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Comment by raverbashing | Hacker News Reader

Also I think people are confusing the two uses of the dollar: one as a reserve currency (money in your mattress) another one is for international trade

It seems it's the latter that's most affected (as per the link 1 you posted)

> While the Global South seems unwilling to continue to hold dollar assets, they do not seem to have the ability to divest from the US dollar as an international currency, particularly for financial transactions. We suspect it will be very difficult to overcome the strong network effects that have been behind the dollar’s international currency status.

Well no crap Sherlock

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An issue with dollar as international trade currency is that all transactions are performed via US banks. And US is not a reliable party anymore, because they could freeze your accounts or decline your transaction if they don't like something about you. So governments which want to have some degree of freedom and independence in their actions will naturally move to other currencies.

Good alternative could be a P2P currency which does not require any particular center to handle a transaction. Switching dollar to ruble or yuan does not seem like it could change something drastically.

Though I don't really understand why governments need a single currency. Just use your own currency and exchange other currencies, it'll settle down eventually.

The problem is it doesn't. It does balance out if you're a big wealthy nation with imports and exports. If you're a small poor nation with limited resources, money only ever flows out, and barely ever in, depleting the nation's treasury.

If they are instead buying things with US dollars, where do those dollars come from?

Often things like IMF loans that massively burden countries with debt to first world countries - with the money mostly going into infrastructure for extractive industries like mining so the countries who indebted them can buy their resources cheap, and also get to suck extra money out of their economy for the interest payments. These kind of things often just happen to end up that the people of a nation end up with the burden of the debt, austerity, etc. while a smaller group of well connected people and companies end up with the benefits.

US trade balance is negative for decades, exactly because dollars go to developing countries (in the form of direct investment and also as the classic paying for things, and also because tourists leaving hard cash at the locals)

IMF loans are better than austerity. and structural reforms as conditions of IMF loans are better than selling natural resource extraction rights for 99 years to private companies.

are these development programs perfect? of course not, but the mindless and ignorant vilification is just propaganda at this point.

These vilification are propaganda, likely covert operations from places like china or russia.

The IMF is no saint, but they at least is looking to improve things, despite not acting altruistically. Their loans are contingent on economic reforms - e.g., Pakistan's default is in part due to state subsidies and inefficient tax allocation, etc. In the short term, reforming these things looks like causing of suffering for the population, but so does alcohol/drug withdrawal. In the long term, it produces a better economic outcome imho.

Contrast this with stuff like the Belt and Road initiative.

> These vilification are propaganda, likely covert operations from places like china or russia.

Source?

> The IMF is no saint, but they at least is looking to improve things, despite not acting altruistically.

Should I consider you likely covert operation from China or Russia because of the accusation that IMF is no saint and does not act altruistically?

> issue with dollar as international trade currency is that all transactions are performed via US banks

Not necessarily. The US dollar is fully convertible and several countries offer accounts in USD

(though a lot of places rely happily on SWIFT)

Non US banks have to deposit their dollars to a US bank that actually handles transactions and decides if a transaction can go on or not.

There’s nothing stopping a non-US bank having a vault full of actual US currency backing its US-denominated accounts. And settling transactions by sending physical cash on a plane. It is more expensive than using a US bank which makes it much more electronic, but has the advantage that the US government cannot stop it except by shooting down that plane

This is not true. Eurodollars exist.

>Though I don't really understand why governments need a single currency. Just use your own currency and exchange other currencies, it'll settle down eventually.

Because commerce is much easier if everyone uses the same currency, plus the more countries use a currency the more stable the currency gets. This where two big reasons why in EU most countries decided to use Euro.

It's not that commerce is easier: currency exchange is pretty frictionless nowadays. It's that the value of inputs and outputs, which are critical to running a company doing part of its business abroad, or buing inputs from abroad, is much easier to calculate without having to account for exchange rate fluctuations.

I'd put it is that conducting international trade in a single currency is more systemically stable.

Iow, the currency's ubiquity and total amount buffer shocks to the system, in a way that multi-polar currency use could not tolerate.

If some folks decide to break {insert smaller international currency here} because they think it's overvalued and they don't use it, they probably have the means. But it's difficult to tip over a world-economy sized apple cart.

And a single trade currency also mostly keeps nation-states out of the currency warfare game, because it's a gun pointed back at their head too.

This is what I meant by saying that it makes commerce easier.

> Though I don't really understand why governments need a single currency.

"need" is probably too strong a word. A single currency just makes things easier.

Having a single currency, or using many different currencies is sort of like the difference between a barter system vs a money system (multiple currencies is equivalent to bartering). If the buyer is trying to buy in a currency that is not desired by the seller (i.e. there is nothing that they want being sold in that currency), the seller has to offload it somehow to someone that does want it. There is a cost to that, in additional risk and effort.

Bartering works ok, up until a point. But a shared currency just removes friction, so is preferable.

only that those two are intimately related. Countries don't hold US treasuries because they're great investments (..... obviously). They hold them BECAUSE they have liabilities in USD BECAUSE their international trade is in USD, and having to covert their local currency to USD not only introduces a currency risk. The world financial system is also organized to make local currencies of poorer countries depreciate over time, more than the USD does. Just like inflation is a silent tax that robs wealth from the poorer stratums inside a country, faster inflation/depreciation in the global south than in the north does the same on a global scale; it's a means of exploitation. Holding USD treasuries protects against that, at least a little. The fall in USD use in world trade doesn't immediately translate into an equivalent fall of reserve holdings because the trade isn't the only reason they hold them. The other big one is serving international debt, also in USD (for.. the same reasons as above, again an exploitation mechanism). So even if you stopped ALL trade in USD tomorrow, countries would have years' worth of USD denominated debt to pay off (which, of course, never pays off, because just like student loans, it accrues fees and interest and will never be paid down under "normal" circumstances, just rolled over). So there's a second change to watch: the change in debt denominated in other countires' currencies. It's a slow moving train.

I dont thinks its a means of exploitation in the sense that controling inflation is not something anyone has mastered in hundreds of years of trying all kinds of things.

Inflation is a consequence of the conditions that permit economic growth (fractional reserve banking / currency creation, credit extension / investment / speculation).

We could "solve" inflation tomorrow, but we'd also be zeroing growth.

Ergo why the usual target is a small but acceptable bit of inflation. E.g. the US Fed's 2%

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