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There is another type of demand that I rarely see mentioned. Not only does the United States owe trillions of US dollars, other nations do, as well. They hold m

• maxglute 8mo ago
  >They must be repaid in US dollars IMO this one of those cases where dollars is ultimately benchmark than requirement, IOU/settlement forms can always be restructured/renegotiated if USD is no longer lender of last resort, i.e. alternative payment systems enables take it or leave it deals in medium/long term. USD/reserve status snowballed because US controlled techstack postwar which US leveraged (along with military hegemony) to USD controlling primary energy (petrodollar). Civilization/modernity was locked behind USD. Money followed existential goods provider, that's the real USD / unipolarity moat. There's no take it / leave it from US company scrip because leaving eurodollar system = technical default (most usd loans hardcoded on newyork/english law) from eurodollar western financial system = death sentence. Once that lock/dependency erodes all kinds of force majeure geopolitics can rationalize breaking dollar contracts. AKA multipolarity. If alternate techstack/payment systems pops up and reach tipping point, country A can just say to country B who only wants USD (due to alignment or whatever), I don't have enough USD, here's RMB & cips/Brics+ & mbridge basket of equivalent value. This geopolitical layer, if BRIC+ can offer fossil, food without US and PRC can offer renewable energy, capital goods, consumer goods, technology, including 80% as good semi and civil aviation... etc if chokepoint goods are no longer exclusively under USD perview, then USD enforcement mechanism simply dies. If we're talking about loans/aid, IMF is really pittance, low hundreds of billions. It's why PRC is now using their 3T USD surplus to basically do their own shadow USD lending without IMF conditionalities... countries now don't need to buy USD from US. And somehow PRC currently lending / providing swaplines with their USD at lower rates than US treasury. Incidentally, this dollar recycling also lowers demand for new USD bonds, further reduce type1 margin buyers. This circles back to other nations own trillions of USD to each other... when you remove type1s, you're left with type2 private sector / non bank financial institutions - these are the buys where each USD bought increases triffin burden, i.e. they are the exorbitant curse / payday loans traps that makes USD reserve more expensive to maintain. Their demand is a trap, not a benefit.
  • AnthonyMouse 8mo ago
    > If alternate techstack/payment systems pops up and reach tipping point, country A can just say to country B who only wants USD (due to alignment or whatever), I don't have enough USD, here's RMB & cips/Brics+ & mbridge basket of equivalent value. Alternate payment systems aren't even required for this. If other countries are trying to divest US dollars and country B is owed "US dollars" and country A wants to pay in something else, country B would want to accept the something else of equivalent value because it's trying to reduce its US dollar holdings and would just be immediately turning around to resell them anyway. Conversely, if country B is insisting on US dollars for alignment reasons while other countries don't want them then that's only providing country A with the opportunity to divest its US dollars by using them to pay the debt. Then country B ends up with them, but now what is it supposed to do with them? The real reason those sorts of debts result in stability is that all the countries owed a lot of US dollars are going to do what they can to prevent the US dollar's value from declining.
    • cbdevidal 8mo ago
      > The real reason those sorts of debts result in stability is that all the countries owed a lot of US dollars are going to do what they can to prevent the US dollar's value from declining. That’s the crux of it. Nations can proclaim they are ready to dump the dollar—and indeed, it is happening slowly—but politicians still have a strong appetite for USD-denominated loans. I am not optimistic for the dollar in the long run, but I no longer fear waking up tomorrow to see hyperinflation.
  • cbdevidal 8mo ago
    > alternative payment systems enables take it or leave it deals in medium/long term. Assuming of course that the lender is interested in the alternative payment currency. Or that the borrower is willing to accept the consequences of default. I don’t see accepting other forms of currency to be relevant in the short term—there is little use for the Yuan outside of China, for example. I suppose creditors can use them to buy more trinkets, or trade for dollars with people who want more trinkets. And defaults can happen at any time, but the credit rating system is still widely respected. Things can certainly change, but I doubt overnight. > It's why PRC is now using their 3T USD surplus to basically do their own shadow USD lending without IMF conditionalities... countries now don't need to buy USD from US. So they’re using US dollars, not Yuan. That trend is changing; before 2021, most of China’s loans were in USD. After COVID, loans denominated in RMB have grown to 20%. Again, I can see how that would change conditions in the long term, but not overnight. I am not optimistic for the dollar in the long term but I used to fear waking up one morning to hyperinflation. Not anymore.