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Are we moving towards the end of the US dollar as global reserve currency? I have a gut feeling that indeed we are. That a lot of trust has been destroyed this week and that trust will not simply return. And that causes real anxiety for me. While we theoretically know alternative solutions to a single reserve currency could look like (BANCOR, the Keynes version, not that cryptoshit that tried to profit of the name), the IMF and World Bank have published papers on the question, but no answer 1/5
The US deficit HAS to grow as long as it is the global reserve currency. It cannot be reduced. This is called the Triffin Dilemma [1] and was ultimately behind the 1929 Great Depression, where the Pound Sterling couldn't keep up with the demands on a global reserve currency. It took 20+ years to find a new balance and while BANCOR offered the sustainable solution, the US dollar simply replaced the Pound Sterling at Bretton-Woods. and now Triffin is back, it seems 2/5
[1] https://www.imf.org/external/np/exr/center/mm/eng/mm_sc_03.htm
The dilemma was manageable as long as the US was seen by market participants as the global leader. And they were for many years. But that has changed, slowly but steadily over the past 20 years. Markets have shifted and China took over the role of the global producer. But without "owning" the global reserve currency. Triffin. So what now? There were a lot of discussions since many years, but Trump changed the picture in a few days and chaos is about to emerge, IMHO. 3/5
I guess you all have read the news by now. The tariffs are not the problem. They are a (potent!) distraction. The real problem is that the bonds market shifted. The yield on 5 and 10 year US bonds skyrocketed (comparably, it's a very sensitive market), indicating a loss of trust in the US economy and leadership. THAT caused Trump to blink. Because that change means that borrowing money will become more expensive in the US economy. With unclear consequences, globally. Triffin. Again. 4/5
@jwildeboer@social.wildeboer.netKeynes predicted at Bretton-Woods that all of this could happen and that the only solution is to switch to a global equilibrium system called BANCOR [1]. His ideas and proposals deserve to be studied again. Because his arguments are sound, even after 80+ years. 5/5
Addendum: This graphic might help in understanding the fundamental problem. When your currency is the global reserve currency, but someone else is doing most of the trade, you have a (growing deficit) problem. Triffins Dilemma. https://social.lol/@major/114336142328498436
@jwildeboer you are one of the people I follow where I did not expect to get so much insightful commentary from. Like, I was just following open source people and with you I have learned so much!