a reply to: kwakakev
Well, it must be nice to live in Australia.
I understand your point and concern and I honestly don't know where this will all end. But something tells me it isn't going to end quite like
we'd be inclined to think, meaning...I'm not to concerned about it. Here's the deal. The "US Dollar" is both, the world reserve currency,
meaning countries across the world hold US Dollars in reserve to use in trade, buying and selling manufactured goods, food, commodities, etc. That's
because...the US Dollar is the preferred currency for trade. It is the trade currency simply because there's so much of it available. But in
reality, all that world trade is conducted by currency transactions communicated by computers. That means, in many respects, the US Dollar is a near
"virtual" "digital" currency. I think the US Dollar will continue to be the trade currency for the foreseeable future. Why....because its easy.
Think of what a headache changing to another trade currency would be!
But wait, there's more....suppose for a moment the World Bank said, they would create a currency for trade purposes based upon the value of a basket
of currencies. How would they price anything in terms of the new "World Dollar"? I mean by that, we're looking at an incredibly complex problem
of valuation and every country in the world would want the World Dollar to trade at parity to the US Dollar because....all the world's countries hold
hundreds of trillions of US Dollars in their Central Banks. So this thing starts to resemble a dog chasing its tail.
It gets worse from there however. When I said it starts to resemble a dog chasing its tail, I mean it this way. The value of the US Dollar is, more
or less, based upon the sum total value of goods and services produced in the US. If you go to a World Dollar valued on the value of a basket of
currencies, then its real value is the value of the combined value of the goods and services produced by the countries whose currencies are part of
the basket! Imagine what happens then. First, who does the daily calculation of what the "value" of those underlying economies is? The World Bank?
But they don't control the economies of those countries.
So, at the outset, lets use this example. The world adopts the "World Dollar". Your Australian Reserve Bank, (which I quite admire by the way), is
holding say 10 Trillion US Dollars and is told they are to be exchanged for 10 Trillion World Dollars. I can pretty well predict that the sharp
people in charge of your Reserve Bank is going to say, "uh, no thanks, we'll turn in our 10 Trillion of US Dollars for 11 Trillion of your World
Dollars to hedge against a decline in the value of your World Dollar". Well, I can guarantee you other Sovereign Central Banks will say the same
thing! What does that build in? A devaluation of the value of the World Dollar from the very outset. Now, when the Euro was created it came in at
par to the US Dollar and then lost value and then increased in value versus the US Dollar and now is worth something like $1.34 US. Much the same
might happen with the new World Dollar, but I think it will be plagued by problem of its "real" valuation based upon a "basket" of underlying
currencies. And that problem creates the opportunity for another bigger problem, i.e., the creation of a world wide inflationary wave! If the World
Dollar falls in value, the cost of everything that Australia exports would go up in value versus the value of the World Dollar. Meaning that day 5,
oil is priced at $110.00 World Dollars and on day 6, oil is priced at $120.00 World Dollars because in overnight currency trades, the World Dollar
loses value. Pretty soon, you've got an inflationary wave washing over the whole world! But, more importantly, it plants the seeds for the whole
thing to blow up! So, for example, an Australian Oil company prices oil at $120.00 World Dollars a barrel, Japan might well say, "uh, no....how bout
we pay you $110.00 US Dollars?"
Is this to say the US Dollar will be the world reserve and trade currency forever? No. It may well be replaced one day. But I posit that when it
is, it will be replaced by a "Dollar" based upon the value of an underlying commodity, like Oil or Coal or Uranium. But...most likely a "Petro
Dollar". Or...we might see multi-systems develop within huge trading blocks, like with Russia/China. So rather than being formally replaced by some
unaccountable world bureaucracy like the World Bank, it would simply be phased out or run in parallel with other "trade" currencies.