Not sure this is the place to debate economics but here goes. First, when you say
"Here is some (extremely simplified) logic for IMPORTS/EXPORTS->
(1) When the US exports, it takes payment ONLY in US Dollars (primarily). Similarly, when it imports, it pays ONLY in US Dollars (primarily)... "
True. Because the USD is the world's reserve currency. In the absence of a reserve currency, countries, the US included, would presumably buy things, from say China by paying Yuan (instead of the reserve currency or their domestic currency), and sell things to other countries in their domestic currency instead of the reserve currency.
This would be a great blow to the US because currently it profits enormously, financially and in terms of global influence, by having the reserve currency and having the bulk of international trading go through USD.
Now for you question about "IF the USD loses reserve currency status" and what I think the probability is. I think it's a virtual certainty (in the intermediate - roughly a decade-, not the short term) and I think the path to that loss of reserve currency status runs through BRICS. Now that BRICS is large enough in terms of population, resources (human and natural), it can become self-sufficient in terms of trading in domestic currencies between its members. Once that happens, goodbye USD reserve currency status and the boost to prosperity that accompanies it.
(1) The argument is NOT "how the US benefits because of Reserve Currency Status" (i.e. US Dollar hegemony), the questions are (a) how will this status change? (b) what are the probabilities of this happening (based on the present reality on the ground)? (c) Will BRICS play a part in this, how much, and in what way?
I don't think anyone in the world is argueing (or should be) about just how much the impact of "loss of US dollar hegemony" would have on the US Empire (i.e. it should be well understood that the USD is one of their primary weapons in controlling global geopolitics, trade, and economics - and the loss of ability to wield this weapon will have devasting consequences for the US Empire).
Let me explain by taking your example of "buying things from China and paying in Yuan". Let's say you represent China and I represent the US (in this scenario).
(1) To pay you in Yuan, I need to acquire Yuan first. How will I do that? If I sell my USD and buy Yuan (in the open market), and do it on a large enough scale, then the value of Yuan increases and USD decreases (basic demand and supply).
(2) Also, if I need to buy Yuan to trade with you, who will sell me the Yuan? Since there is only ONE official creator/printer of Yuan (Chinese govt.), that is the only eventual source of Yuan.
(3) Hence, by trying to pay you in Yuan, I would be weakening my USD in the process. Obviously, I don't want to do that.
(4) So what are my choices? I can get Yuan FROM YOU by selling you something (exporting). Now, you pay for your purchase (imports from me) with Yuan, and I use that Yuan when I want to buy something from you.
(5) I can ALSO get Yuan by borrowing from you (say you give me financial aid in Yuan to help me out) as a loan on which I have to pay you interest. Again, to pay that interest I would have to acquire Yuan to pay my Yuan-based loan. So again this process would weaken my USD and increase the strength of your Yuan.
(6) Now, if I sell a LOT to you (net exporter), then I have an access of Yuan. What am I going to do with ALL THIS Yuan? I've already bought everything I need from you (my imports), and still have a lot of Yuan left over.
(7) If I keep this Yuan sitting in some bank account, I lose value - due to inflation. Also, I've already imported everything I need from you, so the Yuan is just sitting around and I am unable to get any value out of it. Hence, I would BUY Chinese DEBT (Govt. securities) that have a guaranteed rate of interest.
(8) Hence, my buying of Chinese debt (so that I get value on my sitting Yuan account balance) will increase China's Govt. debt.
(9) The Chinese Govt. doesn't need to sell me ANY debt (i.e. China doesn't need Yuan from me since it can print IT'S OWN YUAN if it needs to). But if it doesn't sell me debt, what am I going to do with all my EXCESS Yuan? I will sell it to buy USD (or some other currency). Again, this selling of Yuan will put downward pressure on the value of the Yuan (which China doesn't want). So, China will continue selling debt (as interest payments in Yuan are NOT an issue for the Chinese Govt. since it can print how much ever Yuan it needs).
(10) As long as Chinese printing of the Yuan does not cause inflation (within China), China is NOT impacted by the selling of Chinese Govt. debt in Yuan.
Now, reverse this process for OUR CURRENT REALITY.
This is exactly how the US operates (with USD and Govt. securities).
You say that this is "ONLY BECAUSE OF US RESERVE CURRENCY STATUS". Yes - precisely. This would be the same for China (if Yuan was the reserve currency), or Russia (rubles), or ANY CURRENCY that had "global reserve status + hegemony".
HENCE, the US uses its military force (and economic force - sanctions, etc.) to maintain its hegemony.
What would dethrone the US?
(1) Military defeat and destruction of the US (physically). Probability?
(2) Cutting off the US from most world trade. Probability?
The problem is NOT "what would happen if US loses dollar dominance", the problem is "the probabilities ARE VERY LOW" (based on the current reality on the ground) of this happening.
One can ALWAYS engage in wishful thinking (Optimism Bias) - as many have (by placing unrealistic, uninformed hopes on BRICS) to assume that BRICS can make this happen. But on what basis? What are the probabilities? In what scenarios can this come about? All I hear is hopium and NOT ENOUGH realism (in terms of scenarios and probabilities).
Sigh. Like I said, this is probably not the place to debate economics. You think the probability of BRICS undermining USD as worldwide reserve currency is minuscule, I think it is virtually a certainty. Place your bets and call me up in 10 years and we'll see who is correct. Assuming the failing US empire doesn't succeed in pulling the whole world down with it.
I'll do you one better. Let's make the timeframe 25 years. I don't see the USD being dethroned even in the next 25 years (unless there is a world nuclear war or something of the sort and the whole planet rearranges and some of the currently existing countries cease to exist).
So, no - the US Dollar is not going anywhere (IMHO) in the next 25 years. Now here's the IRONY -> I really hope I'm wrong and I lose (because I want the US Empire GONE)!
Hi Chang,
Not sure this is the place to debate economics but here goes. First, when you say
"Here is some (extremely simplified) logic for IMPORTS/EXPORTS->
(1) When the US exports, it takes payment ONLY in US Dollars (primarily). Similarly, when it imports, it pays ONLY in US Dollars (primarily)... "
True. Because the USD is the world's reserve currency. In the absence of a reserve currency, countries, the US included, would presumably buy things, from say China by paying Yuan (instead of the reserve currency or their domestic currency), and sell things to other countries in their domestic currency instead of the reserve currency.
This would be a great blow to the US because currently it profits enormously, financially and in terms of global influence, by having the reserve currency and having the bulk of international trading go through USD.
Now for you question about "IF the USD loses reserve currency status" and what I think the probability is. I think it's a virtual certainty (in the intermediate - roughly a decade-, not the short term) and I think the path to that loss of reserve currency status runs through BRICS. Now that BRICS is large enough in terms of population, resources (human and natural), it can become self-sufficient in terms of trading in domestic currencies between its members. Once that happens, goodbye USD reserve currency status and the boost to prosperity that accompanies it.
forceOfHabit, many things need to be clarified:
(1) The argument is NOT "how the US benefits because of Reserve Currency Status" (i.e. US Dollar hegemony), the questions are (a) how will this status change? (b) what are the probabilities of this happening (based on the present reality on the ground)? (c) Will BRICS play a part in this, how much, and in what way?
I don't think anyone in the world is argueing (or should be) about just how much the impact of "loss of US dollar hegemony" would have on the US Empire (i.e. it should be well understood that the USD is one of their primary weapons in controlling global geopolitics, trade, and economics - and the loss of ability to wield this weapon will have devasting consequences for the US Empire).
Let me explain by taking your example of "buying things from China and paying in Yuan". Let's say you represent China and I represent the US (in this scenario).
(1) To pay you in Yuan, I need to acquire Yuan first. How will I do that? If I sell my USD and buy Yuan (in the open market), and do it on a large enough scale, then the value of Yuan increases and USD decreases (basic demand and supply).
(2) Also, if I need to buy Yuan to trade with you, who will sell me the Yuan? Since there is only ONE official creator/printer of Yuan (Chinese govt.), that is the only eventual source of Yuan.
(3) Hence, by trying to pay you in Yuan, I would be weakening my USD in the process. Obviously, I don't want to do that.
(4) So what are my choices? I can get Yuan FROM YOU by selling you something (exporting). Now, you pay for your purchase (imports from me) with Yuan, and I use that Yuan when I want to buy something from you.
(5) I can ALSO get Yuan by borrowing from you (say you give me financial aid in Yuan to help me out) as a loan on which I have to pay you interest. Again, to pay that interest I would have to acquire Yuan to pay my Yuan-based loan. So again this process would weaken my USD and increase the strength of your Yuan.
(6) Now, if I sell a LOT to you (net exporter), then I have an access of Yuan. What am I going to do with ALL THIS Yuan? I've already bought everything I need from you (my imports), and still have a lot of Yuan left over.
(7) If I keep this Yuan sitting in some bank account, I lose value - due to inflation. Also, I've already imported everything I need from you, so the Yuan is just sitting around and I am unable to get any value out of it. Hence, I would BUY Chinese DEBT (Govt. securities) that have a guaranteed rate of interest.
(8) Hence, my buying of Chinese debt (so that I get value on my sitting Yuan account balance) will increase China's Govt. debt.
(9) The Chinese Govt. doesn't need to sell me ANY debt (i.e. China doesn't need Yuan from me since it can print IT'S OWN YUAN if it needs to). But if it doesn't sell me debt, what am I going to do with all my EXCESS Yuan? I will sell it to buy USD (or some other currency). Again, this selling of Yuan will put downward pressure on the value of the Yuan (which China doesn't want). So, China will continue selling debt (as interest payments in Yuan are NOT an issue for the Chinese Govt. since it can print how much ever Yuan it needs).
(10) As long as Chinese printing of the Yuan does not cause inflation (within China), China is NOT impacted by the selling of Chinese Govt. debt in Yuan.
Now, reverse this process for OUR CURRENT REALITY.
This is exactly how the US operates (with USD and Govt. securities).
You say that this is "ONLY BECAUSE OF US RESERVE CURRENCY STATUS". Yes - precisely. This would be the same for China (if Yuan was the reserve currency), or Russia (rubles), or ANY CURRENCY that had "global reserve status + hegemony".
HENCE, the US uses its military force (and economic force - sanctions, etc.) to maintain its hegemony.
What would dethrone the US?
(1) Military defeat and destruction of the US (physically). Probability?
(2) Cutting off the US from most world trade. Probability?
The problem is NOT "what would happen if US loses dollar dominance", the problem is "the probabilities ARE VERY LOW" (based on the current reality on the ground) of this happening.
One can ALWAYS engage in wishful thinking (Optimism Bias) - as many have (by placing unrealistic, uninformed hopes on BRICS) to assume that BRICS can make this happen. But on what basis? What are the probabilities? In what scenarios can this come about? All I hear is hopium and NOT ENOUGH realism (in terms of scenarios and probabilities).
Sigh. Like I said, this is probably not the place to debate economics. You think the probability of BRICS undermining USD as worldwide reserve currency is minuscule, I think it is virtually a certainty. Place your bets and call me up in 10 years and we'll see who is correct. Assuming the failing US empire doesn't succeed in pulling the whole world down with it.
I'll do you one better. Let's make the timeframe 25 years. I don't see the USD being dethroned even in the next 25 years (unless there is a world nuclear war or something of the sort and the whole planet rearranges and some of the currently existing countries cease to exist).
So, no - the US Dollar is not going anywhere (IMHO) in the next 25 years. Now here's the IRONY -> I really hope I'm wrong and I lose (because I want the US Empire GONE)!