The export driven economies like China or the EU rely on the dollar to weaken their own currencies for competitive trade. Without it, natural FX mechanisms would naturally begin to appreciate their currencies and make their exports uncompetitive.
>"The export driven economies like China or the EU rely on the dollar to weaken their own currencies for competitive trade"
I have about zero clue how finances really work but it looks to me as the statement is only true if the dollar is the predominant currency for international trade. This looks to be slowly changing for various reasons.
>This looks to be slowly changing for various reasons.
Well, not really, because obviously that deprecation via buying government treasuries is balanced by the appreciation in the other currencies. But if everybody (large enough to matter) dosen't want their currency to appreciate, if somebody buys Japanese bonds for example to weaken their own currency, then Japan will buy somebody else's treasuries to offset the increase in Yen, and if we go to the long chain of musical chairs of people offsetting each other's behaviours, it just leads back to the USA as the only ones both large enough and willing to take in those capital inflows.
That's not a interpretation mind you, that's a description of what central banks are doing right now. If that has to change, you need somebody willing to take the mantle of the absorber of global deficits, and nobody wants to do that.
FpUser|1 month ago
I have about zero clue how finances really work but it looks to me as the statement is only true if the dollar is the predominant currency for international trade. This looks to be slowly changing for various reasons.
corimaith|1 month ago
Well, not really, because obviously that deprecation via buying government treasuries is balanced by the appreciation in the other currencies. But if everybody (large enough to matter) dosen't want their currency to appreciate, if somebody buys Japanese bonds for example to weaken their own currency, then Japan will buy somebody else's treasuries to offset the increase in Yen, and if we go to the long chain of musical chairs of people offsetting each other's behaviours, it just leads back to the USA as the only ones both large enough and willing to take in those capital inflows.
That's not a interpretation mind you, that's a description of what central banks are doing right now. If that has to change, you need somebody willing to take the mantle of the absorber of global deficits, and nobody wants to do that.
the_duke|1 month ago
So a 100bn deficit out of 800bn total US imports.
The deficit is there, but it's not nearly as lopsided as some reporting would have you believe.