[omgJustTest]

Currencies fundamentally relate to some trust.

I believe that the near-term de-dollarization isn't as much trust erosion as it is a tool to provide monetary penalty for behaving in unpredictable ways.

However it will provide incentive to move away from the dollar in the long-term, ie as Fareed Zakaria says "recent actions are accelerating the world to the multipolar future".

[seanhunter]

> Currencies fundamentally relate to some trust.

A quant partner at Goldman said to me once that the thing that's different about currencies relative other normal financial products is whereas you might buy JPMC or oil or a bond because you like JP Morgan or oil or think rates are going to move in a particular direction or whatever whatever, you never just buy the dollar. You are always trading one currency for another eg selling GBP to buy USD. What that means is currencies are always about the value of one currency relative to other currencies.

In that sense they do fundamentally relate to trust and in particular specifically in this case about trust of the US economy and financial system's stability as opposed to other economies and financial systems.

So there have been times (eg during the financial crisis) where people think all currencies are bad but you can't just sell all of them so typically they would sell the other ones for dollars. For me, de-dollarization is about the choice of central reserve banks to hold dollar assets but also about other financial players changing their "default currency denominator" when they're doing this kind of trade.

[tigerlily]

Multipolar? So kind of like Europe before the beginning of World War 1, with major powers all competing with each other?

[Espressosaurus]

Yes, though I expect there to be a European block, the US, and a Chinese block. Russia there as a wildcard. I doubt we see Germany in competition with Britain.

[schmidtleonard]

The interwar era between WWI and WWII is most instructive for what a multipolar currency world looks like. The Pound Sterling still mostly worked before WWI and the Dollar rose in the wake of WWII.

The absence of a currency hegemon caused "Kindleberger problems," named after the economist who described them, and will cause them again. The big issue is that everyone wants to pump exports to pump their real economy, they can't all succeed because the world is a closed system, so they fight. First with tariffs, eventually with guns.

These Kindleberger Problems will get worse until the US gets its shit back together or China assumes the throne. Note that assuming the throne will destroy the export sector that they love so much (Triffin Dilemma), so not only are they not ready today, they don't even clearly want to be ready. Much like the US between WWI and WWII.

Buckle up, because the tariff wars, Great Depression, the economic driving force for the imperialism of Imperial Japan, and other awful things that you've heard of before all fall in the category of "Kindleberger Problems," are all downstream of not having a global currency hegemon, and are likely to rhyme with what comes next.

[kledru]

"world of fortresses" -- Carney today.

[omgJustTest]

This is a complicated and evolving subject that probably isn't well described in a comment, wiki has a good article https://en.wikipedia.org/wiki/Polarity_(international_relati...

[dbuxton]

> I believe that the near-term de-dollarization isn't as much trust erosion as it is a tool to provide monetary penalty for behaving in unpredictable ways.

How is that different from trust erosion?

[omgJustTest]

Monetary penalties are different from trust erosion in that they are the test of whether trust can be restored, ie you are acting very unpredictable => I am going to show you I'm paying attention and hit you with a penalty and watch your response. If you continue to show you are unpredictable => I plan an exit so that I don't _have_ to trust you, ie trust erosion.

Ultimately if there's too much unpredictable behavior the pain endured will become higher than the pain of eroding trust... which if trust was truly eroding would be signaled by establishment of monetary systems independent of the US, probably with the International Monetary Fund as a base, backed by at least India, China & Europe.

[andix]

The difference is emotionally based retaliation vs. reassessing risk. And it's about money, so it's for sure not about emotions. The financial world isn't run on anger and emotions, like the White House.

[andix]

> I believe that the near-term de-dollarization isn't as much trust erosion as it is a tool to provide monetary penalty for behaving in unpredictable ways.

Sure, everyone else is also acting based on childish emotions now, not just the US president. It's not about retaliation at all, it's about reducing suddenly very imminent risks.