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America’s aggressive use of sanctions endangers the dollar’s reign
121–130 of 326 posts
Re: America’s aggressive use of sanctions endangers the dollar’s reign
#122James Rikard (author of Currency Wars) in his newest book Aftermath predicts that the dollar's reserve currency run may soon be over, and special drawing rights (SDR) reserve currency might only be 1/3 dollars. I think he is probably correct on this prediction but maybe not on another prediction: currencies like China's and Russia's might soon be 20% backed by gold. He makes the point that there is no need for 100% b…
What would happen to life in the US if the dollar was no longer the global reserve currency?
The most direct impact would be an increase in costs because the American supply chain, which is currently almost completely dealt in dollars would need to factor in currency risks, since, for example, they may have to start paying manufacturers in Yuan, and shippers in Euros.
More indirect results would be things like making American companies less competitive than they are worldwide. For one thing, most American companies have little to no experience dealing with multi currency issues, while companies in other countries deal with these every day and do have experience. This will give those other countries and people a slight advantage against American competitors.
Also, America gets a decent chunk of stuff for free or cheaper than it would otherwise, because countries are paying Americans goods and services in return for pieces of paper. Those benefits will gradually reduce and disappear.
Re: America’s aggressive use of sanctions endangers the dollar’s reign
#123This is an interesting article, but exposes the Economist's bias and lack of an honest historical accounting. While the it is new, interesting, and important that the world is becoming more skeptical of the dollar, it is kind of laughable that the only reference to Iraq and sanctions is the ones that were in the news recently. Iraq and many other countries have been subject to crippling US sanctions many times in the…
The modern instance has far less apparent rational motives. The threat of imposition of sanctions on Iraq is coming almost solely from the President of the US, framed as a retaliatory gesture. The language used implies the threat is guided primarily by emotion rather than by a sober realpolitik diplomatic move. It appears that most of the government, even most Republicans in Congress, disagree with the idea. Though R…
The other major change is that under the current administration America has been pointing its financial weapons at allies as well.
That’s the major change the article is talking about, without being fully explicit about it. Russia and China have been wanting to move away from the dollar for over a decade.
It’s the fact that the EU now also wants to do so that has changed.
The greatest long term impact of Teump’s Iran policy will likely be the creation of Instex (or more relevant, whatever follows it) that will help the EU and Asian countries move away from the US as the center of the financial world.
Re: America’s aggressive use of sanctions endangers the dollar’s reign
#124There's the possibility that the USG believes the dollar's primacy is going to come to an end in the relatively near future. There are other factors at play that could weaken the dollar's status that matter more than sanctions, including:
(1) The geopolitical shift away from a unipolar world, with the rise of states such as China.
(2) The upcoming end of the petrodollar, as nations shift to renewable energy.
If you believe the reign of the dollar will come to an end anyways, you might as well use its power while you have it and throw sanctions around to weaken your rivals.
Re: America’s aggressive use of sanctions endangers the dollar’s reign
#125Earlier quoted context omitted.
So, in these two scenarios: 1. The currency is 100% backed by gold. 2. The currency is 20% backed by gold. How much gold does it take to purchase 200 apples? You are saying that it will take more gold in the second case, right? Why?
No in the first case it might take 1 currency to buy 200 apples. Then in the second case it would take 5 currency to purchase the same 200 apples. 1 gold = 200 apples 1 gold * 1 currency = 200 apples 0.2 gold * 5 = 200 apples
That's what I was saying, but mark_l_watson is saying that in case 1 the price of gold is higher, meaning a smaller amount of gold to buy the same number of apples.
Re: America’s aggressive use of sanctions endangers the dollar’s reign
#126For the rest of the world this is a good thing. Why would the United States be the one to decide if Germany is allowed to build a pipeline to Russia or not? Image if it was Germany that used sanctions to prevent the US from building a pipeline to Mexico. Would you be ok with that?
The United States' main geopolitical imperative is to maintain global hegemony. Part of this is ensuring regional powers are either allied (in the case of NATO countries or Saudi Arabia) or contained (in the case of Russia and Iran). It is a fundamental rule of Geopolitics that every country assert itself to the best of its abilities with the strengths they have. One of Russia's biggest strengths is natural resources…
> but if Russia has the off switch for Germany's economy
You are completely missing the part where Germany has already been running on Russian gas for decades, from land based pipelines. I think that you might be unaware of how permeable to natural gas the iron curtain had been.
The power Russia gains from Nordstream isn't the power to stop supplying Germany (they could already do that and then go broke), the power they gain is the power to keep supplying Germany while playing with the off-switch for their dearly loved "Slavic brother nations". The geopolitical relevance of Nordstream is not Russia selling more gas, it's about Russia deriving more influence per unit of gas.
Ever wondered why Poland is refusing so hard to switch from dirty lignite to cleaner gas? It's not just money and miners, far from that.
Re: America’s aggressive use of sanctions endangers the dollar’s reign
#127Earlier quoted context omitted.
"Why would the United States be the one to decide if Germany is allowed to build a pipeline to Russia or not?" Because America provides defence for Germany, and Russia has 1000 nuclear warheads pointed at Germany, the US and others, and they are an antagonising state, actively trying to disrupt the governments in Lithuania, Estonia, Latvia, Ukraine, etc. All these issues are quite fundamentally related, so it matters…
What is this protection that the US provides other than ensuring the US would be drawn into a war between the EU and Russia? France has enough nukes to provide MAD protection.
"France has enough nukes to provide MAD protection."
It's never so simple.
First, does France have the ability to deliver them? Under what conditions? With what warning, etc. etc.
Second, is the fact that nukes are the biggest hammer in retaliation, and most things need to be proportional.
Would France use nukes on Russia if Poland was invaded?
What if Russia tried to 'pull a Crimea' in E. Germany i.e. small forces without uniforms, supporting insurgencies, disrupting communications. Tons of money pouring in changing elections, disrupting governance. Would that be a case for nukes?
It's far more complicated, and Europe cannot defend itself - this is the tacit admission of their own leaders. So America still provides baseline defence capabilities.
The unfortunate reality is that Europe actually could defend itself, but it's not willing to either spend what's necessary, or to coordinate along those lines, which might be even harder as the EU doesn't provide for that and it's a really big existential deal. The reason there isn't material progress on it is because it's really, really expensive and nobody wants to pay bills if America will continue to pay it form them.
Trump is a loathsome figure, but he's exactly right on this issue. European leaders will make some happy talk, public statements, but really they're just waiting for Trump to be gone so they can go back to what they hope will be the status quo.
Re: America’s aggressive use of sanctions endangers the dollar’s reign
#128Earlier quoted context omitted.
> currencies like China's and Russia's might soon be 20% backed by gold. He makes the point that there is no need for 100% backing from gold since a smaller percentage would still prevent a country from printing new currency out of thin air. What is the conceptual difference between a currency that is 100% backed by gold and one that is 20% backed by gold? Or rather, what is the difference between a currency that is…
The difference is, when you go to the gold standard, how much gold you acquire to support the currency. After that, they are the same (but keep in mind, the value of a currency is dependent on a lot of factors, and not just the gold that is backing it. Otherwise currencies backed by nothing would all be worth nothing, which we know isn't true).
> (but keep in mind, the value of a currency is dependent on a lot of factors, and not just the gold that is backing it. Otherwise currencies backed by nothing would all be worth nothing, which we know isn't true).
True, but once you've pegged the currency to gold, it can't fluctuate very far from the price of gold. A change in one is necessarily an equal change in the other. Currency that isn't backed by gold is free to fluctuate independently of the gold price, but gold-backed currency isn't.
You could have a currency backed by a weighted basket of commodities, but that would be "backed by a weighted basket of commodities", not "backed by gold, but the backing is metaphysically different than you might expect".
Re: America’s aggressive use of sanctions endangers the dollar’s reign
#129For the rest of the world this is a good thing. Why would the United States be the one to decide if Germany is allowed to build a pipeline to Russia or not? Image if it was Germany that used sanctions to prevent the US from building a pipeline to Mexico. Would you be ok with that?
The United States' main geopolitical imperative is to maintain global hegemony. Part of this is ensuring regional powers are either allied (in the case of NATO countries or Saudi Arabia) or contained (in the case of Russia and Iran). It is a fundamental rule of Geopolitics that every country assert itself to the best of its abilities with the strengths they have. One of Russia's biggest strengths is natural resources…
What are you talking about? Every country isn't trying to assert itself. Most are trying to stay our of the way and not get noticed.
Re: America’s aggressive use of sanctions endangers the dollar’s reign
#130Earlier quoted context omitted.
> Isn't the answer the euro? Only 19 out of the 28 european union members use the euro. So I don't think the euro (a 19 year old currency ) is the answer. Unless something changes, then in the future it might be one of the answers. > you won't even have to worry about the brits messing with it... The brits never adopted the euro as their currency, so they never messed with it to begin with. > Stable, inflation proof,…
> the near term, it's more likely the EU will break apart and the euro discarded That's not likely at all.
it's all but certain that the EU will start to break up in 12 days time
(whether or not it will stop there is a separate question)