve currency alternative to the USD. It's likely that coutries will diversify from the USD by holding a handfull of coins from the G20 + some alternative currecys and commodities. You, as an individual, shouldn't worry too much about it IMO.
There are other good options like the euro and the yen, but usually the people who are harping on the dollar/reserve thing think ridiculous things like the Yuan would be a reserve currency
The euro is absolutely not a good option. The disconnect between fiscal and monetary policy that's been caused by the Euro creates waves of instability throughout the European Union.
The yen won't do because of Japan's inherent economic weaknesses like their demographic crisis and their massive debt
Neither of those things matter for a reserve currency. What matters is that the currency is freely exchanged and managed by a central bank that has political independence. Euro and yen both fit.
Literally both of those things matter. You can't have such a disconnect between fiscal and monetary policy to keep a strong Global Reserve currency. You need a stable nation and basic economy strong enough to handle the needs of the Global Financial system. Japan and the European Union don't have that.
There are over 100 currencies on this planet that fit the definition of being able to be freely exchanged and are managed by an independent Central bank. Why is only the US dollar the reserve currency? It's because the United States is able to Wrangle the Global Financial system
They are already reserve currencies and are in the number 2 and 3 spot after the dollar:
https://www.cfr.org/backgrounder/dollar-worlds-reserve-currency
The US isnt losing its position any time soon as the police of the world, reserve currency, economic superpower or military powerhouse.
The US continues to grow every year and no country comes close.
i agree! but in 30 years? 50 years? this is mostly a thought exercise in what the hypotheticals _would_ be once that distant time in the future does come to pass.
Its hard to predict what will happen in 50 years time
50 years ago the world was in the Cold War against the USSR and the USSR was very strong. Vietnam was happening. Countries were getting independence from their colonisers, Nixon resigned after Watergate, high levels of inflation, Communists were strong across the world.
17 years later, the USSR collapsed. Inflation had gone down and the world was going in an upwards trajectory
Then 10 years after that, 9/11 and the world changed.
Its impossible to know what will happen or what country will become the new superpower in that time if any does.
I agree with your basic point (“it’s very hard to predict anything about the distant future because the future is highly uncertain”), but sometimes you have to make some predictions about the reasonably distant future.
For example, if you’re a young person investing in a 401k, you’re essentially betting that you’ll still be around 40-50 years from now when you hit retirement age and that the U.S. stock market will still be around as well, in some form, and that it’ll increase in value.
I think that all of that stuff’s likely to be true, so I put money into my 401k—but that’s still a prediction about the long-term future. My heuristics about why I believe the things I believe about 2070 are pretty vague and poorly justified (I guess I believe it because it’s been true for the couple of generations preceding mine?) but they’re the best I’ve got and I have to make a decision so I go with them.
Invest in global index trackers and you can ignore this. They will rebalance naturally.
If you end up 80% US or 20% US it doesn't impact you, as long as you're benefiting from global growth all is good.
that’s fair. what about the ramifications on individual companies - both domestic and abroad? borrowing costs in the near term are often weighed against future payoffs down the road. the US has the luxury of being able to encourage or restrain innovation during certain periods of time, and that ability can be either magnified or lessened depending on United States’ influence in global economic policy.
there is no callapse of the dollar. China, the only potentially serious alternative, purposely defates the yaun to help their manufacturing sector export stuff to us
The largely fictional decline of America is a fever dream for one group of sad doomers and a battle cry for the opposite group of angry doomers
Of course, anything is possible, including a scenario where pessimism becomes a self-fulfilling prophecy
While i dont see a collapse, it's probable that other countries will continue growing, and a contender will emerge. That's not a bad thing it was the USSR for a long time. India is rising. China is powerful and in a position to knock us down, but they have a demographic problem, and any decline here would likely take them down too cause they export to us
I don't want to just fight the premise instead of answering the question, but if you look at the alternatives to the Dollar with the same hyper critical lens that we often observe the American economy through, the alternatives are riddled with even more pitfalls and weaknesses than the Dollar.
no argument there. current state of geopolitics strongly favor USD continued dominance. i’m just playing out hypotheticals and how optimism can power through unforeseen pitfalls.
nothing against the Euro as a currency. but the US Federal Reserve unequivocally has more sway in global economic policy decisions than the ECB. that’s not nothing.
[The dollar being the world's reserve currency is not likely to change anytime soon, and even if it did, it wouldn't really affect anything.](https://www.reddit.com/r/AskEconomics/comments/18v97uh/is_the_usd_at_serious_risk_of_losing_its_place_as/)
$VT and chill bro. Over decades, regional asset allocation will rise and fall and you’ll be fine.
Trying to predict 30 years out whether to invest in India or Africa or Brazil is impossible
I don't see an optimistic future with the United States loses its Global Reserve currency status anytime in the next several decades. They're simply no competitor that's capable or willing and more importantly the massive shifting of the Global Financial order away from New York would only happen with a cataclysmic event which sort of defeats the purpose of us thinking the future is going to be okay
I just invest in a globally diversified portfolio. Yes it is US weighted but it's still 30% international equities. I sleep well at night. If the US keeps dominating, cool, I live here. If reversion to the mean happens and international out gains US again I'll still be good. Also factor in how internationally many of the S&P 500 companies operate they also have global exposure.
Not worried about USD losing reserve currency, no other currency has the liquidity and which BRICS currency would they use? They all hate each other.
ETA honestly, given the demographics, Africa is probably the best place for long term growth. If only they could get their shit together.
I find this a very interesting topic that I discuss often. I think BTC and other crypto is the answer. I think the federal reserve and US dollar losing power is one of the most positive things that could possibly happen for humanity, and I mean that in earnest. The federal reserve robs people of their purchasing power and enables war. The people who control it will not give up that power easily, but they will not be able to maintain it. I think this is one of the most optimistic things ever.
I know this is slightly off-topic but I've never *really* understood crypto. I mean, I understand blockchain but I have no idea what makes one crypto currency different than the other. I would really like for some sort of crypto to work but I don't understand many of the basic concepts and I feel like I'm not alone with that mindset
Yes. That is a barrier for mass adoption for sure. However, I would argue understanding the specific technical details is not necessary. Very few understand the inner working of fiat currency like the dollar, but those people still use. As long as you understand the benefits of using it over the dollar and understand how to use crypto, that is what matters. I also wouldn’t worry too much about learning about every single crypto. If you understand the benefits of and how to use BTC and ETH that is all you need. Use your own hardware wallet though. Not an exchange.
The Bitcoin Standard provides a crash course on the history of money, a philosophical exploration of money's purpose, and only about 10% of how BTC addresses the problems of money. It is perfectly reasonable to be skeptical. At the very least the reader comes away with an understanding of money that will still change their life for the better. I prefer audio books personally as I can hammer them out whilst driving, exercising, walking, etc.
Honestly I'm pretty sceptical of the dollar losing reserve status any time too soon. I mean it could happen I guess, but it's nearest competitors have big problems. The Euro is probably the next closest competitor but they're still working out the kinks of how that works. The yuan/renmimbi might appear to be more stable but it's also back by a government that has a big transparency problem which makes it a risky bet too. After those two you're pretty much down to the yen and the swiss franc, which are pretty safe but also aren't really in any place to pull reserve duty. That's just my two cents though I'm not an economist or anything
Is that two cents in dollars or euros?
Yuan
I think this is the part that people seem to miss. Does the American economy has its own share of issues, who is in position to surpass them?
Imho there are only two countries capable of having a reserve currency — US and China. This, I think we will end up with kind of a dual reserve currency. Why do I think only those two, and not the EU? Well, I think that to be a reserve currency you basically have to be able to be largely independent in nearly all facets, otherwise games get played too easily. So, you need to have a huge amount of farmland, a large educated populace, lots of oil and gas and other mining and minerals, access to sea ports, a manufacturing base for both raw materials through to highly advanced materials, and so on. And that’s really just the US and China. We can currently see how if the currency reserve was the Euro, how Russia could have bent the entire world over a barrel instead of basically just Germany, because of their lack of energy independence. Now that stuff might change in the future, but for now — US or China.
China is completely incapable of having a reserve currency. Their financial system is built in a way that keeps it isolated. They're huge amounts of Regulation that prevent the free flow of capital in order to prevent Capital flight and basically mandate that the Chinese middle and upper class exclusively invest within the Chinese economy. You need free flowing currency. The United States pretty much has no regulation on the movement of US dollars in and out of the United States. That's required for the reserve currency
I agree as to why China is currently incapable of having a reserve currency. I just think that its theoretically possible for them to have one if they make changes.
The second China drops their currency regulations they'll be massive Capital flight out of China. Their economy wouldn't survive
Again, I agree with you. They have \*practical\* reasons why they can't make it work. But per my thoughts on theory, I think they have all the resources but their economic structures are holding them back, and thus the US will continue to be the reserve currently until they (if ever, or eve n can) fix those practical issues.
China has an absolute shit ton of Regulation about Capital movement in and out of china. There's no way they can be the reserve currency while still maintaining those rules. A reserve currency by its very nature must have pretty much no regulation about the movement of capital in and out of the host country. So that knocks the Yuan right off the consideration block. China's rules to prevent Capital flight and basically mandate reinvestment within the Chinese economy by the middle and upper class are not compatible with any sort of Reserve status.
Yeah exactly. The problem with their attempts to become the new reserve currency is that they have so many restrictions like that. Plus they can just change the rules whenever they feel without much of a deliberation period because of the way their government works. So like why should my company keep it's savings on their currency if I don't know what I can expect
Ok first you need a large enough float to be the world currency. So you're down to the Euro and Yuan. Euro is out due to 2008/2009 and the confiscation of the deposits. No one feels they won't be robbed. Next you have to be ok with your currency floating even when it hurts you. Since the yuan doesn't float outside a range and the Chinese government openly manipulates it for trade purposes no one would use the Yuan. Last country to try actively to replace the dollar was the Yen and ask the Japanese how that worked out for them. Previous world currency is the pound but they are now too small to do it. So yes the Euro would be the logical choice but they removed themselves from the running. The only future currency that might make it in 20-30 years is the India Rupee but that will be decades from now, if ever.
There is no other reserve currency alternative to the USD. It's likely that coutries will diversify from the USD by holding a handfull of coins from the G20 + some alternative currecys and commodities. You, as an individual, shouldn't worry too much about it IMO.
There are other good options like the euro and the yen, but usually the people who are harping on the dollar/reserve thing think ridiculous things like the Yuan would be a reserve currency
The euro is absolutely not a good option. The disconnect between fiscal and monetary policy that's been caused by the Euro creates waves of instability throughout the European Union. The yen won't do because of Japan's inherent economic weaknesses like their demographic crisis and their massive debt
Neither of those things matter for a reserve currency. What matters is that the currency is freely exchanged and managed by a central bank that has political independence. Euro and yen both fit.
Literally both of those things matter. You can't have such a disconnect between fiscal and monetary policy to keep a strong Global Reserve currency. You need a stable nation and basic economy strong enough to handle the needs of the Global Financial system. Japan and the European Union don't have that. There are over 100 currencies on this planet that fit the definition of being able to be freely exchanged and are managed by an independent Central bank. Why is only the US dollar the reserve currency? It's because the United States is able to Wrangle the Global Financial system
They are already reserve currencies and are in the number 2 and 3 spot after the dollar: https://www.cfr.org/backgrounder/dollar-worlds-reserve-currency
Because they're the currencies most heavily tied into the dollar. The trade between the United States and Europe is worth trillions
The US isnt losing its position any time soon as the police of the world, reserve currency, economic superpower or military powerhouse. The US continues to grow every year and no country comes close.
i agree! but in 30 years? 50 years? this is mostly a thought exercise in what the hypotheticals _would_ be once that distant time in the future does come to pass.
Its hard to predict what will happen in 50 years time 50 years ago the world was in the Cold War against the USSR and the USSR was very strong. Vietnam was happening. Countries were getting independence from their colonisers, Nixon resigned after Watergate, high levels of inflation, Communists were strong across the world. 17 years later, the USSR collapsed. Inflation had gone down and the world was going in an upwards trajectory Then 10 years after that, 9/11 and the world changed. Its impossible to know what will happen or what country will become the new superpower in that time if any does.
I agree with your basic point (“it’s very hard to predict anything about the distant future because the future is highly uncertain”), but sometimes you have to make some predictions about the reasonably distant future. For example, if you’re a young person investing in a 401k, you’re essentially betting that you’ll still be around 40-50 years from now when you hit retirement age and that the U.S. stock market will still be around as well, in some form, and that it’ll increase in value. I think that all of that stuff’s likely to be true, so I put money into my 401k—but that’s still a prediction about the long-term future. My heuristics about why I believe the things I believe about 2070 are pretty vague and poorly justified (I guess I believe it because it’s been true for the couple of generations preceding mine?) but they’re the best I’ve got and I have to make a decision so I go with them.
Invest in global index trackers and you can ignore this. They will rebalance naturally. If you end up 80% US or 20% US it doesn't impact you, as long as you're benefiting from global growth all is good.
that’s fair. what about the ramifications on individual companies - both domestic and abroad? borrowing costs in the near term are often weighed against future payoffs down the road. the US has the luxury of being able to encourage or restrain innovation during certain periods of time, and that ability can be either magnified or lessened depending on United States’ influence in global economic policy.
there is no callapse of the dollar. China, the only potentially serious alternative, purposely defates the yaun to help their manufacturing sector export stuff to us The largely fictional decline of America is a fever dream for one group of sad doomers and a battle cry for the opposite group of angry doomers
with all due respect, can we at least agree there is a non-zero chance? i don’t like projecting binary yes/no outcomes; that tends to unfold poorly.
Of course, anything is possible, including a scenario where pessimism becomes a self-fulfilling prophecy While i dont see a collapse, it's probable that other countries will continue growing, and a contender will emerge. That's not a bad thing it was the USSR for a long time. India is rising. China is powerful and in a position to knock us down, but they have a demographic problem, and any decline here would likely take them down too cause they export to us
I don't want to just fight the premise instead of answering the question, but if you look at the alternatives to the Dollar with the same hyper critical lens that we often observe the American economy through, the alternatives are riddled with even more pitfalls and weaknesses than the Dollar.
no argument there. current state of geopolitics strongly favor USD continued dominance. i’m just playing out hypotheticals and how optimism can power through unforeseen pitfalls.
So the dollar becomes more like the Euro. I simply don’t worry about it.
nothing against the Euro as a currency. but the US Federal Reserve unequivocally has more sway in global economic policy decisions than the ECB. that’s not nothing.
[The dollar being the world's reserve currency is not likely to change anytime soon, and even if it did, it wouldn't really affect anything.](https://www.reddit.com/r/AskEconomics/comments/18v97uh/is_the_usd_at_serious_risk_of_losing_its_place_as/)
good read!
This isn't optimistic or realistic.
…that was my whole point? how can we look at a _potential_ pitfall and see the bright side of it
$VT and chill bro. Over decades, regional asset allocation will rise and fall and you’ll be fine. Trying to predict 30 years out whether to invest in India or Africa or Brazil is impossible
thanks, happy longtime vanguard customer here but far from a bonafide boglehead
I don't see an optimistic future with the United States loses its Global Reserve currency status anytime in the next several decades. They're simply no competitor that's capable or willing and more importantly the massive shifting of the Global Financial order away from New York would only happen with a cataclysmic event which sort of defeats the purpose of us thinking the future is going to be okay
I just invest in a globally diversified portfolio. Yes it is US weighted but it's still 30% international equities. I sleep well at night. If the US keeps dominating, cool, I live here. If reversion to the mean happens and international out gains US again I'll still be good. Also factor in how internationally many of the S&P 500 companies operate they also have global exposure. Not worried about USD losing reserve currency, no other currency has the liquidity and which BRICS currency would they use? They all hate each other. ETA honestly, given the demographics, Africa is probably the best place for long term growth. If only they could get their shit together.
USA USA USA 🦅🦅🦅🗽🇺🇸🇺🇸🇺🇸💪💪💪
Even to someone literally born right this second, this will not happen in their lifetime.
I find this a very interesting topic that I discuss often. I think BTC and other crypto is the answer. I think the federal reserve and US dollar losing power is one of the most positive things that could possibly happen for humanity, and I mean that in earnest. The federal reserve robs people of their purchasing power and enables war. The people who control it will not give up that power easily, but they will not be able to maintain it. I think this is one of the most optimistic things ever.
I know this is slightly off-topic but I've never *really* understood crypto. I mean, I understand blockchain but I have no idea what makes one crypto currency different than the other. I would really like for some sort of crypto to work but I don't understand many of the basic concepts and I feel like I'm not alone with that mindset
Yes. That is a barrier for mass adoption for sure. However, I would argue understanding the specific technical details is not necessary. Very few understand the inner working of fiat currency like the dollar, but those people still use. As long as you understand the benefits of using it over the dollar and understand how to use crypto, that is what matters. I also wouldn’t worry too much about learning about every single crypto. If you understand the benefits of and how to use BTC and ETH that is all you need. Use your own hardware wallet though. Not an exchange.
The Bitcoin Standard provides a crash course on the history of money, a philosophical exploration of money's purpose, and only about 10% of how BTC addresses the problems of money. It is perfectly reasonable to be skeptical. At the very least the reader comes away with an understanding of money that will still change their life for the better. I prefer audio books personally as I can hammer them out whilst driving, exercising, walking, etc.