The Dollar’s Declining Status as Dominant “Global Reserve Currency” v. the Dollar’s Exchange Rate

Nothing Goes to Heck in a Straight line, not even the dollar’s hegemony.

By Wolf Richter for WOLF STREET.

Yes, the Fed is a drunken reckless money-printer, and the US government has been high for years on deficit spending, but other major central banks and governments do the same or worse. The long-term trends are clear, however.

The global share of US-dollar-denominated exchange reserves ticked up to 59.5% in the first quarter of 2021, after having dropped to a 25-year low in Q4 2020, according to the IMF’s Composition of Official Foreign Exchange Reserves (COFER) data released at the end of June. Dollar-denominated foreign exchange reserves are Treasury securities, US corporate bonds, US mortgage-backed securities, US Commercial Mortgage Backed Securities, and other dollar-denominated financial assets held by foreign central banks. Q1 was a ripple in the long-term trajectory.

Since 2014, the dollar’s share has dropped 6.5 percentage points, from 66% to 59.5%, on average 1 percentage point per year. At this rate, the dollar’s share would fall below 50% over the next decade.

Two decades of unsteady decline.

Since 1999, when the euro arrived, the dollar’s share of foreign exchange reserves has dropped 11.5 percentage points, from 71% to 59.5% (year-end shares, except Q1 2021):

Exchange rates between the dollar and other currencies change the valuations expressed in dollars of non-dollar reserves, such as German government bonds.

Yes, but… The Dollar Index (DXY) moved substantially since 1999, up and down, but it is now roughly back where it was in 1999.

This means that nearly all of the decline in the share of the dollar as foreign exchange reserves since 1999 was due to central banks unloading dollar-denominated assets, and not due to exchange rates (data via

The Fed’s own holdings of dollar-denominated assets – the $5.2 trillion in Treasury securities and $2.3 trillion in mortgage-backed securities, are not included in global foreign exchange reserves.

The dollar v. other reserve currencies.

The euro, the second largest reserve currency, has been roughly anchored at a share of around 20% of global reserve currencies. In Q1 2021, it was at 20.5%. The ECB’s holdings of euro-denominated bonds are not included in the euro-denominated foreign exchange reserves.

All other reserve currencies combined had a share of 19.9% in Q1. The largest ones are depicted by the colorful spaghetti bunched up at the bottom. The Chinese renminbi is the short red at the bottom:

The colorful spaghetti at the bottom.

Anyone who thinks the Chinese renminbi is going to knock the dollar off its hegemonic perch needs to be very patient. The renminbi’s share of global reserve currencies is growing at snail’s pace, but it is growing.

In Q1, the renminbi reached a whopping 2.45% of total reserve currencies, though China is either the largest or second largest economy in the world, depending on how the counting is done. The renminbi is in fifth position behind the US dollar (59.5%), the euro (20.6%), the yen (5.9%), and the UK pound (4.7%), and ahead of the Canadian dollar (2.1%) and the Australian dollar (1.8%).

What this tells us is that central banks around the world are leery of the renminbi and are not eager to hold renminbi-denominated bonds, though they’re dipping their toes into them.

The chart below shows the “spaghetti at the bottom” magnified, on a scale from 0% to 6%, which cuts out the dollar and the euro. Note the surge of the yen since 2015, which outpaced the slow rise of the renminbi.

Must a country with a big reserve currency have trade deficits? Nope. But the reserve currency enables it!

The economies of the second largest reserve currency (euro), the third largest (yen), and the fifth largest (renminbi) have all trade surpluses with the rest of the world, and huge trade surpluses with the US. There is no requirement that a large reserve currency must have a large trade deficit, as it is sometimes alleged.

But having the dominant reserve currency allows the US to fund its trade deficits, and this reserve currency status thereby enables the US to have those trade deficits.

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  208 comments for “The Dollar’s Declining Status as Dominant “Global Reserve Currency” v. the Dollar’s Exchange Rate

  1. Educated But Poor Milennial says:

    Nothing will change significantly. Don’t worry.

    • Cas127 says:

      Not really meant too personally but…

      You have a career awaiting you in DC…Degenerate Capital…home of Junkie “Wizards”.

      DC: “Don’t worry, nothing to see here, move along, vote Incumbent. Inflation? Never heard of the term, you domestic terrorist!”

      “twenty centuries of stony sleep
      Were vexed to nightmare by a rocking cradle,
      And what rough beast, its hour come round at last,
      Slouches towards Bethlehem to be born?”

      • NBay says:

        I have the feeling as a boomer I should apologize for that post, but it’s so damned poorly written I don’t quite get what what’s being blabbered about.

        Wolf put together a good article, and it eliminates one worry for boomers, but I get it that you are facing a much nastier world than us old farts ever did, and most of it is our fault.

        • polecat says:

          Sorry NBAY, but “our” is doing a lot of work here in that statement of yours ..

          There are many a different gear in motion to make for dire straights amongst us, so don’t paint anyone gear with mucking up the drive train. There are many ‘boomers’ who are outliers not of the Avaricious Kind .. as there are younger cohorts that can’t, by whatever means, get enough of that cheddar!

        • Cas127 says:


          I hear what you are saying, but the aggregated totals are going to define the generations.

          The Boomers, inheritors of the most powerful and richest country in human history, are bequeathing it a tattered, hopelessly indebted ruin.

          History will be deservedly unkind.

        • NBay says:


          Sure there were lot’s of other players/factors….Vietnam was probably the absolute worst, and we aren’t guilty of it.

          So I’m painting the “gear” who’s part I’m most familiar with. We could have passed on homes over twice the size of the ones we grew up in, we refused the smaller cars when they were offered, we screamed bloody murder about the 55 mph speed limit…I could go on about “our” part in trashing the planet…on up to those ubiquitous gated golf communities with big RVs.

          But yeah, the kids could be more greedy for “stuff” than we were, but no way in hell they are going to live as well as we did as kids, though.

        • NBay says:


          I seriously doubt the “bookkeeping” will be their biggest problem, in fact I guarantee you they will WISH it were. But I do like the “aggregated totals” notion, as opposed to writing a long long list.

    • Dj says:

      As foreign held dollars are jettisoned and they come home to the US, inflation will rocket as the US doesn’t make its own stuff anymore.

      For the future of dollar reserve currency status look at the falling share of trade China and Russia conduct with the dollar and also wonder why other central banks are amassing gold hand over fist.The YS has 8-p million tonnes, China at least 30 million. That’s us why China gets a seat in the IMF and bullies the Bank for International Settlements into finally enacting Basel 3

      • Wolf Richter says:


        “As foreign held dollars are jettisoned…”

        They’re not “jettisoned.” In these exporter countries, dollars are mostly spent on IMPORTED goods and services, such as crude oil, natural gas, lumber, machines tools, consumer products, aircraft, components, raw materials, tech products, etc. The dollar is the largest global trading currency. Nearly everyone accepts it for international trade. China is a HUGE importer. That’s where a big part of the dollars go – meaning to other countries, not the US, and these countries recycle it that same way.

        Another portion of those foreign-held dollars are invested in other countries, such as China’s dollars are invested in South America to secure supply of raw materials and other purposes.

        • Michael Gorback says:

          China is still accumulating reserves. It has replaced its Treasury purchases with JGB purchases. It’s not all being used to buy stuff.

        • Wolf Richter says:

          Michael Gorback,

          “China is still accumulating reserves. It has replaced its Treasury purchases with JGB purchases. It’s not all being used to buy stuff.”

          You don’t give up, do you? So go ahead and look up the data. China’s foreign exchange reserves at $3.2 trillion are way down from the peak, and are below where they were in 2012 (click on chart to enlarge, via TradingEconomics):

        • Dj says:

          Dollars will be jettisoned in the future as confidence goes. ie traded for something else. In the short term the dollar is the cleanest dirty shirt. That is why gold is being amassed by the smart to hedge against an over created currency. I would certainly not buy dollars over gold but then I want insurance not investment.

          Russia 4 billion exposure to gold for July. …tick tock

          Gold valued at 42 dollars an ounce by the Fed treasury revolving door. Complete joke :-) Revaluation in line with the role out of global and national cbdc.

          The times they are a changing.

        • Dj says:

          Is it 40% of all the dollars ever created, created in the last year. Something like that.

          The weaponisation of the dollar is in other countries producing real goods and services in teturn for a devalued over printed currency.

          Sorry if this is deemed offensive. Just saying it how I feel it is.

      • NBay says:

        You seem to know a lot about gold….like any good trader would.
        No thanks.

        • Dj says:

          No more than anyone else could find out hiding in plain sight in on mainstream, respected websites.

          I’ve never traded in my life. It mostly seems the Fed has your back, keep gambling, to me.

    • 2banana says:


      “Two ways, gradually, then suddenly.”

      With apologies to EH.

      • intosh says:


        In this digital era, things can change very fast and tend to do so. As investors, financiers, speculators and tech moguls promote and invest in cryptocurrencies, the friction of moving away from the USD will be drastically reduced.

        The US better have a plan for this and quick. China is already well ahead with its official digital currency.

    • Gregory Alexandr says:

      You are right, because of the alternative .. Communism.

      No matter how imperfect people want to make the US system, we are still the number 1 place for people to migrate too.

      For all Americans who do not believe in this country, move to your favourite socialist, communist, fascist country, and we know you will not, because you are weak minded and feable.

      I would be considered a minority, it is only true .. if you believe you are a minority.

      Three items needed to succeed in the US, education, gainful employment, law abiding citizen, this does not mean you will become a millionaire.

      • drifterprof says:

        “For all Americans who do not believe in this country … we know you will not, because you are weak minded and feable.

        Good example of why I retired overseas – aggressive / abusive self-centered American’s who can’t even spell simple words.

      • intosh says:

        “Three items needed to succeed in the US, education, gainful employment, law abiding citizen”

        The same three items as in China…

        “For all Americans who do not believe in this country, move to your favourite socialist, communist, fascist country”

        Sounds like the same prevailing motto as in China: don’t criticize the regime — take it or leave it.

      • Matt says:

        I lived in Communist China from 2015-2018, Taiwan before that from 2012-2015, and Colombia 2018-2019, after which I came back to the US and got married / started a career in IT … (In Austin, TX now) — so my take on China: it’s a mixed bag. In some ways I hope the US becomes more like China. Sadly, most of my peers are blinded to seeing the good sides of China and the progress it’s made, and a lot of that has to do with our education and popular media. Not to say Chinese citizens are not likewise indoctrinated. The US and China are like two sides of a coin , and the world can’t wait for them to get over themselves.

      • Jay says:

        The USA is already corporate fascist no need to move anywhere.

    • K says:

      The trillionaire families who own the world may decide that preserving their goose that lays golden eggs (the deceptively named and billionaire/trillion sure owned “Federal” Reserve) warrants their propping up the US stock market via their other central banks and their companies that they often secretly control. Then, we will see them essentially bail out investors in the US stock market by buying US stocks before the collapse utterly in value.

      LOL. I hope they do that, like the little Dutch boy with his finger in the dam, and drown their fortunes. :-)

    • Who cares says:

      It dont really matter because they are all monopoly money. All fiat will go back to its true value of zero. None have any purchasing power left now.

    • ed moloney says:

      the more the dollar lose as reserve currency, the better for the dollar. less demand will equate to the dollar being at .94 because in the floating exchange rate the forex traders will seek abritrage, we saw what happend from .89 to .92 even had days when both the dollar went up and gold went up. those seeking more weight for there script will manuver in the forex market with various curencies to get what they want, countries do not have to use there central bank, th e countries sovergnwealth funds with billion sloshing around the equity market have there algoryth machines poised to profit in the currency market, it may seem opposite of everything you ever learned in micro an dmaco econmicd supply demand but less demand for the dollar as it shed from country to countries reseves is good for the dollar it releves the stree of floating conversions, the 28 pegged currencys will benifit
      the imf basket ( sdr ) will benifit as those indebted will start to paaay the imf. watch the dollar go to .94 easy. thanks im known a zambini on the internet!

  2. H.K says:

    I don’t think the dollar will lose its status as reserve currency even when the fed devalues it to such great heights. The public’s faith also plays a big role in any currency for that matter and the dollar will survive so long as the public has confidence… that of which is being currently shaken.

    If only they knew how to read… oh my would they rebel LOL

    • MiTurn says:

      I concur! If…

    • Cas127 says:

      “survive so long as the public has confidence”

      Nothing says public confidence like,

      1) Public approval of Congress that almost never rises above 20% in polls,

      2) General American citizens (sometimes in Walmart Shopper shape…) scaling the walls of the Capitol like Pointe du Hoc…

      3) Speaker of the House Rictus feeling so confident in the love of the Citizenry that she stationed two divisions of troops in DC for months on end and turned the Capitol into the Green Zone.

      Yep…Americans just *looovvvee* what DC has done to the dollar to save DC’s worthless *asses.

      And that whole multi-year, trillion dollar AltCoin phenomenon…just a fad…like pet rocks…

      This sort of thinking is exactly how rotten leaders lose their countries.

      • Harrold says:

        Yep, DC will definitely be in trouble if they ever figure out a way to afix guns to their hoverounds.

        • Cas127 says:

          Well, if that motley crew of cos-playing “insurrectionists” (without guns or a plan…) terrified Nancy into deploying two divisions in DC for months…just imagine the Praetorian Guard response once DC awakens to what 165 million+ Americans really think of them.

          It isn’t an accident that multiple Dem politicians have invoked DC’s possession of nuclear weapons in the context of the domestic population’s widespread dislike of DC.

          DC faced a hopeless entitlements crisis for decades before the pandemic’s trillions…now, well, there is a reason why they are fondling their nukes openly.

          Most contemporary Americans have long lived under delusions about how most “governments” really view their populations.

          More as cattle than Citizens.

        • NBay says:

          And fondling things openly has been known to get expensive, yes?

        • Nick Kelly says:

          Putin or Xi would have handled it differently. Putin has said they were just expressing a point of view. If a similar group crashed the Kremlin he would just serve vodka with maybe some herring…and then take questions.

          Actually, they would be machine gunned, and any absent inciters or sympathizers charged with treason.

          If they’d found Pious Pence things would be clearer but not to the blind.

      • Educated but Poor Millennial says:

        BS. Other nations did worth that the US FED. Look at Turkish Lire, British Pound, etc and compare it with 10 years ago. Then you will see the truth that the US dollar currency is in much better shape. As I said nothing significantly will happen and don’t worry since the dollar will keep its power above all. Amen.

        Unless you are wishing for WW3!!!

        • Educated but Poor Millennial says:

          My response was for Cas127

        • Cas127 says:

          Apparently the dangers of endlessly tempting fate are lost on some people.

          The same ones who are “shocked, shocked” when disaster arrives.

        • Nick Kelly says:

          Please! ‘Turkish lira, British Pound etc.’
          The pound is not what it was but oddly it’s very close now to what it was 10 yrs ago: 1.40 US.

          Not to be lumped with lira, which is worth about 20% of ten years ago.

  3. Elizabeth says:

    As a trader, I can’t help but notice how much Republican presidencies have cost the US in terms of its reserve currency status. A perfect correlation.

    • Winston says:

      Correlation does not prove causation. Many other factors are involved.

      And, by the way, please stop falling for the phony Dem/Rep narrative. They are both primarily owned by the same deep pockets with some auxiliary funding sources which give the their left and right flavors.

    • Anthony A. says:

      Elizabeth, apparently you haven’t figured out they (both parties) are both in it together and have the same goals. and the goals are not about the good of the population…

      • Phil says:

        2020: “Trump! Trump! Maga!”
        2021: “both parties are the same. “

        • 91B20 1stCav (AUS) says:

          Phil-astute aftermath observation of a people who tend not to vote FOR anything coherent (policy, and yes, there are incoherent ones), but AGAINST a panoply of things (grievances are legion…).

          may we all find a better day.

  4. OrcasEatSharks says:

    Doesn’t this tell me I should buy US real estate?

    • Wolf Richter says:

      No, that’s not what this tells you, unless you want it to tell you this :-]

      • MCH says:

        Reads like buy RMB, buy Yen.

        • Kenny Logins says:

          Buying Yen works until things heat up, and I fear a black swan will be the inflection point. So hard to cash out your gains.

    • yossarian says:

      What it tells is that keeping your savings in cash or bonds is a losing proposition.

    • Cas127 says:

      Hmm…yep, immobile real estate, wholly exposed to whatever tax depredations the various G’s are moved to impose…seems like an “ideal” invt choice (irony intended).

      The same G that ruins the currency to feed itself ain’t going to hesitate to tax devour immobilized assets when it needs to.

      But taxation comes second in this degraded age, because the G can always frame somebody else for the inflation it creates…that’s like heroin to politicians (power acquired, blame shifted).

    • 2banana says:

      Dive right in.

      Got a friend in norther NJ, a nice middle class nothing special house on less than a quarter acre.

      Property taxes just north of $23,000 per year.

    • It probably does. Through foreign direct investment the volume of dollars in China is starting to pile up. These are real dollars not PBOC reserves, which are subject to capital controls. NASDAQ is trying to gain entry into China’s stock market. Maybe American REIT ETFs?

  5. Tony says:

    Wow! great article. Blows me away how USD has 65% allocated global reserve currency. Excuse my ignorance….but I’d say that’s a monopoly if the rest are moving at a snails pace although you did say the USD is dropping at roughly 1% annually.

    I really enjoyed this article. Gracias!

    • Nicko2 says:

      Oh sweet summer child…. How do you think the world really operates? America is the reigning military and industrial superpower on planet Earth (with China nipping at it’s heels).

      It’s nice to see Canada growing into it’s middle-power status in the game of global influence.

      • 2banana says:

        A 0.3% increase over a couple years is not really growth.

        More like random variation in a three sigma curve.

      • Janna says:

        China is more advanced militarily than we give them credit. We spend more $$, they have more personnel. It has been said that we would win at air, China at sea.

        Neither of those may matter in the end. China could very well change the nature of warfare.

        • Turtle says:

          Any war with China will be purely economic. Two powerful nations with nukes aren’t going to duke it out on the battlefield or at sea.

        • California Bob says:

          My son is serving on US Navy warships on the South China Sea. He said his ship(s) are regularly ‘shadowed’ by Chinese warships and, of course, we watch them closely as well. He says the Chinese have not (yet) mastered UNREP–Underway Replenishment–which is an extremely complex and dangerous operation. If/when the Chinese master that we may have serious cause to worry (they are likely attempting to copy our procedures, like they have stolen and copied many of their equipment designs from the West).

          There will likely be a serious confrontation at some time, unintentional or otherwise, which could escalate (see: Taiwan). I don’t sleep all that well at night, and this doesn’t help matters.

  6. Q&A says:

    Wolf, a quick question. Does the USD$ reserve status strength have anything to do with a reflection of Bretton Woods? Obviously not the gold link part, which has been dropped. But the part where pretty much all other currencies are priced in USD and have to be traded in USD before exchanged into another currency. Is this a factor aside from the obvious ones relating to trade and oil that pushes other nations to hold large amounts of US debt?


    • SwissBrit says:

      I’m guessing that’s a US requirement – currencies aren’t generally converted into USD midway through a transaction elsewhere, but if I want to convert cash USD to EUR here in Switzerland, it’ll be converted to CHF first.

      • cas127 says:

        “have to be traded in USD before exchanged into another currency.”

        That really hasn’t been a requirement for 50 years, if it ever was really literally true.

        In practice, FX trades for more obscure currencies might have dollar trades interposed for liquidity reasons (easier to cross USD with rials and sheckels successively than rials against sheckels directly) but I don’t think that is required in any legal sense.

        The US is a huge economy that trades heavily with almost every country, so (for now) there are a lot of USD flying around internationally for FX trading.

        The dollar became somewhat of a de facto international currency post WW 2 because of ubiquitous overseas investments by the US, cynical appraisals of their own currencies by foreign populations, etc.

        But now that DC has become a fiscal third (fourth?) world, the dollar lingers on mostly because of legacy asset holdings around the world, transient cynicism about what are likely superior contenders for the World Currency crown, and the petrodollar protection racket/scam that 70’s era DC was able to cobble together out of desperation, degenerating fiat, and somewhat morally dubious military ethics.

        Re petrodollars…oil is the *real* international currency in terms of intl trading and the US has basically sold bodyguard services to most Persian Gulf nations in exchange for their commitment to price their oil only in USD (although if they did use their own currencies, they might have fallen victim to the “Dutch Disease” of export crippling due to hyper-valued domestic currencies)

        • Michael Gorback says:

          The USD became the reserve currency after WW2 because of Bretton Woods. After WW2 the US owned most of the gold and its gold-backed status pretty much knocked any other currency off the perch.

          Even after Nixon closed the gold window it retained its status due to America’s economic power.

          “The Dollar is our currency, but it is your problem“ – John Connolly, US Secretary of the Treasury – 1971

        • Cas127 says:


          The USD has,

          “seen the moment of its greatness flicker, and seen the eternal Footman hold its coat, and snicker”

          Even Connolly in 1971 could see the writing on the wall (Bretton Woods fell because of intractable US trade deficits…as early as 50 years ago!!!)

          The dollar, even then, would not be anybody’s “problem” unless it was already being systematically debauched in order to cover up for the US’ increasing lack of intl trade competitiveness (in 1971!!).

          The following 50 years have only been an orgy of further degradation and US competitiveness further decayed.

    • Auldyin says:

      Bretton Woods decided the economic course for the World for all the years after WW2.
      J M Keynes and Co. wanted to reset the debased UK £ to a new world trade (reserve) currency called the Bancor to be controlled by the BIS (equiv).
      The US delegation considered themselves to be the victors and bullied the meeting into replacing the £ with the $. Very unusual for US to throw it’s weight around like that at International meetings.
      JMK was not pleased, he said, if they are foolish enough to do that, so be it. He predicted the US $ would be in constant demand for trade and that would increase it’s value, which would make it very difficult for US exporters to compete with foreign countries on price. He further predicted that manufacturing jobs would be steadily lost overseas.
      He got that all wrong then, didn’t he?

      • Auldyin says:

        Of course a high value $ lets you buy loads of cheap Foreign stuff, hence on-going deficits.

  7. cb says:

    Wolf said: “But having the dominant reserve currency allows the US to fund its trade deficits, and this reserve currency status thereby enables the US to have those trade deficits.”

    Or is it that having large trade deficits creates the large amount of offshore dollars that are accumulated, saved and classified as reserves?

    • Wolf Richter says:

      Look at the euro. The eurozone has a huge trade surplus with the rest of the world. And the euro is the second largest reserve currency by a big margin.

      The dollar is used to buy stuff. The dollars that China gets from its trade surpluses with the US are used to buy German machine tools, African raw materials, Russian timber, lumber, crude oil, and natural gas, Japanese robots, US LNG and soybeans, French wines and jewelry, Italian Ferraris, Lamborghinis, high-end purses and shoes, etc.

      • topcat says:

        The Euro isn’t the world’s reserve currency the USD is, there is only one reserve currency. That is why EUROland can run surpluses because the USA runs deficits in order to ensure that dollars must be held everywhere by everyone.

        • CRV says:

          If the US$ is seen as an export product, the US is running a large surplus, not a deficit. For some reason we are told not to see it that way.

        • Winston says:

          “the USA runs deficits in order to ensure that dollars must be held everywhere by everyone”

          Yep, that’s exactly what a reserve currency must do to remain a reserve currency.

        • Cas127 says:

          “For some reason we are told not to see it that way.”

          DC…is that you?

          In actual human existence, green pieces of paper, printed at whim, have less utility than say…food…or a factory product…or most anything else.

          The USD is ultimately only valued because of what it can *buy* and if it can only buy a few, small selection, fourth quality factory goods, an array of rundown real estate assets, and Treasuries yielding zero…there is less and less reason for anyone to hold it.

          Economic power proceeds from productive capacity and in that regard, China has been kicking our ass for 20 yrs.

          Regardless of what DC drug pushing, money printers say.

        • Wolf Richter says:


          “The Euro isn’t the world’s reserve currency the USD is, there is only one reserve currency.”


          This type of nonsense is WHY I write these articles.

          The USD is the DOMINANT reserve currency with a share of 59%.

          The euro is the second largest reserve currency with a share of 20%.

          Folks need to get away from the notion that there is only one reserve currency. It’s just uninformed.

          It’s like saying that Toyota is the only automaker in the world. No, it’s not. It’s the largest and most profitable automaker, but not the only one.

        • Maximus Minimus says:

          Correlation does not imply causation.

        • Perhaps globalization cancels the one reserve currency theory.

        • Auldyin says:

          “why EUROland can run surpluses”
          The EU is a ‘closed shop’ to protect members against low cost foreign competitors. Look at UK,s woes trying to get a free trade deal after Brexit. If the EU opened up to genuine ‘free’ trade, in particular with third World countries you could well see a different picture. Although Germany is still a manufacturing superpower on merit and largely carries the rest of the EU.
          I’m looking for how long the German people are going to carry on picking up all the ‘tabs’ after the UK has withdrawn it’s credit card.

      • Maximus Minimus says:

        Question: Why does Eurozone need central banking swap lines when it generates consistent dollar surpluses?

        • Wolf Richter says:

          Maximus Minimus,

          It doesn’t for the reason you specified. The swap lines are at zero. There was only a bust during the crisis March-June 2020 because of a financial panic. The swap lines were at zero before, and they’re at zero now.

        • topcat says:

          As the US dollar is the worlds reservecurrency, i.e. the dominant curreny in which all commodities are prices, then anyone wanting to trade anything has to do it in USD. Not EURO or Yen or CHF.
          Germany buys Oil from Russia priced in USD, steel from China opriced in USD. If I discuss the cost of raw amterials fo building anything then it is alwys done in USD.
          That is the characteristic of THE word reserve currency.

      • cb says:

        Wolf said: “Look at the euro. The eurozone has a huge trade surplus with the rest of the world. And the euro is the second largest reserve currency by a big margin.”

        If the Eurozone is running huge trade surpluses, how is the rest of the world obtaining the Euros to hold as reserve currency?

    • WyleeEconomist says:

      Wolf is talking about peer reviewed economic fact that is over 50 years old. Check out “Super Imperialism” by Michael Hudson. If you’ve only ever heard white washed jingoist American History… It is a mind blower.

      • Michael Gorback says:

        “Economic fact” is like climate change “settled science”. The latter term indicates a lack of understanding of science while the former term lacks an understanding that economics has never been, and never will be, a science.

        Theories without a means to test them does not yield “facts”. That’s economics in a nutshell.

        • Phil says:

          There are facts in economics just like there are issues of settled science related to climate charge.

    • Michael Gorback says:

      Although the US isn’t compelled by cosmic law to increase the dollar supply in pace with global economic expansion I’d hate to see what happened if it stopped running trade deficits. There wouldn’t be enough dollars to settle debts or trades.

      About 40% of international debt is denominated in dollars. If there are insufficient dollars the debts can’t be paid.

      This was evident in 2008. Non-American banks had $27 trillion in international liabilities denominated in foreign currencies. Of that, $18 trillion was in U.S. dollars. The Fed had to open its dollar swap lines to provide foreign banks with sufficient amounts of dollars. 10 years later many countries still had more dollar reserves than their own currency in reserves.

  8. David Dawei says:

    Could BTC expediate the collapse of fiat as more countries choose it as a hedge in lieu of the USD?

    • Wolf Richter says:

      David Dawei,

      Could fiat expedite the collapse of BTC maybe?

      BTC has collapsed nearly 50% against the fiat dollar.

      • DawnsEarlyLight says:

        I saw what you did there! ?

      • Artem says:

        Those who hold dollar reserves help U.S. finance deficit trade and deficit government spending. Should U.S. become irresponsible and refuse to address these deficits long term, the dollar might run out of HODLERS.

        Crypto is a nice alternative asset if this comes to pass.

      • Turtle says:

        Nobody’s been able to hype it above 40K since the big “dip”.

        I do have less confidence in the dollar than ever, though.

    • Michael Gorback says:

      The best way to expedite the collapse of fiat is to keep printing more of it.

    • Lance Manly says:

      BTC may be a store of value, but as a currency it sucks outside of accepting ransom payments.

      • Artem says:

        “Internet is great for porn, but it’ll never replace newspapers”
        -Some guy from 1990

        • Flounder says:

          Artem, you are making the mistake of connecting the value of blockchain the technology, with one specific implementation of it, Bitcoin.

          Blockchain can succeed while Bitcoin fails, just like the internet succeeded while and thousands of other internet companies went to zero in the tech bubble.

          Since you cannot invest directly in the concept of blockchain, just as you cannot do with the internet, you have to try and pick winners that implement it. IF a cryptocurrency wins and rises to prominence as a global currency, it may very well be one not even created yet.

      • GrassRanger says:

        @ LM
        BTC is a store of value when it’s value has dropped by 50% twice in the last 4 years?? It seems to be a consumer of value as often as not.

        • Auldyin says:

          In theory there can only ever be 21 million BTC.
          The closer you get to 21m the harder and more expensive they are to produce.
          cf Fiats which only need paper & ink to make carzillions.
          Just sayin’

    • Nick Kelly says:

      The case of, and for, BC gets more curious every month. Another massive heist by a BC hub (bank?) in South Africa about 68K BC gone. and operators disappeared. This is the biggest yet about 4 billion US$.

      The two guys in charge are as good as dead. The Canadian guy behind an earlier caper IS dead and the hundred million are gone, Mt. Gox LOOKS like it was hacked by outsiders. This last one is obviously an inside job. The BC was carefully distributed to make tracing impossible. Very silly of the perps. Could have arranged a hack of a few million and lived. I read they are 18 and 20 yo.

      So you can’t safely bank BC, it obviously isn’t and can never be a currency, (can be hours to complete one trans) it just lost half its value, so not a store of value, so…what ?

      The human propensity to believe is limitless.

  9. Satya Mardelli says:

    When Powell raised the rates by 5 basis points the other day on reverse repos and IOER, Europe central bankers nearly pooped in their britches. Half a trillion of liquidity in financial reserves started flowing out of Europe heading our way.

    U.S. rates are heading higher and JP now has Europe technocrats by the balls. They’re stuck with zero interest or negative rates. How much liquidity leaves Europe for New York if JP raises rates by 25 or 50 bps?

    U.S. Dollar strengthens against all currencies when rates rise and Jerome Powell, representing U.S. banks, holds all the cards. We’re about to witness some epic groveling by Euro bankers when they realize they’re trapped.

    Bankers are cutthroat opportunists. If you thought American banks were too big and too powerful wait until this drama is over. These behemoths will be even more powerful. Good for us; not so good for Europe, Russia, China, Iran, Turkey, etc

    • Nicko2 says:

      Turkey is suffering over 15% inflation. Yea….the dominoes will tumble quickly when it happens. Stock up on popcorn and refresh wolfstreet!

    • Auldyin says:

      Spot on SM
      But I bet Russia, China etc know this and have a fallback plan this time???

  10. Yancey Ward says:

    In my opinion, there are far more likely things to strengthen the dollar’s position, not weaken it.

  11. Nathan Dumbrowski says:

    Wondering if there is a correlation to something that would explain there is a positive increase in UDS status on the top chart? Q319 and Q121.

    Early in 2020 we had a Yield Curve Inversion.

    From the charts it would appear that the USD is firmly planted and has no immediate threat or competitor

  12. Brady Boyd says:

    We are moving into a barter type currency. Hogs, pigs, sheep and bushels of corn will be the new currency.

    • Crypto is electronic barter. There is no rational reason on the planet why a chicken in one hemisphere is worth more than a chicken on the other side. Computers will conduct business exchange without money, because a chicken is a chicken. The problem is much like the internet. What purpose is there in providing universal access? (All it does is give cyberhackers a way into your house) You don’t need a chicken from the other side of the globe. The only reason we buy them that way is the forex game which is a vestige of colonialism, and you want to drive a Lamborghini because it costs more than a Chevy. How about I sell you a million dollar Chevy? Barter is local, but it does allow for the buyers preference for intrinsic differences, and revokes the laws of commodification. It also denies globalization though certainly the British will want their tea.

      • Auldyin says:

        Existential!! Not available on any other site.
        Why did the chicken cross the hemi-sphere?

      • Nick Kelly says:

        Here is little demo for a teacher or…

        Take 30 people. Give each a card representing one item: a chicken, or nails, corn, cloth, copper, etc. No two the same. Then give them a card with a requirement: chicken, nails. corn, cloth, copper, etc.
        Arrange it so no two have what the other wants, which is generally reality.

        Now tell them to fulfill their requirement in 5 minutes with a prize for completion. Result: chaos.

        Barter is inherently inefficient and even the most pre-technical tribes use something as a medium of exchange: cowrie shells work WAY better than barter.

        And dollars work better than cowrie shells.

        • Auldyin says:

          I bet you nipped out for a coffee when the kids were doing that.
          Was there a fight when you came back?

    • Turtle says:

      Don’t forget toilet paper. That almost happened for a brief moment last year, remember.

      • Anthony A. says:

        I imagine there is a crypto coin for toilet paper by now…..

        • 91B20 1stCav (AUS) says:

          AA-sounds vaguely like commodity futures…

          may we all find a better day.

  13. Michael Gorback says:

    “There is no requirement that a large reserve currency must have a large trade deficit, as it is sometimes alleged.”

    Not a fan of Triffin’s Dilemma?

    There was a paper published by the NBER a few years ago reviewing the history of Triffin’s Dilemma, several ways to approach it conceptually, and they did a pretty good job of poking holes in it except for backpedaling at the end.

    “While there is much to argue with Triffin and those who invoke his dilemma, there is no arguing the dilemmas posed by a national currency that is used globally as store of value, unit of account and means of payment.”

    ” . . . the global use of the dollar can pose dilemmas to the United States. How should the Federal Reserve respond to instability in the markets for $10.7 trillion in dollar debt of nonbanks outside the United States or in a like amount of forward contracts requiring dollar payments? The central bank ignores such instability at the peril of possible turmoil in US dollar markets that does not stop at the border – even if the floating rate index for dollar debts is brought back
    from London to New York. Yet the Federal Reserve responds to such instability at the peril of seeming to overreach its mandate.”


    “Issues arising from one country’s supplying most of the world’s reserve currency are not going away.”

    Seems to me they spent 30 pages attacking it and then concluding “well there’s SOMETHING about it . . . .”

    • Heinz says:

      Triffin’s Paradox theory helps explain the inherent fatal weakness of a global reserve currency like USD.

      Namely, it explains the vexing chronic global trade imbalances between US and rest of world that buys dollars and in return ships real goods back to US. We get oodles of cheap goodies and they get fiat in exchange.

      Now, this can go on for a long time. You can all call it exorbitant privilege or dollar hegemony for it enabling ongoing massive trade deficits with printed up fiat money. Eventually though, the chickens come home to roost– history shows us that much.

      I believe our friendly globalist elites have a replacement reserve currency waiting in the wings to take over after a dollar collapse or critical weakening (when that happens exactly is unknowable).

      Whether it is a blockchain or national digital currency, SDR, or some as yet unidentified currency scheme is up for grabs.

      The current MMT-inspired fiat spending binge by Fed/gubdermint will undoubtedly hasten that day of reckoning.

      • Wolf Richter says:


        Triffin’s Paradox theory has been empirically proven to be nonsense. See the euro and the yen.

        • Artem says:

          It’s nonsense if you consider the paradox is based on Bretton Woods and the gold standard–which are now gone.

          It’s NOT nonsense if you consider that even with no [gold standard] constraints, unlimited debt does entail unlimited holders of debt. That’s unlikley to be sustainable, or healthy.

        • Michael Gorback says:

          Gross oversimplification. The yen and the euro have nowhere near the status or influence of the dollar. You might as well include Switzerland in your “evidence” since the franc is, after all, a reserve currency.

          The Dilemma (not really a paradox) is the effect it has on the the issuer of the currency. Even the BIS has acknowledged this. With a 60% market share plus petrodollars the USD has to accommodate international as well as domestic needs.

  14. Stupid says:

    Don’t fool yourselves. Gold is going to dominate again, priced much much higher. Basel 3 is here. It’s real. It has kicked in. Gold has full tier collateral status now. Bye bye paper money.

    “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” – Henry Ford

    • Wolf Richter says:

      Dream on if it makes you feel better.

      • Michael Gorback says:

        Gold in general or Basel 3? Basel 3 seems to have been a nothing burger so far, but “they” have had time to prepare.

        And there are some stealth ways around Basel 3. Questionable in terms of legality, but that hasn’t stopped people in power before. It’s a matter of (1) getting caught and (2) enough people understanding and caring.

        That’s why Jon Corzine isn’t in jail.

        • Wolf Richter says:

          My comment related to this (I should have added it as clarification since there were so many points in the statement, some of which I have no quibbles with):

          “Gold is going to dominate again…. Bye bye paper money.”

      • California Bob says:


        This is what happens when you cross-post with ZH. Gold buggers are rampant over there.

    • drifterprof says:

      I have a few small bars of gold. They are beautiful (Swiss, embossed with a beautiful art deco style lady’s head (blindfolded), with gold coins flowing out of a cornucopia that spirals from the side of her head).

      Their value has increased about 70% from when I bought them. But I find them irritating:
      1. Have to pay for a safe deposit box which is located far away in America. 2. Can’t really use part of them to buy stuff.
      3. Not sure of how I would sell them (advertise on Craig’s list?).

  15. Winston Meerabux says:

    Please provide updated graphs when this statement is taken into account: “The Fed’s own holdings of dollar-denominated assets – the $5.2 trillion in Treasury securities and $2.3 trillion in mortgage-backed securities, are not included in global foreign exchange reserves.”. The same for the Euro.

    • Wolf Richter says:

      That is nonsense. The Fed’s holdings of US Treasuries are in USD and not in foreign currency, and are therefore by definition not foreign exchange reserves. Same with the ECB’s holdings of euro denominated bonds.

  16. Franz-Xaver says:

    Nice charts! You can see clearly that the EUR reserves are amazingly stable at around 20% while the USD reserves are falling.

    Both currencies are losing in value, so which one will devalue faster long term? IMO it should be the USD even if the Euro zone is very bad.

    What do you think?

    • YuShan says:

      It seems for EU residents the euro has retained its value a bit better than the US$ has for US residents, while the external exchange hasn’t changed much.

      You would think that therefore the euro is a bit undervalued relative to the US$, but possibly interest rate differences (higher in the US) and perhaps better performing stockmarket (which creates demand for US$ from outside) have compensated for that.

  17. Micheal Engel says:

    1) The DXY chart : 9Y in accumulation between 2005 to 2015 and re-accumulation between 2015 until July 6 2021.
    2) DXY had a bubble in 1985. DXY second bubble was in 2000/ 2001.
    3) On it’s left : Backbone #1 : Jan/ Mar 1984 between 125 and 115. Backbone #2 around 150 in Oct 1984. Backbone #2 sent DXY to the top in Feb 1985 @ 165.
    4) On the right, after James Baker Plaza accord : a selling climax in Dec 1987 @85 (beyond Oct 1987) and a response to 106 in June 1989. So, 85/ 106 are DXY trading range.
    5) US dollar is gone : bs !
    6) DXY : after reaching 104 twice, testing the resistance line @106, DXY
    was down to 89, a higher low, above 2018 low, and bounced backup.
    7) The 2008 low was a spring board that sent and will cont to send DXY higher.
    8) DXY, perhaps, on the way to backbone #1, testing bubble #2, from 2001 @ 121.
    9) A stronger DXY will shrink out trade deficit with China.
    10) A stronger DXY will humble gold and WTI

  18. Chris Herbert says:

    The only explanation I’ve heard that I can understand is that the dollar is liquid enough to underpin international trade requirements. To be everyone’s ‘must have’ reserves. So far that’s doing the job. The connection to our trade deficit seems straightforward as well. China and other surplus exporters end up with those dollars, which are easily traded for whatever purpose exporters want. No other currency seems to be capable of reaching those liquidity requirements. The euro is a distant second. But that currency has been a net negative for the EU.

    • Michael Gorback says:

      I think that’s part of it. You’re not going to find a bond market as huge as the US. The euro has been poisoned by the internecine fighting in the EU – PIIGS, Brexit, etc.

      We’re the leper with the most fingers.

  19. YuShan says:

    It is fascinating that the US$ is a strong currency outside the US, but its buying power domestically is decreasing at an astonishing rate.

    Of course there is inflation everywhere, but in the US it’s been higher than in the EU or Japan while exchange rates have remained largely the same.

    • RightNYer says:

      Right, and in some ways, that’s just a result of the rest of the world not yet internalizing what’s going on here. The dollar became a strong currency overseas, meaning that foreign countries could use it to trade with each other, because ultimately, those dollars could be taken back to America and used to buy real assets. Now that it’s clear that the dollar is worth a lot less in the U.S., I suspect it’s value overseas will decrease too, just with a delay.

  20. Asul says:

    I think it is inevitable, that the dollar will lose its status as a reserve currency. The deficit madness will at some point become too much even for the lenders. First China will become the largest economy in the world, then it will ensnare its trade partners into using the Reminbi and slowly but surely the dollar will be used less and less in the world trade. As the dollar is a geopolitical tool, no one (except the US) is really happy with the dollar, because it gives the US an unjust advantage. The multipolar world is showing anyone who wants to see, that no country is imune to this realignment.

  21. MiTurn says:

    Speaking of currencies and propping up the US dollar. I think that Wolf should come out with a new beer/ice-tea mug — in fact, create a whole series so readers can collect them!

    It’ll also help the US economy, assuming the mugs are made in the good ol’ US of A. And helping starving artists too!

  22. Freedomnowandhow says:

    … …..and Japan has the largest government deficit of all the big spenders, some 200% of G.N.P. each year yet holds a strong position with their currency. Looks like “giving” their people free stuff works if balanced properly. Trade deficits allow Countries to accumilate products and services without outsourcing their physical assets.

  23. Micheal Engel says:

    1) EUR/CNY : down from the M pattern, the double tops in 2004/ 2011
    @11 to Mar 2015 low @ 6.5.
    2) The current retracement is a thud.
    3) Germany enslaved the rest for “Their” trade.
    4) EU is a great marriage.
    5) That’s why Meghan Markle Brexit UK, Greece stay because Germany pays and Turkey gets a fist of euros to built a wall.
    6) US extraction from Berghome and H2/3 will destabilize Europe and
    the ME.

  24. fred flintstone says:

    IMO the charts are the measure of our standard of living……delayed by 20 years or so…..of course things could change for the better…..but they probably will not.

  25. poe says:

    Reserves are just showing the asset side of the equation. Analysis needs to be done on the liability side to get a clearer picture. Look at the rate of change and total dollar denominated debt globally on the same look back period. Dollar debt is why the Fed FX swap lines still exist and why the dollar goes crazy when there is a crisis.

  26. Paulo says:

    Great article and charts. Comments too. This topic is pure red meat.

    Interesting to see the worry in some of the comments about losing reserve status. Can’t happen, won’t happen, but but but.

    You know what? It will happen, the only question is when/how, just like it did for Britain, the Dutch, Portugal, Spain….Romans, and every country in between. It happens and and life goes on after the 20% decline in living standards yoked to the status and power. (Look at Britain, the most recent slider, a decline somewhat hidden by recent world wide hedonsitic technology improvements). What did all the previous countries have during their reserve reign? Not just military domination and hegemony, but presence and influence. Connections. Credibility. Influence is now waning in the ME oil country. It was left to whither in Asia, with a recent desperate plan to reclaim. It has withered amongst friends and allies due to attacks and tariffs, nationalism/nativism. And now the domestic scene is one of division and strife, almost a cold civil war. My God, there are entire regions that oppose vaccination while Delta surges, and even some commenters here dispute the existence of a disease that has killed 600K + and counting. There is political dispute about Climate Change with 1/2 the country in drought and the other half underwater, piddly mitigation efforts, mostly rhetoric and pie-in-the-sky pronouncements on electrification of everything.

    The latest 20 year war is over, a war paid for with enormous debt, and as fast as the troops vacate territory the Taliban reclaim….. taking over bases, stores and weapons. It wasn’t as dramatic as people hanging off a Bell 204 skid above the Saigon embassy, but the Afghanistan embassy has yet to be vacated. It is in process. 1 month? 1 week?

    This is how it happens, like Roman soldiers coming home with no pay. Taking Syrian oil. Setting up private contractors in Iraq. Meanwhile, thousands of soldiers coming home to fewer and fewer jobs of any consequence, meaning, or future, unless they’re of consulting class rank and education and can land softly in Washington DC.

    This is the stage, the drama of decline, slo mo until it isn’t. The point of this comment is to talk about reserve currency replacement because it is coming. In these days of rapid computing of everything, tracking, + AI, there is little need for one dominant reserve currency, trading swag/product for greenbacks and back again on the merry-go-round of commerce. It can be a basket of currencies, product for product with adjusted world values (almost like straight bartering), or products for a preferred currency. The values can change by the second. Or with AI, can continually adjust. Trade trade trades, all made with keystrokes and encrypted communications made by minions of the powerful class. The power class knows no nationality, and has no allegiance to lines on the map, it/they just make money. Power. When it suits them the reserve status will be changed. All the carriers and weapon systems in the World won’t mean squat. Doesn’t mean squat…right now.

    Take globalization/globalisation to it’s logical conclusion. There will be no need for any one country’s currency. Trade will be done in a different way. You think all those satellites are for streaming movies and exchanging Tik Tok videos?


    • RightNYer says:

      I agree with your general points, but the points did not need left-wing political rhetoric to help make them.

      “My God, there are entire regions that oppose vaccination while Delta surges, and even some commenters here dispute the existence of a disease that has killed 600K + and counting. There is political dispute about Climate Change with 1/2 the country in drought and the other half underwater, piddly mitigation efforts, mostly rhetoric and pie-in-the-sky pronouncements on electrification of everything.”

      Very few people seriously dispute the existence of COVID. What people dispute is that the government responses to COVID were legitimate. Reasonable people can think that the “cure” was worse than the disease.

      Regarding climate change, no one seriously disputes that the climate is changing. What people dispute is that the climate is changing as a result of human activity. Rather, these people believe that the climate always has changed throughout the Earth’s history.

      • Anthony says:


        A good example is here in the UK. We have had the Delta variant for months but the hospital rates and death rates are running almost flat….in fact at the moment, more people are dying of flu than covid and there’s not many dying from flu.

        • Phil says:

          They are not running flat though, they are increasing sharply in the UK. What else are you wrong about?

        • Auldyin says:

          Round and round the pointers go, where they stop, some day, we’ll know?

      • Bobber says:

        Given the stakes, isn’t the burden of proof on those who say human activity is not changing the climate?

        People who care about their families’ life and health don’t stand around in the face of threats.

        • Bobber says:

          The virus is a different matter, with much less significance than climate change. But, some day, a stronger virus will come along, and I’ll be glad the US gained some experience fighting viruses.

        • RightNYer says:

          No. When the “solution” to a problem involves massively damaging worldwide economic output and effectively transferring wealth from the West to the third world (that’s what per capita carbon allowances do), then the burden of proof is on those who claim it’s necessary to decrease the harm. Not the other way around.

        • Auldyin says:

          Human societies have basically a choice of two fundamental philosophies to be guided by.
          Think of ancestor tribes in the back of a cave.
          1) The precautionary principal ie don’t go out because the lions might get us.
          2) Who dares wins ie let’s get out there we could bag ourselves a lion.
          History tends to show 1) goes extinct or gets overrun. 2) prospers and goes on to dominate.
          The real bet, the West is being asked to make, is that history is wrong in this regard.
          I don’t like arguing with history but it’s no longer my call.

        • Bobber says:


          You are being myopic. This year’s GDP is a concern for maybe a decade, at best. The health of our planet impacts the future of everything. It’s not even worth a debate, unless you are arguing it is OK to risk permanently damage the Earth for the short-term benefit of people living today.

      • Swamp Creature says:

        We went on field trips in the middle of Wisconsin when I was in school there. The arctic glaciers were all the way down there. As I recall there weren’t too many people on the planet at that time. Man made global warming is a hoax. Climate changes due to other factors. I believe the seismic activity under the oceans, or sun spot activity is one of the main causes of climate change. Right now the Pacific Ocean is 3 deg above normal in temperature, producing a high pressure dome. This is what is causeing the draughts in the west.

        • Phil says:

          My God, the misinformation, it burns

          This page has gone downhill fast. Did I see something about cross posting at zerohedge? That ruined Mish Shedlocks blog too.

        • Heinz says:

          “Man made global warming is a hoax.”

          True, but TPTB have made it their signature narrative and are pursuing it with a formidable agenda (Green New Deal, to mention just one initiative).

          Their ‘solution’ to climate change is to throw tons of taxpayers money at the ‘problem’ through so-called renewable energy and carbon taxes.

      • leanFIRE_Queen says:

        > “My God, there are entire regions that oppose vaccination while Delta surges, and even some commenters here dispute the existence of a disease that has killed 600K + and counting. There is political dispute about Climate Change with 1/2 the country in drought and the other half underwater, piddly mitigation efforts, mostly rhetoric and pie-in-the-sky pronouncements on electrification of everything.”

        It’s just the planet saying there are way too many humans. What’s shocking is that resources are still going towards extending longevity.

        • Bobber says:

          Are you volunteering to check out early?

        • 91B20 1stCav (AUS) says:

          Bobber-leanfire’s right, and your rejoinder simply coexists with the reality. Enrtopy happens every single day.

          may we all find a better one…

      • Person X says:

        Yeah and it’s just ridiculous having to debate these things. It’s like debating if the moon is made of green cheese and educated people are sick of it. It’s only the American far right that debates that we need to do something about climate change and pollution because they’re the only ones fooled by Fox Entertainment and the propaganda paid for by America’s bought off corporate politics. The rest of the educated, developed countries don’t debate these things because the facts and what is necessary are clear.

        Most of our problems would go away if American politics was decided by the American people instead of corporate interests.

        • RightNYer says:

          Yeah, it’s ridiculous to debate anything. We should all just swallow what the left is spewing.

        • Wolf Richter says:


          “We should all just swallow what the left is spewing.”

          So you want us to swallow what the right is spewing?? That’s gross!!

        • Auldyin says:

          Long ago, it used to be that nobody debated anything. The High Priests told everybody the way the universe was and everybody accepted it. (or else!)
          Then, a bunch of Philosophers and ‘Scientists’ came along and refused to BELIEVE what they were being told. At great personal sacrifice they gradually prevailed. Their success was called ‘The Enlightenment’
          We don’t need any of that now, we are all so clever, we know everything, and there is no longer any room for debate.
          Was the Enlightenment just a mistake?

      • 728huey says:

        If you don’t believe people have impact on the climate and the environment, why don’t you head over to Lake Mead and Lake Powell in the Colorado River basin. You will see at least 30 feet of exposed limestone where water used to be just a decade ago. There is much less snow melt around the source of the Colorado River, yet there are rapidly growing cities near the river not to mention the huge agriculture farms in Southern California which are siphoning the water from the river.

        • RightNYer says:

          You know full well that when people are referring to climate, they’re referring to temperatures and storms. Obviously, if you impound a river and use the water for irrigation and other uses, you decrease it.

        • 91B20 1stCav (AUS) says:

          Right-where do you think Western rivers originate? You can study snowpack (the ‘water bank’) records, which in recent history have been seriously declining in annual amounts of snow while concurrently increasing in the number of melt-temperature days. Dams are a controversy all of their own, but had the rivers not been dammed the numerous ‘straws’ in them would have been exhausting the rivers long before this (check the Colorado estuary into the Sea of Cortez for the last 35 years as an example).

          may we all find a better day.

    • 91B20 1stCav (AUS) says:

      Paulo-eloquently put. Right-you do remember your chemistry classes high school/college? Atmosphere’s the solution (and as a sidebar, a nutrient solution, at that) in your beaker. Start introducing various chems in quantity around 1800. Interesting things start to happen to the solution going forward. At best, this experiment in atmospheric chemistry has been a catalyst (or blasting cap) that rapidly accelerates the rate of change on the ecosystem that no amount of money will be able to ameliorate. (of course, one’s metaphysics enter here-doubtless looking away from (or embracing?) even the possibility of a human sustaining PNR could be personally sensible or preferable…).

      may we all find a better day.

      • Nathan Dumbrowski says:

        Good point indeed. The analogy struck me odd. Silly me I believe in man made global warming. But put that aside. We are facing a problem similar to the beaker above. So we can either bicker about it or do something about it. If we can slow down the process no matter what the cause we all are doing generations a world of good

        Happy Days were in the 70s with the Fonz

        • 91B20 1stCav (AUS) says:

          Nathan-thank you. I have long been completely mystified at the public fixation on a singular source for anthropomorphic or natural causes for climate change (when in fact, it’s BOTH) while simultaneously ignoring/minimizing the legion of actual effects-this is not, and never has been, a binary question facing our species and the planetary systems that have given and sustain its very existence. Too often, it appears that our bickering over who/how/whether at all we should start bailing out the boat as the bilge surely continues its rise is a more psychologically satisfying endeavor…

          may we all find a better day.

  27. c1ue says:

    A couple of notes:
    1) Being a reserve currency itself is not indicative of trade surplus or deficit, true. However, I would amend this to be:
    Being a reserve currency *being used outside of its home economy* may require running deficits. The euro and yen are limited to their home economies’ respective share in the world GDP/trade. They’re being run as instruments to advantage their own economies vs. the US – so at least some part of said surpluses are explicitly a function of enabling the US to run USD deficits.

    2) China skipped the step of making the RMB the primary vehicle of currency manipulation – instead they use the oligopoly/monopoly power of its enormous labor force and supply chain control.

    As I’ve noted before – the primary reason the RMB is not a reserve currency is that it is not freely traded because enabling this also enables mass capital flight out of China – which the CCP does not want. Its 2015 experiment proved this clearly: any opening up of restrictions would result in trillions of capital leaving the country.

    As such, I think it is premature to say that the decline of the USD is going to always be gradual.

    The real test will be when, not if, China decides on some form of an external RMB; the same labor force/supply chain control means there is more than sufficient trade impetus to rapidly propel China from its 2.5% reserve currency status to something closer to the 20% which percentage China’s GDP is part of world GDP.

    Note US GDP is 24.5% or so of world GDP. The delta between the 59.5% USD reserve status and US GDP/world GDP is the benefit of being a reserve currency.

    In trade terms, the situation is worse (for the US). The US is 8.5% of world export trade and 17% of world import trade. Given the previous notes on currency manipulation, it seems likely that the 17% is skewed high as an outcome – meaning actual “baseline” US share of world trade is more likely in the very low teens.

    Compare to the EU share of world trade (16%), China share of world trade (13%+), Japan share of world trade (~3%).

    What impact would a 10% or 20% fall in the USD usage as trade reserve currency mean? Absolute value wise – total world trade is around $190B.
    Each trade dollar has an impact beyond its presence on one or both sides of a trade – there is the central bank reserve, there is the profit, there is the reserve behind the transaction held by the trader and ultimately, the bank behind it. I have yet to see credible estimates of this impact but it seems safe to say each 10% of USD reserve currency status means at least $30B in “free” cash float. The overperformance of the USD in global trade thus equates to something like $100B in “free” cash float every year.
    If we treated these USD as an export (which they are) – it would be 60% more than the single largest category of US physical exports (planes) and nearly as much as the top 2 combined (planes and refined petroleum).
    Cars are #3, ICs are #4.
    What would the economic impact be of losing 1/2 to 2/3rds of any nation’s single largest export?
    And at this point, it seems 100% clear to me that China will do so. Some people like Dr. Michael Hudson have noted that the trade deficit – closely related to the reserve currency benefit – corresponds to the outsize of American military expenditures vs. the rest of the world. American activities with said military are such that China and Russia believe that the best way to combat it is simply to defund it.
    BRI and similar programs are the first step.

    • Nathan Dumbrowski says:

      “…And at this point, it seems 100% clear to me that China will do so”

      What is it that China will do IYO? Replace our planes, petrol, vehicles?

      • c1ue says:

        I was referring to China creating an external RMB which is freely traded and can thus function as a reserve currency – and which would serve to depress USD reserve currency market share.
        Note I was referring to dollars itself as an export – not just American things sold for dollars. In other words, the US dollar itself is the largest US export commodity.
        The US economy was something like 50% of world GDP in 1945 – even if japan continues to give up its yen/reserve currency status to the USD, the present 59% is far higher than is justifiable by anything.

  28. fred flintstone says:

    Paulo. I agree…….it is usually build the economy…….defend the economy…….the cost of defending overwhelms the economy……and in our case defense is being aided by domestic spending stupidity…….
    Little girl to dad in 1940…..why can’t I have the candy bar……we can’t afford it.
    Little girl to dad in 2021……why can’t I have everything……why… can. You can be and do and have everything……paid for magically by slave labor overseas.

  29. historicus says:

    Add a dominant world currency to the list of things GLOBALISTS wish to do away with

    Globalist eradication wish list:

    Local Authority (Police)
    The Concept of States and State sovereignty
    A currency from one country that dominates trade

    • drifterprof says:

      Depends on what one defines as “globalist.”

      For better or worse, information is the strongest globalist factor.

  30. 3D Modeler says:

    Took a stroll through Home Depot yesterday to see what they had on sale for the 4th. Hardly any special deals…just the opposite. I was astounded by how many different products have breached the $100 price point. Jerome Powell and his other dove (on inflation) colleagues are clearly achieving what they’ve been wanting for years now. As Yogi Berra used to say “It’s like deja vu all over again.”

  31. Micheal Engel says:

    1) The globalization that reduce inflation, since Nixon & Mao, will be down after the covid mismatch.
    2) Less dollars in the pocket of Xi… will strengthen the dollar.
    3) Side by side, the left and the right osc in a shouting match, nothing else.
    4) Side by side, when the left is left for itself, Chicago & Portland cannibalize themselves.
    6) A regime change from the left flank will vaccinate the rest.
    7) When the world will dissect, countries will be stolen.
    8) Western Canada was stolen.
    9) The cause of today mess : tribe by tribe : either convert or become slaves.

  32. $ says:

    “Lightly, O lightly we bear her along,
    She sways like a flower in the wind of our song;
    She skims like a bird on the foam of a stream,
    She floats like a laugh from the lips of a dream.
    Gaily, O gaily we glide and we sing,
    We bear her along like a pearl on a string.

    Softly, O softly we bear her along,
    She hangs like a star in the dew of our song;
    She springs like a beam on the brow of the tide,
    She falls like a tear from the eyes of a bride.
    Lightly, O lightly we glide and we sing,
    We bear her along like a pearl on a string.” – Sarojini Naidu

    The painted lady in the ornate palanquin is borne by the worldly bearers, the Chinese, the Europeans, the Mexicans, the Malay, the Japs…What happens when they wake up from their walking slumber and dump their mistress by the wayside?
    …..maybe, just maybe, Lady Liberty may learn to live within her means!

  33. Micheal Engel says:

    Ilan in prefab apartment. $50K too expensive.

  34. Doug Henwood says:

    Sounds dire, except the 2021 figure of 59.5% is slightly higher than 1995’s 59.0%. And there’s still no credible rival. The euro’s share is lower than it was twelve years ago (20.6% now vs. 27.3% in 2009). Not surprising, considering that there’s nowhere to park euro reserves in a unified government bond market – it’s almost all national markets. And China is still fairly closed, so it’s not easy to hold reserves there either.

  35. Micheal Engel says:

    1) US will lose it’s reserve currency only if we lose a major war with China, – not before, – when there will be nothing to show for.
    2) Xi wouldn’t dare starting a war.
    3) Rule #1 : know yourself.
    4) Know your enemy.
    5) Xi doesn’t know who run US, because king J is an enigma.
    5.333) Last week Xi was on Sanhaujiu & chocolate high, talking about his version of : blood, steel & fire. Oef. Oef.

  36. Scott Cord says:

    The 10 year US bonds rate is down to 1.36% today. Why with annual inflation at 5% plus. This is such BS. This is not a interest rate market but a government crony capitalism and socialism.

    • Wolf Richter says:

      This is the effect of $120 billion a month in QE.

    • Swamp Creature says:

      These interest rates don’t make any sense to me.

      Could be a lot of people thinks something bad might happen that might collapse the economy.

      1. oil price shock

      2. commercial loan meltdown which takes down a few big banks

      3. China invasion of Tiawan

      4. New mutation of the virus (Lamda)

      • Nathan Dumbrowski says:

        My vote is the US FED does our own version of shock-and-awe but with slightly negative interest rates. This will allow almost anybody to afford to buy a home with the full backing of the US Government

        Wolf says NEVER going to happen. I said wait and see.

        • Wolf Richter says:

          Nathan Dumbrowski,

          You really don’t get it. Lowering interest rates just inflates house prices. So the payment stays the same or gets bigger. We’ve had this discussion before it seems :-]

          There is no benefit for home buyers from lower interest rates.

          Raise interest rates, and house prices come down, payment stays the same. Home buyers are no worse off. But you pay less insurance and property taxes.

      • 1) Yields are crashing, why? 2) Lacy Hunt predicts deflation when (over)production catches up to demand 3) Will deflation be transitory? 4) Market is dissing Fed’s hawkish baby steps, or their too dovish long term projections for being too hawkish? 5) The Virus waits for the fall 6) Does Fall of Afghanistan effect Pakistan’s nuclear birds? 7) Russia has potential to rile several commodity markets. US launches cyber attack on infrastructure. Putin in the dark 8) Millennial’s get their first draft card. DJT burns his at a rally.

  37. Artem says:

    If you believe RMB is headed to 20%, you should probably buy 3.2% 10Y Chinese sovereign bonds.

    Please don’t, though, because you would be supporting communism.

  38. Micheal Engel says:

    Taiwan and China : Sibelius violin concerto, Vengerov, on u tube.

    • John says:

      Thank you for the recommendation.
      Offsets Gareth bale’s exit.

    • Dan Romig says:

      Osmo Vanska, Minnesota Orchestra conductor, is a big Sibelius fan. Within the last few years, he & the orchestra have released three SACD discs (playable on standard CD format) with all seven of Sibelius’ symphonies.

      Mastered by Sweden’s BIS & recorded in 5.0 & two-channel @ 96k and 24 bit rate.

      I’ll wait to listen until after Italy and Spain play in London at the top of the hour though.

  39. MonkeyBusiness says:

    Remember the PIIGS days? Everyone’s so worried back in the days about the Eurozone breaking up.

    Looks like they might actually outlast the US ;) Heck, it’s possible we’ll have to transition to the Euro one day.

  40. LouisDeLaSmart says:

    The USA will use this advantage “to the max” to cover for its economic ineffieciencies. It has done so for a very long time, but never at this pace and this much. Though this comes at a high cost, one that will follow us in generations to come.
    It has given birth to an obscene superiority selfimage amongst the wealthy and powerfull (christened as “American Exceptionality”). For them there is no real inscentive to perform, reform or deliver, nor are there any consequences for failure. In time they relied more and more on the power of the dollar, and their jobs went from enabing wealth generating enviornments (shaping society to become prosperous) to distributing wealth to whom they see worthy and exceptional.
    No matter how they perform, no matter what they mess up, there is the mighty dollar to save them, and an evil “Russia/China/Germany…Who is next?” to blame.
    It is a well full of poison they are drinking from, and they are teaching everyone to do the same. The poison acts slowly, numbing first your mind, blurring your vision, changin your perception of reality. Then it takes over your body, you become slow and tired easily. Finaly when “you have it all” it comes and takes your Soul.

  41. K says:

    I predict you will remain poor if you believe that. The unprecedented, ginormous overuse of margin in the stock market if over leveraged companies owned by over leveraged investors means that the US stock market is like an egg precariously balanced on a narrow, high fence.

    Central banks expect bad things, so they sell their US dollars. If there is a shock such as one party demanding huge spending cuts in September (when the government starts to run out of funds) on distress- ameliorating programs when the economy is already suffering massive bankruptcies, foreign and smarter investors will press their panic buttons and start selling US stocks en masse.

    (If the US government defaults on its debts as a result of the debt limit fight, the federal interest payments that it must make later will also rise to unsustainable annual amounts.) Similarly, if one of the huge, CCP-Ponzi schemes that are selling corporate stock now in the USA thanks to their bankster and Wall Street allies to gullible pensions and other Americans is unmasked as another Lucking Coffee fraud, and collapses, investors in other CCP Ponzi schemes may also bail.

    Such stock market shocks are inevitable. Then the stock brokers will call on margin investors to cover their margins on their stock holdings with collapsed values and when they do not, because they are over leveraged, suddenly sell MASSIVELY, ginormous amounts of stocks. (Remember 1929 and the similarities to this situation created by the billionaires’ “Fed.”)

    That vicious circle (or any similar trigger of many coming) will cause the inevitable, US stock market crash. The market is just too inflated to avoid that crash.

  42. yxd0018 says:

    wolf, how do you explain the bond rate starts going down again recently in the context of this article?

  43. Xavier Caveat says:

    We’ve been conditioned to homes going up in value, and with the slow demise of the almighty buck when measured against other comers, they’ll continue to do so being in effect money in the bank. We’re already seeing an odd rush for old stucco now, instictively we’re used to it being a security blanket that never wavered. Imagine a $ valued @ 1/20th of now and SoCal homes fetching a couple million for fixer uppers.

    This is where the sharpie arbitrage types come along and buy the jewels for a pittance when measured in something that matters-not dollars

  44. K says:

    The trillionaire families who own the world may decide that preserving their goose that lays golden eggs (the deceptively named and billionaire/trillion sure owned “Federal” Reserve) warrants their propping up the US stock market via their other central banks and their companies that they often secretly control. Then, we will see them essentially bail out investors in the US stock market by buying US stocks before the collapse utterly in value.

    LOL. I hope they do that, like the little Dutch boy with his finger in the dam, and drown their fortunes. :-)

    • K says:

      This Amazon tablet changes trilliona I r e or trillion a I r e s and other words automatically to different words. LOL. I wonder why. It is like someone does not like discussions about those families.

  45. ru82 says:

    I am actually seeing a nice increase in housing inventory finally. Mt much for price reduction but many the 10% over asking price will go away.

  46. Swamp Creature says:

    I wonder how 4th of July celebrations went across the good old USA. Here in the DC Swamp I saw the most unusual celebration. I watched it on PBS. There were no musical groups on the Mall. Few adults and no Vets. Just a bunch of 12 and 13 year olds dancing waving flags of one sort or another. It looked like a scene out of the “Lord of the Flies” or the movie “Hunger Games”.

    On second thought I think the message was clear. These are the future leaders of America. You Vets and people who played by the rules to achieve the American dream are obsolete. Its time for you to whither on the vine and get out of the way and pave the way for this new generation.

    • Anthony A. says:

      “You Vets and people who played by the rules to achieve the American dream are obsolete. Its time for you to whither on the vine and get out of the way and pave the way for this new generation.”

      I’m working on it. I have my spot reserved in Arlington National and I’m just waiting for the lights to go out.

  47. Micheal Engel says:

    Italy won

  48. Auldyin says:

    The way I remember it in ‘the old days’ Countries kept reserves as an insurance against fluctuations in their balances of trade with other countries. They tried to have the currencies of the countries they most traded with but gold and the $ gave a universal cushion against sudden changes because they were always very liquid in exchange markets eg if the £ was too high they would buy $ and vice-versa.
    There’s so much manipulation of everything nowadays I no longer give a to**

    • historicus says:

      Central bankers have stolen the free markets…

      and here we thought it would be the Communists….

      Inside job.

      • polecat says:

        ‘To each according to their need$ ..

        Well, the Banksters are the neediest of them all, are they not?

  49. historicus says:

    Ever have that nightmare…
    you wake up one morning and everybody has gone from dollars to bitcoin….except you.

    and Powell said….you should have seen it coming, didnt you see what we were doing?

  50. Housepoor Millenial says:

    Wolf… please tell me what you would do if you were a housepoor all cash millenial right now. I feel stuck.

  51. SpencerG says:

    I really don’t see what the big deal is. OK… the Euro created a splash when it first arrived… but it hasn’t appreciated any since then. The renminbi hasn’t really budged in 20 years despite the explosive growth in China’s economy. The YEN of all things accounts for almost half of the dollar’s loss over the past seven years.

    Reserve Currencies don’t switch overnight… or even over decades. A lot of things go into why one loses its dominance. It is no real surprise to say that America’s economy has had a bad run for the past two decades. But even with that we are still three times more dominant than the next contender to the throne (the Euro). Frankly I am more interested in why the dollar reserves GREW by six points from 2012 to 2014 than I am why they have shrunk back by six points in the years since… what happened in those two years that created a desire for holding greenbacks?

    As my father likes to say… Fish don’t come from the sea… you have to take them from the sea. We are a LONG way off from anyone being able to do that.

  52. Swamp Creature says:

    Prices of RE still going up in the Swamp. We did a 2 unit multifamily property in a bad neighborhood on the wrong side of the tracts. The neighborhood was so dangerous that even the police won’t go in there. Didn’t stop the price on the appraised property to go up 14% in the past year. The Vet, from Afghanistan combat, who was refinancing was salivating over all the cash he was getting.

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