AgentR11 wrote:It'll be slow I think, but the path seems inevitable now. Communications technology makes it so easy to buy and sell in any arbitrary currency; drives costs of conversion down very hard at the high end of the transaction meter.
If Iran wants to buy rice for instance, they can buy it in rupee from an Indian wholesaler who bought that rice from Thailand in baht or dollar or gold-etf or whatever. The rice itself may never even be unloaded in India. No pieces of paper involved, just a mouse click, followed by a few more mouse clicks. Even something more complicated, with two or three steps through India and China, or even Russia, India, and China, can all happen very fast and very transparently. At a certain point, there's really not much advantage to being paid in USD unless you have very specific USD debt you want to service; and Iran doesn't.
I get what Pop's is saying about a reserve standard, but I think modern communications technology has reached the point where it will start eroding the advantage that using any currency for a reserve might have had. Basically, I think the whole notion of a "reserve" currency will die.
Agent, I think you're exactly right, and I repeated your post because I think you stated the case very well. I've LONG argued this principle, and have never seen what I consider to be a convincing counter-argument.
My angle is that the Forex market is HUGE and liquid, and so creating hedges that let you hold WHATEVER basket of net liquid currencies is, as you say, as easy as a mouse click. Thus, there is NO reason a country needs to actually hold net foreign US dollars in reserves. Thus the idea of the USD as a reserve currency "required" to trade oil and thus raising the demand for the US dollar significantly is made a moot point by modern (as you say) communications technology.
So,
countries will hold net amounts of currency in relation to what they WANT to hold, based on the credibility of the country, its policies, its economic standing, etc -- NOT what some foreign reserve currency rule says it must hold (in one designated account).
So for example, if country X is required to hold $10 billion USD in a reserve account to cover their normal purchases of oil from OPEC, this means NOTHING about their overall position in $USD. For example, they could be SHORT $20 billion or $100 billion, etc. in their primary Forex account and hold (long) Swiss Francs, Yen, etc. to cover their actual currency needs. Or they could simply ensure they are net flat $USD, etc.
Here's an article with a little commentary on the practical significance (i.e. lack thereof) of reserve currency status in the modern world:
http://www.vox.com/2015/12/2/9836164/ch ... rrency-sdr Australia has run bigger trade deficits for longer than the United States, nobody holds Australian dollars as a reserve currency, and Australian governments are not wasting their time trying to convince anyone to do it.
The reason Australia can always run trade deficits is ultimately not that mysterious. Australia is a rich country with a credible legal system and a stable political order that also — thanks to immigration — has a substantially higher population growth rate than other advanced economies. That makes Australia well-suited to receive a net inflow of private investment money from the rest of the world. All this also applies to the United States, though to a lesser extent, and so we also can sustain large trade deficits.
The USD has been strong lately because of overall positive perceptions about the US economic standing and performance relative to the rest of the world. In a decade or three, the value of the USD will almost certainly primarily hinge on whether the US has lived up to that confidence -- not whether crude oil is traded in dollars or yuan or likely (IMO) some supranational currency reflecting the G20 or some such thing.