[duttish]

I'm not an economist so someone please correct me / expand on this;

I'm guessing this is kind of a "It's not a problem until it's a crisis" situation? So far other central banks haven't begun selling treasuries, they've just stopped buying them. But once one starts selling it could become self reinforcing?

What could replace it? There doesn't seem to be any new hegemonic power on the same level. Could we enter a world where all central banks hold a mix of currencies and nobody benefits from being the reserve?

[KaiserPro]

Its only really a crisis for people who are dependent on the US for protection. The whole compact is that you use the dollar, and the US will look after you (ie House of Saud, Europe, taiwan, south korea, etc) But that isn't really certain anymore.

You need to make tributes to the suntan king, and he is most capricious and likley to tariff the fuck out of you. So alternative destination for your goods is a necessity

Also the markets are not convinced that the fed is in good hands. The whole point of the fed is that they are far enough away from the meddling in Washington so that you can rely on the dollar. The fed is being steadily erroded, with the new chair being selected soon. The problem is that present administration is hell bent on loyalty over competence.

Printing dollars to get out of domestic budgetary problems was never a thing (excluding QE, but thats different, nominally) was never an option in the US. but that doesn't seem so far fetched now.

[lumost]

The printing of dollars by the Fed comes with a secondary effect - the dollars are not evenly distributed amongst the population. They are printed via market action, and the ones who are closest to the market action are free to capture as large of a share as markets allow.

Over time, it's natural that actors will optimize the above system to capture as many dollars from the printer as they can.

[expedition32]

Putting trade tariffs on countries like Vietnam should have gotten Trump deposed. He is literally the Manchurian candidate.

[somenameforme]

This is more of a go out with a whimper rather than a bang type thing. Being the world reserve currency (as well as the largest consumer market in the world) previously enabled the US to do things like relatively easily export inflation in spite of relatively reckless monetary policy. Now that inflation is sticking around far more persistently, even long term bonds have gone from 1-2% to 4%+, and so on. Stagflation is a conceivable longer term outcome.

The replacement will probably be a multinational currency with strictly controlled quantity tied to some sort of physical asset(s). Basically Bretton Woods 2.0, except with the learned experience of not just granting a single country immense power and having them pinky swear not to default on their obligations and then abuse that granted power. China's probably betting that that asset will be gold.

[daedrdev]

No, physically backed currencies will not return because physical goods do not correlate with the size of an economy, especially the amount of gold

[rcarr]

We almost got that with Bretton Woods 1.0:

https://en.wikipedia.org/wiki/Bancor

[ajross]

> The replacement will probably be a multinational currency with strictly controlled quantity tied to [...] probably [...] gold.

This is econolibertarian fan fiction. Literally no one wants that except people already involved in speculating[1] on gold. Are there bad externalities to relying on a unlitaterally controlled reserve currency? Yes. Are they made better by handing financial control over to a bunch of fucking mine and vault operators? Let's be real, here.

Basically this idea appeals to people who've convinced themselves they can get rich betting on financial policy and stay rich by burying their loot in their metaphorical backyard.

[1] The very fact that such speculation even exists should be a triple exclamation point red flag on any argument about hard currency, but alas no.

[HPsquared]

With highly liquid capital markets, why wouldn't the dynamics be more like a bank run?

[GenerocUsername]

Imagine how red 100 years of economists faces will be when the world ends up back on a gold backed currency.

Probably only takes 2 years before they start inventing abstractions on top of it and this kicking off the eventually next economic disaster.

[seanmcdirmid]

US Treasuries have terms, if you aren’t refreshing your treasury buys, it is the same as selling them. US treasuries and by extension USD was useful because it could soak up billions of dollars of savings (debt for America) without taking a huge inflation hit (treasury rates were often less than inflation, so you still take some hit).

As for where that money is going now? Other currencies and saving instruments probably..

[827a]

In some ways, this effect can have a positive impact on US citizens; demand for the US dollar requires supply to satisfy the demand. Where does that supply come from? Oftentimes: Printing. The US generally does not make a habit of telling US dollar buyers "no, we don't have any US dollars to sell you", so less demand on the dollar for reserve holdings can have a deflationary impact on its value. This can be combined with lowering interest rates, which creates more domestic demand for dollars, to help balance out the inflationary impacts from that.

Many economists take the stance that being the world's reserve currency is something of a two-edged sword; a curse that does come with geopolitical advantages, but bundles those advantages with significantly more difficult global financial responsibilities.

[rangestransform]

It’s either printing or increasing taxation for constant benefits. We all know what happens when the government tries to increase taxes at all, now try doing it for zero increased benefits. This is a populace that’s had candy for dinner since WW2, and forcing them to eat their vegetables will result in a never before seen level of civil unrest from people of all political inclinations.

[nutjob2]

The Fed most commonly uses Open Market Operations to modify the money supply, with "money printing" or Quantitative Easing used in more emergency situations.

But more broadly your comment doesn't really represent reality, whatever happens in the markets and economy the Fed manages inflation (or deflation) and it's much more complicated than a single relationship like you describe.

More interesting is trade, where the US consumes so much and pays out so many dollars for goods that places like China which run huge surpluses have few choices other than lend it back to the US.

[oblio]

What about US debt? If nobody buys USD anymore, suddenly there will be a lot of excess USD.

[throw0101c]

> What could replace it?

It doesn't necessarily have to be one thing. We've had multi-currency regimes in the past (before one generally took over). See How global currencies work past, present, and future by Barry Eichengreen, Arnaud Mehl, and Livia Chitu:

* https://press.princeton.edu/books/hardcover/9780691177007/ho...

[scythe]

The British pound was displaced by the US dollar. Currently, the US dollar just doesn't have a proper rival. The euro, yuan and rupee are considered politically suspect (each for its own unique reasons); the pound and yen have too small a base. Without further transformation of the global financial system, the only alternative is for banks to hold a basket of currencies, and in such a basket the dollar would likely still play a significant, if reduced, role. This is a slow process because it means changing the nature of currency reserves from a single safe haven to a "nest". What this means for USG spending power is not immediately clear.

[foxrider]

Ok, let's see - yuan isn't a freely traded currency, it's heavily regulated by China. From that alone it can not be used a reserve currency by anyone - unless they want to hand over all control over their assets to CCP.

The rupee is better, but there's not a lot of trust in Indian institutions globally, so black swan events are more likely. I can see it becoming a better proposition as India further matures and taps into its population more.

No, euro - that's a solid contender. Not only it's already used in a lot of countries, and therefore backed by more than one economy, the EU institutions are legit to a fault - they continuously refuse to seize Russian assets, because there's no solid legal grounds for it, despite all political will towards doing so.

That alone makes it far removed from being politically suspect in my book, unless there's some blatant case against the euro that I'm missing.

[quicklime]

Who considers them politically suspect? I’m guessing the people who live in the countries that use them don’t, and on the contrary would increasingly be seeing the USD as politically suspect.

[pandaman]

Treasuries are not some kind of artifacts that can be stored indefinitely, they are bonds with maturity dates. As they mature they turn into cash automatically and that cash used to come from selling new treasuries. As the demand dwindles the US has to sell its bonds cheaper thus borrowing at higher interest and that interest will have to be paid by selling even more treasuries at even higher interest so it's already a feedback loop.

[JumpCrisscross]

> As the demand dwindles the US has to sell its bonds cheaper

To be clear, we see no indication of this. (The Fed reduced its balance sheet in the last 3 years on the order of the GDP of Spain or Brazil [1][2].)

[1] https://www.federalreserve.gov/monetarypolicy/policy-normali...

[2] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...

[AnimalMuppet]

If they stop buying treasuries, that's still a big problem, because the US continues to run a deficit, and therefore continues to need to sell treasuries.

[tmn]

There’s nothing fundamentally stopping all currencies from floating against gold and gold being the base asset

[daedrdev]

If your economy grows by 100 percent, and the supply of gold grows by 10 percent, its a massive problem

[littlestymaar]

Gold is a terrible unit of international money because the supply isn't flexible enough to accommodate any growth in international trade.

Contrary to popular belief, during history gold has always had limited role in the monetary system, because it was too scarce to really be useful (in most of human history, Silver, not gold was the cornerstone of trade, and trade itself was a tiny part of economic activity in an era where most of it was subsistence farming). It's only when banking and paper money replaced silver that gold took a bigger role in the monetary system. The gold standard is in fact an invention of the late 19th century and it didn't last long before it disappeared progressively (the first world war being the beginning of the end).

Unfortunately for us, it just happened to be the period when a bunch of influential economists grew up (particularly Ludwig Von Mises), and like every human being they assumed that the system they grew up with was special and what came after was decadent, an idea that has unfortunately since then become widespread in the general population.

Most people wrongly assume that the key property for a commodity to become the basis of a monetary system is scarcity, but in reality scarcity is a drawback. Money must be abundant enough (too abundant is bad, but too scarce is even worse).

[ogogmad]

Isn't a more modest opinion that gold admits a guaranteed minimum on its price because of scarcity and demand from industrial applications? That guaranteed minimum on its price is what enables it to be used as a hedge against a possible hyperinflation event of the USD. By comparison, the USD, like all other fiat currencies, might not have any guaranteed minimum price.

I'm out of my depth, so apologies.

[quickthrowman]

There is a fixed supply of gold that does not correlate with economic output. It makes zero sense to tie the value of paper money to gold.

[nutjob2]

Only the fact that it would be an idiotic policy that would destroy the economy.

Why would you let your monetary policy be run by gold miners in China, Russia and Australia? They could cause inflation or deflation simply by increasing or decreasing gold production.

Conversely how is the Fed supposed to manage inflation if it runs out of gold?

Gold is an industrial metal, also used in jewelry, not a financial panacea.

[chhxdjsj]

Imagine if there was a gold which could be transferred across borders easily and completely securely within seconds, proof of holdings and ownership could be easily proven, and there was no future risk of gold supply shocks (eg gold asteroid hitting earth or alchemy becomes viable).

[OutOfHere]

All the arguments against gold are completely bogus because there is nothing stopping the price of gold from climbing to meet the economic need. The price of gold was suppressed for a long time by institutions, but this active suppression is increasingly difficult to continue.

As for verification and transfer, that's what electronic shares are for, distributed across a few key physical asset holders.

[Ekaros]

Not buying is same as selling with debt. On long enough time horizon. If the debt is not rolled over anymore eventually you run out of lenders.