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Comment by jollyllama | Hacker News Reader

Nothing. The Dollar is antifragile. The worse it gets, the more entrenched it becomes. [0]

[0] https://en.wikipedia.org/wiki/Gresham%27s_law

Your linked page doesn't actually appear to render any sort of compelling argument for this.

In fact - the entire argument seems to more accurately hinge the conditional left off the main saying, so the full description is:

"Bad money drives out good if they exchange for the same price."

But that requires a legal structure that enforces the disparity, and the summary of the whole thing basically boils down to:

---

If given the choice of what money to accept, people will accept the money they believe to be of highest long-term value and not accept what they believe to be of low long-term value. If not given the choice and required to accept all money, good and bad, they will tend to keep the money of greater perceived value in their own possession and pass the bad money to others.

---

But if anything - this is exactly an argument for the value of soft power to the US, because we can't enforce how other nations transact, except through soft power.

In practice, everyone wants to spend their dollars, not their gold, or their bitcoin, or their Euros, and so dollars it will be. What else is there that anyone both with pay with and will be accepted by the other party?

Soon dollars might not be accepted if US companies wants to buy things in the EU, they will have to pay in euros (part of the anti coercion instrument that Macron and others have been talking about the last couple of days)

I don't think it will happen. 10% of EU bank loans that are dollar-denominated [0]. If they cut the flow of dollars into the EU, the debtors of those loans would wind up offering a premium for their goods and services to non-US companies, making them uncompetitive. It would be a roundabout tariff that would hurt the EU countries too much.

[0] https://www.ecb.europa.eu/press/financial-stability-publicat...

Again - you skip the full statement of the economic principle at hand.

No one cares that everyone wants to spend their dollars. They care whether the seller takes them, and is forced to take them at the same value as more cherished coin.

There is no functional mechanism to enforce this internationally - we already see the value of the dollar declining.

It's entrenched, so I expect the withdrawal to be relatively slow for the same reason you don't rip the bandaid off - you avoid a lot of pain. But there is nothing stopping the bandaid from coming off.

> you skip the full statement of the economic principle at hand.

Hence "In practice".

To the meat of your argument: sure, there's no mechanism to coerce it internationally, but it's self-perpetuating. Everybody could quit using dollars tomorrow. But they won't.

> we already see the value of the dollar declining.

This is not clearly the case. Its value relative to other currencies (as of this month), while subject to cyclical fluctuations, is on par for the post-Covid cycles and higher than pre-2020 levels [0].

[0] https://fred.stlouisfed.org/series/DTWEXBGS

> The Dollar is antifragile.

Apparently the guy that invented the concept disagrees: https://x.com/nntaleb/status/1914633020671246352

Ok, good for Taleb, he made a good investment potentially, but gold increasing in value relative to the dollar doesn't make it the reserve currency. Being used in transactions makes it the world currency. Otherwise, nvidia stock would be the new world reserve currency.

Couldn't you make the same case for every other former reserve currency which has had something replace it?

Prior reserve currency failures involved currency collapses. I think Gresham accounts for this. Looking at the particular mechanisms of collapse, I think they all involve a failed transition to fiat. Can you name another example of a currency that survived the transition to pure fiat (i.e. not backed by metals in any respect)? The dollar did this in the 70s and continued to increase its dominance in the decades that followed. In all cases of prior world currencies, I don't think any survived the transition to pure fiat. Sure, a theoretical dollar collapse could spell a return to gold or silver, but you'd have to make a case for total collapse, rather than just the dollar being eclipsed by some other currency.

I agree the dollar is uniquely successful, but the Pound ended convertibility in 1931, and limped as a reserve currency into the 70s. While not a reserve currency, another example is Chinese currencies like the second zhiyuanchao going off silver convertibility, which lasted for a bit over 50 years.[1]

When the Dutch for example did try to go off a metallic standard it was essentially a last ditch effort as they were completely broke. The US on the other hand had the advantage of still controlling global trade/it's military, liquid markets and the petrodollar system. The dollar's floating exchange rate also served as a release valve, allowing devaluation to occur gradually over the decade that followed versus all at once.

Re a dollar collapse I see a gradual shift towards a more multipolar world with no clear singular reserve currency and no currency which eclipses the dollar as more likely than a collapse or eclipse. For example where the Americas still primarily transact in dollars, the Yuan becomes an increasing percentage of belt and road trade, and the Euro in it's sphere.

[1]https://cepr.org/voxeu/columns/rise-and-fall-paper-money-yua...

Thanks for a good reply with lots of interesting historical examples. I think your conclusion is sound. I suppose this is a likely counter scenario to my assertion that nothing will replace the dollar, but rather that it will be partially replaced by a little bit of everything over the course of decades.

Likewise, it's always good to think through different perspectives. For what it's worth there are definitely people who think it will take much longer than most expect, due to for example the creation and growth of US Stablecoins, China wanting to be an exporter more than wanting the Yuan to be a reserve currency, or greater relative weakness in other countries for example.

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