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> Most international trade was historically priced in dollars for two reasons. The second was, until recently, the unique speed and breadth of the Fedwire syste

> Most international trade was historically priced in dollars for two reasons. The second was, until recently, the unique speed and breadth of the Fedwire system. > The first is the American consumer. When Americans buy, we spend dollars. This puts dollars in vendors’ hands. Those dollars can be reused for trade or invested, the latter supporting dollar financial markets. Both support dollar hegemony, which in turn drives its dominance in global trade and finance. That has certainly not been my takeaway from history (though those could be more minor and related points) My understanding is that most international trade was historically priced in dollars because the dollar became the world's reserve currency after Bretton Woods. Why it became the international currency is more complex, but to the best of my knowledge it is because: 1. The US was in strong monetary shape compared to the rest of the world after WWII 2. The US held many foreign assets after that war (was a creditor to the world) 3. The US held most of the world's gold after that war (edited for formatting)

pishpash 6y ago
1-3 are the same thing. The US held most of the world's assets (was a creditor during the war), so became the world's most well capitalized bank. In that capacity, the bank's notes, i.e. dollars, became the world's currency. Despite a run on the "bank" in the 70's, this arrangement remained.
yxhuvud 6y ago
4 The USA was the biggest economy, with something like 40% of total global GDP. That drove everything else. Now it is down to 20ish % if I recall correctly and hence the motivation to diversify reserves is a lot bigger.
- llampx 6y ago
  15% recently from the authors article, and falling from my calculations.
  - cdiddy2 6y ago
    depends on if you adjust for PPP or not. Its 24% raw or 15% adjusted for PPP. RAW: https://ycharts.com/indicators/us_gdp_as_a_percentage_of_world_gdp https://ycharts.com/indicators/us_gdp_as_a_percentage_of_wor... PPP: https://www.statista.com/statistics/270267/united-states-share-of-global-gross-domestic-product-gdp/ https://www.statista.com/statistics/270267/united-states-sha...
sytelus 6y ago
I'd add that US political system is much more stable and trustworthy unlike countries without democracies and/or corruption perceptions. Presidential powers are far more limited, well scrutinized and things can easily be challenged in courts. If I held US dollars today I would be relatively more certain that it will retain value than other currencies. If all else fails one can count on US to exercise its military might to protect the dollar.
- ntsplnkv2 6y ago
  That seems to be changing though. The US's war-might is limited. Look how poorly Afghanistan and Iraq went - the US's last two tests were seemingly ineffective. Syria was another trainwreck. Internal polarization seems to be very high. Trump has eliminated or not replaced key diplomatic positions. The secretary of the navy was never confirmed and has just resigned. The defense secretary stepped down. A captain of a capital ship was ousted publicly to cheers of support from his crew. NATO is a trainwreck. France and Germany have expressed desires to move away from US dependence while Trump demands more money. The US's soft and hard power, to me, is just not fully there anymore.
  - koheripbal 6y ago
    The war in Iraq and Afghanistan were won almost as quickly as they began. It was the "peace" that was never won. ...but winning the "peace" isn't relevant for USD to be dominant. For that, the US just needs to be able to destroy enemy armies - which it can do globally with impunity.
    - ntsplnkv2 6y ago
      That simply isn't true - the amount of cost sunk into not achieving objectives was enormous. Destroying the Iraqi army was never going to be the hard part. And how you can say we "won" in afghanistan, even though the taliban still exist and will have a part of the future there, is just...wow. > ...but winning the "peace" isn't relevant for USD to be dominant. For that, the US just needs to be able to destroy enemy armies - which it can do globally with impunity. Comments like these make me want to ask people who make them: how did empires ever fall, then? The US army isn't a perpetual motion machine. It requires soldiers, equipment, and technology. * 71% of young people between 17-24 are unfit to serve, 31% of that is due to obesity alone * Equipment requires a strong manufacturing base, much of which has been decimated since World War 2, the skill required for that workforce simply doesn't exist. * Cost. US military equipment costs are extremely high. The cost proposition is almost always a losing one for the US in any long term war. Greater generals have overcome greater differences in strength than between the US and China. Pride comes before the fall.

pishpash 6y ago

1-3 are the same thing. The US held most of the world's assets (was a creditor during the war), so became the world's most well capitalized bank. In that capacity, the bank's notes, i.e. dollars, became the world's currency. Despite a run on the "bank" in the 70's, this arrangement remained.

yxhuvud 6y ago

4 The USA was the biggest economy, with something like 40% of total global GDP. That drove everything else. Now it is down to 20ish % if I recall correctly and hence the motivation to diversify reserves is a lot bigger.

llampx 6y ago
15% recently from the authors article, and falling from my calculations.
- cdiddy2 6y ago
  depends on if you adjust for PPP or not. Its 24% raw or 15% adjusted for PPP. RAW: https://ycharts.com/indicators/us_gdp_as_a_percentage_of_world_gdp https://ycharts.com/indicators/us_gdp_as_a_percentage_of_wor... PPP: https://www.statista.com/statistics/270267/united-states-share-of-global-gross-domestic-product-gdp/ https://www.statista.com/statistics/270267/united-states-sha...

sytelus 6y ago

I'd add that US political system is much more stable and trustworthy unlike countries without democracies and/or corruption perceptions. Presidential powers are far more limited, well scrutinized and things can easily be challenged in courts. If I held US dollars today I would be relatively more certain that it will retain value than other currencies. If all else fails one can count on US to exercise its military might to protect the dollar.

ntsplnkv2 6y ago
That seems to be changing though. The US's war-might is limited. Look how poorly Afghanistan and Iraq went - the US's last two tests were seemingly ineffective. Syria was another trainwreck. Internal polarization seems to be very high. Trump has eliminated or not replaced key diplomatic positions. The secretary of the navy was never confirmed and has just resigned. The defense secretary stepped down. A captain of a capital ship was ousted publicly to cheers of support from his crew. NATO is a trainwreck. France and Germany have expressed desires to move away from US dependence while Trump demands more money. The US's soft and hard power, to me, is just not fully there anymore.
- koheripbal 6y ago
  The war in Iraq and Afghanistan were won almost as quickly as they began. It was the "peace" that was never won. ...but winning the "peace" isn't relevant for USD to be dominant. For that, the US just needs to be able to destroy enemy armies - which it can do globally with impunity.
  - ntsplnkv2 6y ago
    That simply isn't true - the amount of cost sunk into not achieving objectives was enormous. Destroying the Iraqi army was never going to be the hard part. And how you can say we "won" in afghanistan, even though the taliban still exist and will have a part of the future there, is just...wow. > ...but winning the "peace" isn't relevant for USD to be dominant. For that, the US just needs to be able to destroy enemy armies - which it can do globally with impunity. Comments like these make me want to ask people who make them: how did empires ever fall, then? The US army isn't a perpetual motion machine. It requires soldiers, equipment, and technology. * 71% of young people between 17-24 are unfit to serve, 31% of that is due to obesity alone * Equipment requires a strong manufacturing base, much of which has been decimated since World War 2, the skill required for that workforce simply doesn't exist. * Cost. US military equipment costs are extremely high. The cost proposition is almost always a losing one for the US in any long term war. Greater generals have overcome greater differences in strength than between the US and China. Pride comes before the fall.