How Has the US Dollar Held Up as “Global Reserve Currency” During Q2 Turmoil?

Declining Hegemony. But still Hegemony.

By Wolf Richter for WOLF STREET.

Other countries have huge trade surpluses, which bolster their financial system and economy. The US has huge trade deficits and huge budget deficits and a ballooning public debt, and businesses carry an enormous pile of debt, but the economy and financial system are propped up by the US dollar’s role as the dominant global reserve currency – a currency that every central bank must hold in large amounts. There has been speculation that this status is threatened, and there have been suggestion that the dollar would collapse soon, or whatever. So how did the dollar do as global reserve currency during the turmoil in the second quarter?

The IMF shed some light on this delicate question today. US-dollar-denominated exchange reserves – that would be US Treasury securities, US corporate bonds, US mortgage-backed securities, etc. held by foreign central banks – rose 1.9% in the second quarter to $6.9 trillion, according to the IMF’s COFER data release. But foreign exchange reserves denominated in other currencies rose faster, and the dollar’s share fell to 61.3% of total foreign exchange reserves ($12.01 trillion), down from 61.8% in the prior quarter, and down from 66% in 2014:

The global foreign exchange reserves do not include the Fed’s own holdings of dollar-denominated assets, such as its $4.4 trillion in US Treasury securities or its $2.0 trillion in US MBS, but it includes the Fed’s holdings of foreign currency denominated assets amounting to $21.5 billion with a B – a rather small lump amid its $7 trillion of total assets. By contrast, China holds $3.16 trillion with a T in foreign exchange reserves, including $1.1 trillion in US Treasury securities.

Similarly, foreign exchange reserves also do not include the vast QE assets other central banks hold in their domestic currency, such as the ECB’s euro-denominated holdings, or the Bank of Japan’s yen-denominated holdings.

In the chart, note the jarring moves in 1979 and 1980, with follow-through to the low point in 1991, as the dollar’s share dropped from 85% to 46%, followed by the surge till 2000:

The euro hasn’t collapsed yet either.

The meme surrounding the creation of the euro at the time was that it would reach parity with the US dollar as global trade currency, global investment currency, and global reserve currency. In terms of the latter, the dreams were first scrambled by the collapse of the euro bubble in 2000, when European stocks crashed horrendously, after their huge run-up. They were further scrambled during the Euro Debt Crisis from 2010 to 2012.

But over all these years, the euro has been replacing one after the other the national currencies of EU member states, from the original five to 19 currencies currently. And the euro’s share of global reserve currencies has been for years ranging between 19% and 21%. In Q2, it ticked up a smidgen to 20.3%.

And the ballyhooed Chinese renminbi?

When the IMF included the Chinese renminbi (RMB) in the currency basket of the Special Drawing Rights (SDR) in October 2016, the renminbi became officially a global reserve currency. But progress has been glacial. In Q2, the RMB’s share of global reserve currencies (short red line near the bottom) remained flat at 2.0% compared to Q1. It is a tad ahead of the Canadian dollar (1.9%) and the Australian dollar (1.7%), but far below the yen (5.7%) and the pound sterling (4.5%):

The other reserve currencies under a magnifying glass.

The chart below holds a magnifying glass over the reserve currencies that were all bunched up at the bottom of the above chart. The yen has backed off a little from its surge that had started in 2015, and peaked at 5.9% in Q4 2019 and Q1 2020. In Q2, it ticked down to 5.7%.

The pound sterling (GBP) has remained relatively stable despite the Brexit uncertainties.

Note what happened to “other currencies” in 2016 when the RMB was separated from it: The sum of the shares of “other currencies” and RMB remained roughly the same in 2017, and then both rose, with the RMB rising more steeply:

Trade deficits and status as global reserve currency.

The US dollar’s status as the dominant reserve currency and as the dominant international funding currency creates a lot of demand for dollar-denominated instruments, and permits the US to fund its gigantic trade deficits and its even more gigantic fiscal deficits. The status of the dollar as the dominant, if declining, global reserve currency has enabled the trade policies of the US government, the policies of foreign governments, and the drive to globalization (offshoring of production) by Corporate America.

The trillions flying by so fast, it’s hard to even count them. But somebody had to buy these Treasury securities. And it wasn’t just the Fed. Here’s who. Read... Who Bought the $3.3 Trillion Piled on the Incredibly Spiking US National Debt Since March?

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  94 comments for “How Has the US Dollar Held Up as “Global Reserve Currency” During Q2 Turmoil?

  1. andy says:

    People around the world know what the dollars looks like. Even know how to verify genuine dollars by touch and feel (many ways to do so). So dollars are fungible (like gold) in a middle of nowhere.
    That being said, read the article everyone!!! ;-)

    • Frederick says:

      Comparing the fiat dollar to Gold ,which is money is disingenuous

      • andy says:

        Well, I suppose Erdogan will confiscate your gold and not lira. So there is that.

        • nick kelly says:

          A whole of countries have simply made their currency no longer a currency. The last was India which at least gave warning of it. Several African countries did it so fast, bags of now useless cash were abandoned at airports.

          So Erdy doesn’t have to seize lira he can just announce a new currency. But he can’t do that with US$ or euros, and anyone in Turkey using currency as a store of value will have it that.
          The English- speaking world has never seen such a thing. or a currency collapse, which is why it is much more pro- currency than many parts of the world. This was brought into sharp contrast when the US mint announced a new design for the $100 note.
          A brief panic swept the world, including Moscow. Then it was announced that of course the old ones were still good.

          Trivia: a young relative just bought an old
          house in very rural Japan. Among all kinds of stuff was an envelope with a lot of old Japanese currency, printed in the fifties. He put to the test by paying for a meal. The waitress took it to the manager who said it was OK.
          When the first post- war Japanese currency was launched it was partly backed by Imperial gold recovered from Tokyo Bay, where it had been dumped to hide it.

      • DawnsEarlyLight says:

        The ‘value’ of gold is definitely overstated.

      • Lisa_Hooker says:

        Money is whatever a group of traders says it is.

    • M says:

      The old saying that the US dollar is the “least dirty shirt” holds true. It remains very widely available (thanks to the “Federal” Reserve bankster cartel’s efforts to create more and more and more to funnel to its cronies), readily tradable due to our still, large number of allies, and is the currency selected for most contracts, debts, and financial instruments.

      However, current efforts to operate this economy to benefit the ultra-rich, most corrupt, few, e.g., to deprive millions of healthcare, will result in greater and greater social unrest. A country that is slowly heading toward of incipient, armed rebellions as the majority is taken advantage of by the ultra-rich again and again (or at least paralysis because the representatives of the majority of the population may see legislative paralysis as their only remaining, viable tactic) may lose its luster with foreign investors as a safe haven for their funds.

      More and more Americans have less and less to lose. FDR created his new deal because popular dissatisfaction with government was such that a communist takeover was increasingly a viable possibility. I fear that the greed, selfishness, and arrogance of a few is heading our country in that direction again while for now we are without a leader capable of turning the ship of state away from disaster.

      The most corrupt, deceitful, and criminal among us should not be the group from which our leaders are selected by the ultra-rich.

      • happy_man says:

        “FDR created his new deal because popular dissatisfaction with government was such that a communist takeover was increasingly a viable possibility.”

        completely incorrect!

        FDR (with his friends) created a program of comprehensive colossal unconstitutional theft (marketed as “new deal”) because he was a tyrant comparable to the horrible communist dictators of history

    • Old School says:

      I have a small bone to pick with the statement about the Euro crisis in 2010-2012. Yes I know that is correct, but really you could say the crisis was the Euro creation which allowed Germany to ‘vendor’ finance over consumption in southern Europe to it’s inevitable end of not being able to make payments.

      • Lisa_Hooker says:

        Just another attempted conquest of Europe by Germany.

        • phusg says:

          Yes bad Germans for making quality stuff that people in southern Europe want to buy. How deceitful and surely tantamount to war crimes, sheesh.

          How about the countries with a trade deficit get off their butts and make more export quality stuff themselves, or stop buying so much from abroad?

  2. SonnyR says:

    I’ve read lots of articles predicting dollar imminent decline (Stephen Roach most recently predicting 35% drop by the end of 2021).

    On the other hand, I’ve read a lot of articles like this one, showing graphs of dollar’s relative hegemony, and the inability of the rest of the world to escape the dollar trap, due to everything being held and funded in dollar-denominated assets.

    Both side are correct up to a point.

    It comes down to the “going bankrupt slowly and then suddenly” maxim.

    The decision makers of the world have a choice: back the dollar’s confidence-based system, or go with China’s goods-based system.

    They will support the dollar wholeheartedly up to the point they don’t. It’s that simple.

    One day Chinese (or some other IMF-sque) currency will be revalued vis-a-vis dollar probably somewhere in 5:1 to 10:1 range. The realistic basis for this already exists. The U.S. makes very little, other than dollars themselves. The value-drop is already here, but unrecognized.

    Suddenly, the huge dollar reserves will fall in value overnight. The world will scramble to fetch the new currency, which will be allowed to float, even if it doesn’t today.

    This tectonic shift will happen one Monday, and up until then, it’ll all be dandy.

    That’s the meaning of ‘global reset’ people talk about.

    • Frederick says:

      And they will scramble to get Precious Metals which is already happening by the way

    • Cas127 says:

      Sadly, this has the ring of truth about it.

      In the long run, demand for a currency has to be rooted in a nation’s productive capacity.

      If a currency will buy fewer and fewer real goods (due to inflationary dilution of the fiat by the G and offshoring of productive capacity)…what is that currency (USD) good for?

      Why hold it if other nations produce more/cheaper goods? It makes infinitely more sense to hold those productively ascendant nations’ currency.

      Think of the nations of the world (and their currencies) as a series of distinct Monopoly games (currency is where the Monopoly part comes in…each G has complete control over the supply/printing of its own fiat)

      If you want “access” to the goods/properties in each game, you have to use a given nation’s currency (which its G can print at will)…if you don’t accept that lopsided power relationship…you cannot access the goods/properties in that nation/game.

      The more goods/properties existing within the writ of a given currency, the more desirable that currency is…because money is only paper if it cannot buy goods/properties

      Actually, Monopoly is an imperfect analogy (but spot on for the currency relationship) since real goods are not part of the game…but properties are…and therein lies one explanation for how the USD has managed to hold on to its status despite decades of horrific trade deficits/loss of relative productive capacity/efficiency.

      In short, while current real goods production in the US is relatively awful (vis a vis China) historically it wasn’t…in fact, pre 1970-5 the US was the factory of the world for a number of decades (especially following WW2).

      The argument could be made that the residuum of those Golden Years is ramified in the (aging) property/industrial base of the US.

      In short, the USD is still of utility for foreigners not so much for access to current real goods production (at which China has been kicking our ass for 20 years as DC slept) but rather for access to the large, accumulated (but rotting, shrinking, unreplaced) “property base” physically present in the US or currently owned by USD users/holders.

      But that means each year’s huge trade deficit eats away at that accumulated pile of past “savings”…since the trade deficits get paid for not in goods (which the US can no longer produce competitively) but essentially in IOUs (US Treasury debt, etc), which are legal claims against those historically accumulated savings directly or indirectly (think US created and natural resource base).

      It is an unusual way of looking at the foreign exchange mkt, but it explains why the USD is only in slow decline despite decades of horrible trade deficits.

      We have been surviving solely on the seed corn.

      Another rationale for the USD’s relative strength?

      DC/The Fed might be lying/cheating Master forgers, buying goods, loyalties, and power through shameless money printing…but many other governments (Brazil, Argentina, etc.) might be *worse*…even more shamelessly empowered only by means of the printing press.

      In that case, the junior thief’s currency (USD) appreciates over the more reckless thief’s currency.

      • Ralph Hiesey says:

        To Cas127

        The most significant sentence in your post:

        “In the long run, demand for a currency has to be rooted in a nation’s productive capacity.”

        Likely “long run” is the important qualifier.

        That’s what the gold people don’t understand. The dollar is obviously not backed by gold–there is not nearly enough gold in the universe to qualify for that. BUT it is also not “backed by nothing.”

        The most reliable “backup” of a currency is how much you can buy with it of the nation’s productive capacity in goods/services.

        Or, perhaps also, as I think you are suggesting, by what people who now hold capital and land assets are willing accept as payment for such assets–perhaps owing only to some widespread tenacious illusion about how much the dollar is presently worth.

        There is some magic here that I confess I still don’t understand.

        • Lisa_Hooker says:

          No magic. The valuation of currency is not based on physical assets or production. It is based on the Government’s ability to “productively” tax it’s residents. As perceptions increasingly agree residents are “taxed out”, the currency is toast.

      • Xabier says:

        Not just productive capacity, though, but also the rule of law – England, once, was ahead of the world in that respect and that was part of the strength of Sterling.

        It is most doubtful that China, under the Party will ever make even the smallest step in that direction, nor has it ever been a cultural characteristic if the Chinese.

        As for gold: governments or mafias can take it away whenever they like: it’s value can, therefore, dissipate like any fiat.

        It’s best seen as a pleasant thing to count out by candlelight of an evening,and some of the coin designs are exquisite and historically evocative.

        • Cas127 says:

          Re rule of law…

          1) Yeah, but if the cheapest exported Chinese car turns out to cost $5000 and the cheapest American car costs $15,000 fear over rule of law erodes faster and faster. Around the world…people just want the damn car…and if it isn’t a lemon, they’ll keep going back to China…which will ultimately require payment in Yuan (the fiat *they* control).

          2) Kinda hard to point to American respect for the “rule of law” when the Fed has been essentially confiscating the earning power of USD savings through its unvoted on printing policies…which violate the US Constitution’s Takings Clause. ZIRP is close to being a 100% tax on short term interest on Treasuries…a tax never remotely submitted to public vote or any remotely specific legal process.

          As in many cases, we can point to foreign perfidy…but there is plenty of US domestic perfidy to go around too.

          Our current political class may not really be that much more trustworthy than their political class…ours just have more subtle scalpels.

        • Ralph Hiesey says:

          Mr X–

          I agree– rule of law being necessarily associated with value of national currency, and necessary for expecting any kind of trust and respect from people of other nations.

          Some of our “leaders” apparently believe that rule of law is now optional. Another reason I suspect the dollar is going sooner than expected down for the count.

        • intosh says:


          Maybe he meant law of economics. ;-)

          Where is the rule of law when the USA overthrew legit governments to replace them with puppets?

          The only laws that really matter, for the subject at hand, are the laws of economics and geopolitics. Saudi Arabia is a US ally, for crying out loud.

    • intosh says:

      Excellent comment. That’s my view as well.

      It’s like a stock market crash, you may realize that it will happen but you never know exactly when it’s gonna happen.

      Given how all is 1s and 0s nowadays, I imagine that operations/nations can “migrate” currencies relatively quickly.

    • Old School says:

      One thing that is lost in the trade debate is profit margin on the goods. If you are trading high profit margin goods for low margin goods then the actual gross trade dollars can be misleading.

  3. RP says:

    If you supply to much of anything, money printing, the price will fall

  4. Dano says:

    Triffins Dilemma states the country with the WRC has to run perpetuities deficits to maintain that WRC status.

    I’m not so sure the Chinese want to ever be the WRC given the example of how it hollows out nations with that distinction until they eventually flame out.

    The $USD will continue on, until such time as it does not. When that happens and what precipitates it will be up to others, not the US. Though we’re doing a damn good job of trying to hasten that moment along.

    At present time, there is no replacement for the $USD. In the future it could become gold, crypto’s, or … ? Right now, the lack of petrodollar strength is probably our biggest worry.

    For reference:

    • Wolf Richter says:


      The Triffin Dilemma is nonsense. The fact that it’s nonsense is proven by the countries behind the #2 WRC (euro) and the country behind the #3 WRC (Japan) that both have had HUGE TRADE SURPLUSES. Only the US has a trade deficit. As I explained in my last paragraph, what the WRC status does is it ENABLES certain things, including trade deficits, but doesn’t require them. Huge difference.

      • Ralph Hiesey says:

        Wolf, I think you are likely right to say the US has been “enabled” rather than being “required” to maintain deficits in order to maintain WRC status.

        But I’m not so sure your “proof of nonsense” is valid.

        The US dollar became dominant after two world wars that decimated Europe and Japan, and US became king of manufacturing in the aftermath. The US has now lost this dominance in the last thirty years. But “money illusions” seem to have a long staying power. The US is getting away with exchanging free computer bits to get valuable goods/services from other places. It worked for the UK for long time. Then it didn’t.

        I can’t imagine such illusion can last forever. Not sure Stephen Roach is right– but I think he will be right, eventually. Not sure how long it will take. We’ll see.

        • Dano says:

          “Buying” the $USD was buying 1) gold (pre-1971), 2) safety & stability( esp government and ‘rule if law’), 3) a manufacturing currency, 4) THE oil currency, 5) THE unipolar defense currency and 6) depth & stability of markets for foreign investment

          Buying the yen was buying 1) THE manufacturing currency, 2) (past) monetary stability, 3) a rule of law currency and 4) a (past) tech leader

          Buying the Euro was buying 1) a strong regional bloc currency (highly dependent of Germany and northern ‘states’ fiscal stability & physical output), 2) a sense of ‘rule of law’ 3) peripherally buying into physical security (due to NATO) 4) a reasonable alternative specifically set up as an option vs the $USD 5) buying western ideas

          Not all these aspects apply to all these currencies anymore. However given there are no other alternatives of size and depth to replace them, trading continues.

          I disagree with Wolf on Triffin (obviously). The petrodollars trade engineered by Kissinger set up a perpetual demand for $USD’s and forced the rest of the world to demand them. Hence my earlier comment regarding it.

          Near unipolar hegemony of the $USD has long been reinforced by the petrodollar and our military reach. Weaponization of the $USD via SWIFT, along with both fiscal malfeasance and military malfeasance (regime change adventures). The dropping price of oil helps reduce some of this demand as well.

          Trust in the $USD is waning as a result.

          It’s still a mostly TINA land, but those who can try to get out of the $USD chokehold are doing their best via cross currency trades, etc.

          How do you go broke? At first very very slowly. And then…

        • roddy6667 says:

          It’s all about emotion, the emotion being confidence. The expression “con game” is short for confidence game.

        • BuySome says:

          Where do you get these illusions from? United States manufacturing was in trouble from the moment WWII was terminated. Japan was well equiped to take over all sorts of production and rebuilt what they needed to become a major exporter. Europe was kicking out basic goods and once the railyard mess was cleared up they never had to look back. The strength of the dollar lies solely in willingness of the US to fund a military which could crush people and the twice-proven attitude that atomic solutions are always on the table if anyone dares to push us to the limits. Signs of weakness are what would bring down the buck, and they are all prodding us every day to see when that might be the case.

        • nick kelly says:

          ‘United States manufacturing was in trouble from the moment WWII was terminated. Japan was well equipped to take over all sorts of production…’

          Japan (and Germany) were flattened. The first Honda product was a motorized bicycle using small surplus engines from generators.
          It wasn’t exported!

          One of Japan’s main exports for ten years after the war was toys. I had the wind- up tiger. One day his coat developed a hole
          and there was Japanese writing on his metal body: a recycled food can.

          The VW plant was flooded with workers wading and paid in groceries. It might have gone under (everyone including Ford kicked the tires and passed) but the British Army ordered 10,000 Beetles.

          There was no hint of competition for the US from either until the sixties when the first VWs began to arrive, more as a curiosity at first.
          Japan’s autos were of little consequence until the seventies.

      • rankinfile says:

        Europe and Japan protect jobs and their own working class.We protect Wall Street and give black people jail cells instead of manufacturing jobs.

        Hint: It isn’t just a bad cops thing

        • BuySome says:

          Have you not heard…jail cells are part of the stimulus package for the incarceration industry. And they are rented or leased to poor inmates, never given away if you’re not affluent. Free to those who can afford it, very expensive to those who can’t. Rich Wives Matter!

    • Stephen C. says:

      Cowrie shells have a longer and wider history as a currency than does gold. It also shares most of the requirements: limited supply, hard to forge, don’t degrade easily, easy and cheap to transport, aren’t damaged when passed through many hands.

      Underneath the fetish for gold I detect a “whiteness” and an unconscious colonial-oppressor mindset. :)

  5. TonTon says:

    The U.S. has a privileged status being able to produce little and print dollars to get what they want. This has led to the outsourcing of everything. It will be a sad day for the US when the dollar loses its world reserve status however, as the country will not have the infrastructure to survive this moment very well. Also, the people will not be used to having to work hard to produce things the world wants. Having said that, that same moment should lead to the people pulling up their britches and starting to work hard again in factories and on building new infrastructure for a brighter tomorrow. Just like many decades ago in the US. Either that or the machines kill us all. It’s 50/50.

    • Frederick says:

      So you’re saying the loss of Reserve status will force a rebirth in Americans work ethic by necessity It will of course but not before a lot of pain and suffering brought on by the readjustment Will probably take a generation at least

      • Paulo says:

        As Ton Ton said: Also, the people will not be used to having to work hard to produce things the world wants.

        As an outsider it looks like the US system is one big entitled clip from the movie American Pie for the top echelon, and a losing proposition with no chance of vertical movement for what is commonly referred to as ‘the working class’. Now, with criminal actions to get university placements for baby juniors, and/or massive student loan debts by commoners for the same slots of opportunity, it looks like it is all falling apart. The sooner it happens the better.

        My Dad came from Minnesota working class farm roots. He was a WW2 vet (D Day survivor) who made it through the Great Depression as a teen. He worked hard his entire life and believed in a work ethic and respect. He would not recognise this new entitled baby generation, blue ribbons and high expectations for just showing up (being born). Meanwhile, all around the world, a motivated people with an inner hunger are doing that little bit extra to get ahead.

        By the way, my Dad left the US for Canada in 1968.

        The meme of ‘America First’ these past 4 years, and the attacks and exploitation of once allies and friends has hastened the decline. My own Canadian position has only hardened this past year. We used to love visiting my sister in WA, and then continued on down the Oregon coast, every spring. My wife and I have concluded this summer we will never cross the border again. I just ordered some tools, safety gear, etc online. Everything came from China. I also ordered a replacement Dremmel rotary tool to be delivered next Monday. It is from Mexico.

        • rhodium says:

          I don’t know. How often is hard work still rewarded? Maybe if you work for yourself you can see the results scale. Otherwise it seems very hit or miss, often depends more on how dumb the guy next to you looks.

        • Harrold says:

          If hard work was all that important, we would have never invented the wheel.

        • Escierto says:

          Got that right. How long should the US Canada border be closed? FOREVER. In fact Canada should build a wall and get Trump to pay for it.

        • Lisa_Hooker says:

          It is not true I got a full scholarship because Mom built a new wing on the library.

        • DAVID CASTELLI says:

          Hi Paulo.

          First, we as a country owe a great deal to your father, and his generation, there is no doubt
          And you are i am sure a bright man. But there is one thing i just am seeing that bothers me
          Your examples of buying tools online, etc. You are falling into the brainwashing trap of blaming everything on Trump. What you describe started happening 30 years ago! Blaming that on Trump is absurd. If anything , he is trying to get those jobs back to America, albeit in a not so efficient way with tariffs. So we can start doing that kind of work for the middle class, smart and talented craftsman…
          The problems started a very long time ago in this country, and now everything including a liberal failing their high school regents final is Trumps fault. I cant fucking stand hearing this anymore
          The problem is, all the politicians , both parties, have sold out the American people, and the global wall St crowd . That is a fact. And they despise Trump because he understands this is wants to turn this around, but the above crowd with the 99% Liberal media do not want to see this happen.
          Don’t get brainwashed on why America is now where it is at, like this shit just started 4 years ago.

  6. YuShan says:

    Barring a massive geopolitical event (like a US – China shooting war) or a total collapse of the USA, I don’t see this situation changing anytime soon. There really is no alternative (yet). No other currency offers markets that are deep enough to facilitate hundreds of billions of dollars being traded daily.

    The only somewhat serious alternative is the euro, which has massive problems of its own, like the ever present danger of re-denomination and the lack of a unified euro treasury market. Also, the eurozone is trade-wise roughly in balance with the rest of the world, so unlike the dollar, there is no need to ‘store’ this currency (the rest of the world is a massive exporter to the USA, so they MUST accept massive amounts of dollars and buy treasuries or other US assets).

    Anything else is just no serious alternative at the moment. It is also not in anybody’s interest. Big owners like Japan and China shoot themselves in the foot if they tried to ‘dump’ their dollars. The reason they are holding them is because it is in their own interest.

    • Xabier says:

      Let’s summarise it as : crap in (lots of it) and crap out – seems to suit most players quite well for now.

    • Engin-ear says:


      Why the trust in USD/EUR/YEN/GBP would disappear while their central banks keep rolling State’s obligations (no risk of default) and keep liquidy in private banks exchange places?

      Why would the mix of currency change while all central banks do about the same thing in seemingly coordinated manner?

      The main risk is the social disorder powered by the Main street difficulties and possibly serious future climat change damages.

  7. Ravi Uppal says:

    Anyone like to give an opinion on the British Pound in view of a “No deal ” Brexit ?. In my opinion the currency markets are way too sanguine about this , or is it the calm before the storm .?

    • Jon W says:

      I doubt it will do much other than go down a bit and make all us workers here poorer. In the ten years I’ve been here that has basically been the solution to every economic stuff-up by the govt. Brits are a hardy bunch. The worker drones will carry on, the rich will get cheaper private school fees and homes in Kensington. Keep calm and carry on etc.

      If it gets really bad the foreign billionaires in Surrey will do a whip around and buy up some more of the nation’s assets off the government to stop the empire from collapsing.

      • Xabier says:

        If so, then stop working and learn to be a parasite of some kind and skim off – the best policy in all declines.

        There is no virtue in hard work: only in positioning.

      • Ravi Uppal says:

        Jon W , some info you may not be having . UK imports 35 % of its total energy (50% gas, 72% coal) and 80 % of its food . When George Soros shorted the GBP it fell by 20% . It made Soros a billionaire, Lamont resigned and Britain exited from the ERM . At that time UK was still an energy exporter . I think you underestimate the storm that is coming your way . Take precautions , it will be far worse than you think . My opinion ,hope I am wrong .

  8. Tom Pfotzer says:

    There’s another aspect to the reserve currency puzzle that bears considering, and that is the gradual change in trade flows.

    Who’s trading how much and with whom?

    Just as wars and empire-exhaustion caused the locus of trade to move away from the Roman and more recently British empires, so it is moving away from the U.S. empire. This phenomena is much hoped-for, well-reported and closely observed in the non-US media.

    The Eurasian landmass has most of the people and most of the resources on the planet. It is rapidly integrating – transport, communications, politics.

    To help speed the Eurasian integration project, we Americans just conducted the largest, most strategic transfer of technology ever, from the U.S. to Asia.

    Nevermind what our motives were, that was the effect of our actions over the past 30 years.

    With that as backdrop, I reason that the world’s trading currency (a synonym for “reserve currency”) remains the dollar until the trade flows shift enough that dollars aren’t needed in the bulk of daily world-wide trade transactions.

    If the Eurasian integration continues at its current pace, it’ll be a few short decades. Reductions in consumption of mid-east oil, denominated in dollars, also hastens the process.

    The rest of the world has been telling any U.S. citizen that will listen that this is happening, and will accelerate. Using feedback is the crucial ingredient of adaptation and learning.

    • roddy6667 says:

      That is the entire Belt And Road plan in a nutshell. China and Russia can do business with only the countries in the landmass in their back yard. This includes the former USSR nations, Eastern Europe, and even Europe if they want to play nice. Not needing the US makes them immune to the threats and bullying. Trade will be conducted by rail overland and by ships staying close to shore. This is not only cheaper, but avoids the politics and military maneuvers of the open sea.
      Presently, only 15% of China’s exports go to America. When they replace this with domestic customers and Eurasians in their back yard, a major tipping will be reached.

      • nick kelly says:

        No doubt B&R has some merit but no means of shipping is anywhere near as cheap as seaborne.
        One example: when a Japanese car is sent to Calgary via Vancouver it costs more to get it from Van to Calgary than from Japan to Van.

        To think that Russia was once the senior partner in this ‘alliance’. Russia, heavily reliant on oil & gas is basically broke. Maybe Putin is wondering if he should have listened to former Minister of Finance Alexei Kudrin who warned him that Russia could not afford a 500 billion US$ arms build- up.

        It’s funny when we hear pundits saying Russia only needs $40 oil to balance its budget, but Saudi needs $80. The reason: Saudi has social programs.

        A young lady reading news on Russian TV recently, actually started laughing when she listed ‘benefits’ for pensioners, currently surviving on about 110 $ a month. It was stuff like medications: $10, transportation $11.

        As for dreams of a new Comecon with Kazakhstan , Uzbekistan, Turkmenistan etc., those consumer markets pretty much belong to China. Make nice with Europe? The only answer.

    • Beardawg says:

      Tom Pfotzer

      I think you are on to something here. The USA dominates and exports “tech” currently. I have a close friend who supplies tech labor to Silicon Valley on a project basis. Non-US workers (read “India”) can test something but can’t create/design. Tech ingenuity comes from America. This is one reason why the tech bubble seems to continually expand. We NEED American ingenuity to stay world dominant (obviously that applies to military as well).

      As fast as tech has grown (20 years), it will be that long or less for Eurasia to get close enough to US Tech to take Tech out of the equation. Once that happens, the US can only wag fighter planes and bombs over the world and ask for USD to pay for it.

      • VintageVNvet says:

        Agree with your point brdwg, but not the timing:
        Worked as a programmer in ”Jovial” on a Jupiter machine from Burroughs IIRC in early 1968; in that same building in Santa Monica was one of the original tube type computers from the late 1950s,,, and it was all either secret or top secret, and the FBI went to every address I listed and asked neighbors if I could be a commie or something,,, anyway, everyone working there was fully vetted and had to swear to keep it all secret, etc., etc.
        The point being that the tech of USA has been developed a lot longer than 20 years, and is likely to take that long to degrade, as you suggest, and as I agree is very likely to continue/happen.

        • nick kelly says:

          Read the now almost ancient classic: Future Shock by Toffler. Take away: the premature arrival of the future. Nothing that is feasible takes 20 years.

          It won’t take 20 years for China to close the gap with the US. China has landed its own robot on the moon: Jade Rabbit.

          Yes it was counting on US chips. Now it’s cut off, it vows independence. I give it 2-3 years.

    • Cas127 says:

      “Using feedback is the crucial ingredient of adaptation and learning.”

      But DC has been using every resource at its disposal to obscure that feedback, in the service of an illusion of “normalcy” and “stability” (translation – the political class gets to keep its phoney baloney jobs…hat tip Mel Brooks in “Blazing Saddles”).

  9. Michael Engel says:

    1) DXY in a trading range between : July 31 2020 until the jump
    in Sept 21.
    2) At the low, in Sept 1 spring, when the dollar is cheap, SPX was
    at it’s peaked.
    3) US500 Futures (SPX) weekly : down to Sept 29(L). Up, hugging an RSI line drawn between Mar 23(L) and Sept 29(C), to the red Oct 19(O). // Down again, after breaching the RSI line, in direction of the red flatbed of the weekly cloud. // Then, up again to a lower high.

    • Fed will not monetize next wave of treasury paper, allowing yields to rise, attracting foreign investment, and sending the “DXY” much higher. The rise in forex dollar is inverse to it’s value, for outsiders buying USD bonds for the yield. How many dollars does it take to buy a dollar? Pertinent question for lesser EMS who borrow in dollars. China has accelerated credit and production which means more exports and upward pressure on the buck. China more than pleased to take dollar reserves, and even sell old stock for new, while dollar is rising. US loses control of its currency after which it trades according to the equity market. Blowoff high in stocks and all the associated financial problems.

  10. Michael Engel says:

    With cheap dollars traders can buy a lot of AAPLs until DXY change of

    • Dano says:

      Not just traders. Foreigners invest in the US markets in a world where their own governments offer <0% rates, and their stock markets barely budge.

  11. fred flintstone says:

    If the dollar were to depreciate against most other currencies by 20% would our trade deficit go away?
    That is the question because the US still has the greatest food production area in the world, great tourist areas and weather, arms making, tech leadership, demographics that are starting to be favorable, political stability (no matter how unstable Trump appears) and military dominance.
    The answer is difficult because our trading partners do not allow the dollar to float.
    IMO a reset getting us to a trade deficit just a quarter of what it is would be enough because of our inherent advantages. Someday soon the fed will force the dollar to depreciate slowly for a long period……when the world can handle the change to their business models. Right now they must export to us in order to survive.

    • Dano says:

      US grain production is rivaled by that of Brazil/Argentina/Uruguay.

      Ukraine & parts of Russia also significant food producers.

      One of the reasons China was able to squeeze US farmers when Trump went after them was all the other producers.

      • nick kelly says:

        Only Argentina is a significant wheat producer at 18 million metric tonnes (2017)
        Brazil is a distant 4 million. It’s a soybean powerhouse though, so maybe soil etc. more suitable.

        Canada is 30 MMT and France (!) is 35.

        Uruguay isn’t rated so is less than 2 million.
        I’ve spent time in Uruguay including some in countryside and didn’t see any fields of wheat.
        Must be some I guess but a main export is beef and it’s grass fed.

        Sure miss their tomatoes though. Sorry, my native BC but you can take yr Hot House Toms (hydroponic) and …

    • nick kelly says:

      ‘US demographics that are starting to be favorable,’

      What? Then it’s the only mature economy where they are. Everyone else Canada, UK etc. is worried about the baby boomers and pre -boomers ( 60-65) drawing pensions with peak medical costs.

  12. doug says:

    Is there any available history of UK musings about ‘if/when the pound might lose its reserve status’?
    I wonder if some, none, or all saw it coming….was it written about before it happened?

    • nick kelly says:

      It still has reserve status just not number one. Far ahead of Chinese RMB.

      When did it lose it?: WWI to begin with, then WWII.

  13. Michael Engel says:

    1) USD monthly is in a 5Y trading range, since the Mar 2015 jump.
    2) DXY weekly is backing up, after it jumped above Feb 8 high.
    3) DXY will strengthen during the DEM putsch trial.
    4) DXY will strengthen during Trump power show on the global stage.

  14. DR DOOM says:

    When a German company gets dollars they are exchanged for euros in the FX markets to pay their vendors and wages etc. When China gets dollars for our consumption they inflate their currency to pay vendors and wages. This is the part of the basis of our agreement . They send us stuff and we export our inflation. If China started going to the FX markets the dollar is dead and we are at war. The small % of China’s currency reflects this in the FX markets .This is the legacy of Empire and Fiat. The President of China should get a Nobel Prize every month for not dumping dollars thus preventing a war. We Americans had better pray this relationship continues . Place your orders on Amazon and enjoy and give thanks.

    • Tony22 says:

      “we export our inflation. If China started going to the FX markets the dollar is dead=”

      Please explain this in simple English for a layman without an econ degree.

  15. Michael Engel says:

    1) When the dollar is trending down, u buy AAPL, AMZN…until a trend change.
    2) When that happen, traders sell AAPL, AMZN, taking profit… convert the stengthening dollars to the weakening Euro… taking profit on AMZN & FX.
    3) EURUSD peaked on Sept 1 2020.
    4) USD/CNY low on Sept 16.
    5) USDCAD spring on Sept 1.
    6) When Canada sell us oil, they get a fistfuls of US dollars. Western Canadian Select : for the same amount of dollars we can get more imported oil.
    7) During recessions : demand is falling. Canada will export less.
    Their labor will be cheaper, lowering the break-even point.
    8) During a recession, states like CA, – with multiple sources of energy, mixing them all : solar,NG and coal… to please voters, with expensive redundancy & low efficiency, ==> will have to cut to the bone, save one or two energy sources and shut the rest.

  16. Seneca's cliff says:

    Some economists believe that the lack of a reserve currency was a more important cause of the great depression than Tariffs. The end of WWI saw the British Empire in Tatters so that the Lb Sterling was no longer an effective world currency , the the dollar did not have the strength be take over the job until after WWII in 1945. I think the issue we face now is not which currency will take over as the new reserve currency but will we have one at all. I think we may be entering an era of currency chaos with the resulting trade problems.

  17. Michael Engel says:

    When the dollar rise gold will be liquidated in margin calls.

  18. Chauncey Gardiner says:

    Not overly concerned about continuing dollar hegemony over the foreseeable future. I agree with the view expressed by Brent Johnson of Santiago Capital in Wolf’s hometown of San Francisco back in March that $USD demand is driven by a shortage of US dollars in the global financial system, and the supply is inadequate to service dollar debts of the rest of the world. He noted that in a debt-based monetary system, demand (debt) always exceeds supply.

    I also agree with Warren Mosler concerning the benefits of the trade deficit to the US.

  19. Sams says:

    One question about the US dollar as a reserve currency, how do the Chinese pegging of their currency affect this?
    Could it be said that China partly back the US dollar by pegging their currency?

  20. dr spock says:

    Down 4.5 % in 6 years. What would you expect with all the money printing and debt runup by the US along with a parabolic trade deficit ………..I don’t think you can keep this comment under moderation w/o violating freedom of speech

  21. Worm Wood says:

    Wolf is surely correct that “the US dollar status as the dominant reserve currency and as the dominant international lending currency creates a lot of demand for dollar-dominated instruments and permits the US to fund its gigantic trade deficits and its even more gigantic fiscal deficits.”

    But I believe it is also the case that the argument that changes in fiscal policy explain changes in the current account balance is inaccurate. The U.S. current account deficit reached close to 4% of GDP by 2000 and this occurred while the combined US government budget moved into surplus for the first time since the early 1950s.

    It seems to be the case that a country with a current account deficit, like the U.S., must run a financial account surplus. It must cover the difference by raising money from the selling of assets with the total amount of money coming in from foreigners buying domestic assets (like the Chinese) being greater than the total amount of money going out as U.S. locals buy foreign assets.

    Perhaps the best way to view the current account balance is as an independent variable with U.S. households, businesses and the government adjusting their behavior in response to the financial influx from abroad.

    As Michael Pettis has recently argued in his new book “Trade Wars and Class Wars” there is a conflict between economic classes within China that has spilled over into the United States. Systematic transfers of wealth from Chinese workers to Chinese elites distort the Chinese economy by strangling purchasing power and subsidizing production at the expense of consumption. That, in turn distorts the global economy by creating gluts of manufactured goods and by bidding up the price of stocks, bonds and real estate. Chinese underconsumption destroys jobs elsewhere, while inflated asset prices lead to devastating cycles of booms, busts and debt crises.”

    For Pettis Chinese policies have not simply hurt Americans–they also harm average Chinese workers and retirees. He also argues that convincing Chinese elites to allow Chinese workers to consume a greater share of what they produce is one of the great policy challenges of our time.

  22. bungee says:

    “…the US dollar’s role as the dominant global reserve currency – a currency that every central bank must hold in large amounts”

    don’t they have the technology now to just do a currency swap if and when they need dollars? pretty much instantly?

    • Wolf Richter says:


      These exchange reserves are bonds, such as Treasury securities. The central bank liquidity swaps are cash, for example, dollar cash for euro cash.

  23. Harvey Mushman says:

    – Going forward the USA has much better demographics than the rest of the developed economies.
    – The US Navy controls all of the worlds oceans.
    – The USA has the best and most productive farmland in the world
    – The USA has little to fear from foreign invasion. We are isolated by oceans on the east and west and our biggest trading partners are to the north and south.
    – The USA’s exports as a percentage of GDP is roughly 12% (meaning the economy is not very dependent on exports like say China or Germany).
    – The USA is way more stable than anywhere else on the planet.
    – The USA could be energy independent if required.

    I think the US dollar will be the reserve currency for many years to come.

  24. RickV says:

    There is currently massive excess productive capacity In the world. Developed countries are covertly devaluing their currencies in a circular firing squad to improve their exports. Now even using QE and negative interest rates with the Fed discussing free money drops. When the “reset” comes it won’t be the dollar losing its reserve status against other currencies. It will be all the interconnected fiat currencies losing value against goods and services. There are already troubling signs in the recent inflation numbers.

  25. Simon Yoosen says:

    Why on earth people willing to exchange hard work produces for a FIAT paper like USD while it is created effortless? This is the myth of the 20 century and likely the lie will no longer selling into 21st century.
    It is like an ancient believe in the absolute power of KING and his relation with GOD. People even sacrified their own life for the sake of the KING! Look back into history made us feel these are “FOOLISH” crowd. When future people look back at us, they might suprise to learnt why on earth we believe in the USD and why don’t these people believe in their own currencies. Else, no trade is needed!

    • Engin-ear says:

      Imho, It looks like the question “why on earth people would pay for software while every electronic copy of software is created effortlessly”.

    • Lisa_Hooker says:

      I know few folks that hoard FIAT paper. Most seem to very quickly use it to get what they need, many to get what they needlessly want. Barter is very slow in a high tech economy, very 13th century.

  26. 1) Tariff man trades WH for Big House
    2) Wall St embraces Biden Plan, Corporations pay pecuniary taxes, reap massive benefits.
    3) Small business America, RIP, Corporate America fills the void.
    4) New dollar highs, stock market highs, GDP
    5) Companies issue new stock with redacted shareholder rights, then buy old shares back to float price and drag in investors.
    6) Fed buys stocks by national security directive.
    7) Dollar highs undermine new US manufacturing. IMF replaces dollar with SDR.
    8) EMs issuing debt in dollars transition. US makes power grab on IMF, changes rules.
    9) New IMF reviews SDR alottment for China and BRIC, sets new quotas.
    10) Political opposition calls Biden Strongman Autocrat, threat to Democracy.

  27. Kasadour says:

    It’s true the dollar’s reserve currency status is waning at an ever slow rate, however; it could also collapse in one day. That’s how these things often happen- but important thing is to recognize the signs for what they are, esp. in the age of at-will digital money printing.

  28. Randy says:

    Well that’s makes perfect since to me considering we print more money than anyone else in the world. Those dollars got to go somewhere but that don’t make them have as much purchasing power as they did yesterday. And purchasing power is what counts not how much is out there. 49 years and counting will the dollar make it to 50 years. I seriously doubt it. Time will tell. I for one will not be holding paper assets when the shtf. Gold has never done me wrong and I believe I’ll just keep accumulating it. Y’all go ahead and hoard that paper. I’ll hoard Gold, Guns and ammo.

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