Only China has the GDP to replace USA. So while the answer isn't written in stone, it looks like it'll be China, or since China favors UN governance, maybe we'll move to an old discarded idea (because it didn't serve American interests) like an international currency system that Keynes favored.

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

Recall that America is currently attacking Iran without provocation and is aiding a genocide.

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Arubis 10 hours ago | parent | next [-]

China probably has the fiscal firepower to replace Eurodollars, but while their financial system remains split between "internally used currency" and "currency for everyone else" and while external investment is treated with deep suspicion and harsh rules, it would be limited to liquidity and exchange purposes. Nobody wants to hold a currency like the yuan over an appreciable period of time. That might be enough; that confers a lot of power and influence to the currency issuer. But definitely different ground than US Treasuries cover.

Historically this is also where we'd insert something into the conversation about who gets to hold the moral high ground, but as you've noted, that's something the current US administration has abandoned entirely.

	▲	stickfigure 10 hours ago \| parent [-]
		China is actively broadcasting its plans to start the next Russia/Ukraine conflict. There is no moral high ground there.

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internet-390 10 hours ago | parent | prev | next [-]

No, China's economy is not setup to be a reserve currency. To be a reserve currency other countries need to have a stockpile of it to trade with 3rd party countries.

The only way for other countries to have the RMB is either China has to start issues massive amounts of bonds (doubt they'll be okay with foreign government owning their debts) or they stop being an export driven economy (this is because all the money goes back to China, and RMB is unable to actually leave the country if you're in a trade deficit with China) . Neither of which seems likely.

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carefree-bob 10 hours ago | parent | prev | next [-]

You are confusing being the world's biggest net exporter with being the world's biggest net importer.

But they are the opposites of each other.

So it's fair to say that China is the exact opposite of what it would take issue a reserve currency.

Let China spend a few decades running net trade deficits, let it open its capital market so the CNY fully floats, and allow unfettered foreign capital inflows and outflows for a few decades.

Then we can have a discussion about how it can be a dominant reserve currency.

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wahern 8 hours ago | parent [-]

The US was a net exporter for most of the time it was a de jure and de facto reserve currency, up until the dollar was floated (i.e. end of gold convertibility). IOW, it was arguably the reserve currency status that drove the trade deficits, not the other way around. The effect was muted by the artificial constraint of gold convertibility, but the pressures from that restraint manifested in other problems, culminating in a currency crisis and Nixon's decision to end convertibility. That unleashed the deflationary pressures caused by reserved status, accelerating the shift to goods imports.

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7 hours ago | parent | next [-]

[deleted]

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carefree-bob 6 hours ago | parent | prev [-]

> The US was a net exporter for most of the time it was a de jure and de facto reserve currency, up until the dollar was floated (i.e. end of gold convertibility).

No, the US ran a goods surplus but a current account deficit.

If we look at US history, we can divide it into a few periods:

revolution to civil war: US is a net debtor, running goods deficits and borrowing from europe.

1870 - Great Depression/start of WW2: US is running goods surpluses (of about 1% of GDP) but continues to heavily borrow from Europe.

Post WW2 - Bretton woods. US is suddenly the world's biggest creditor, and it's good surplus rapidly declines to a deficit, forcing the US off the gold standard.

That middle period puzzled a lot of economists, because the balance of payments identity says that the current account plus capital account must sum to zero, so if the capital account is positive (continues to borrow from Europe) then the current account must be negative. But here we have reports of the US running a goods surplus! Well, the problem is that even though there was a goods surplus, the current account was negative. The US owed so much money in dividend and interest payments that the money earned from the goods surplus wasn't enough and the US kept getting deeper in debt to Europe throughout this period, which meant that Europe was a net accumulator of US liabilities even though the US ran a goods surplus.

And it was the fact that Europe kept accumulating US liabilities that allowed the these liabilities to be traded as an effective reserve currency. If the US was not getting its liabilities into the hands of the europeans, then there is no way US liabilities could possibly be used to settle international trade. This should be a no brainer.

Now a lot of crazy stuff happened during the stock market crash and capital flight during WW1 and WW2 that turned the table on the Europe, so the US ended up in a situation where, very suddenly -- as in, over the course of just a few days -- it became a net creditor to Europe, but that necessitated the Marshall plan, where the US needed to flood Europe with dollar claims -- which were gifts, not investments -- in order to prevent the European economies from grinding to a halt in the immediate aftermath of WW2, and then the US goods trade deteriorated so that we had to go off the gold standard. Thus the period from the end of WW2 to the end of Bretton woods should be viewed as an anomalous disequilibrium period of adjustment, and if you look at US current account data, you see a fairly rapid decline because the US goods surplus during the WW2 period was artificially inflated by counting munitions and war material as exports, but these exports were "paid" for by loans that were forgiven, and this, together with the Marshall plan, is what screws with traditional readings of the balance of payments identity in that WW2-end of Bretton woods period.

Bottom line, if you want to run trade surpluses and be a reserve currency, you need to be giving away more claims than are necessary to buy your goods, because at the end of the day, the rest of the world has to be a net accumulator of claims on you in order for those claims to be a reserve currency.

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nostrademons 6 hours ago | parent | next [-]

Huh, interesting. During the ZIRP period (~2016-2017), I remember suggesting somewhat tongue-in-cheek here that the rational response to negative interest rates is to borrow as much money as possible, use it to raise an army, and then go conquer the people who loaned you the money. It sounds like that is actually what the U.S. did, except with a dose of diplomacy that got them to exhaust themselves fighting each other first.

It's kind of the historical embodiment of "Owe the bank $100, and you have a problem. Owe the bankers $100T, and they have a problem."

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wahern 4 hours ago | parent | prev [-]

According to this the US nominally ran a current account surplus until the 1970s: https://www.bea.gov/sites/default/files/2024-03/trans423-ann...

Which is what you'd expect if you're exporting more than importing. Perhaps you meant by some other accounting, which is what I was alluding to regarding the distortion caused by gold convertibility. Ceteris paribus, the trade & account balance will zero out over time in the absence of some kind of regulatory or similar distortion. China doesn't need to be a net importer to become a reserve currency, but if they became one (deliberately or otherwise) and allowed their currency to float than in time their exports would tend to fall and they'd likely become a net importer, at least if they became the dominant reserve like the US. (If they didn't float, you'd get a mess like the US had.) The reserve status can drive the balance of trade toward net importing. Which is precisely why China doesn't really want to become a global reserve currency. They'd certainly like the soft power that would bring, but they don't want the domestic employment disruption the US suffers from. That doesn't stop them from wanting their cake and eating it, too; they can try, but nobody really believes they could, so nobody takes it seriously. Though it's not necessarily an all or nothing deal. I'm not sure the world needs a single reserve currency as dominant as the dollar. We have markets to arbitrage and balance currency valuations, including future expected valuations. A singular dominant reserve currency is helpful to reduce friction, but less so when you have huge, global currency and currency derivatives markets constantly trading.

	▲	fragmede 3 hours ago \| parent [-]
		The Louvre Accord and the Plaza Accord before that, in the 80's, are of a different time and place.

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rdm_blackhole 10 hours ago | parent | prev [-]

It will not be China as it doesn't have a floating currency. That is one of the prerequisites for becoming a reserve currency, that and removing capital controls.

Finally there has to be a certain willingness from other countries to accept this new currency and I just don't see the EU countries conducting all their international trade in yuan anytime soon.

Finally replacing the USD is just one part. The second part is how to stop the next currency from being weaponized just like the USD is/was. Without the answer to that question, then switching to a new reserve currency is just replacing one problem with another.

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nostrademons 10 hours ago | parent [-]

Bitcoin as the new Bancor.

A stable, simple cryptocurrency is ideal for this. Not only is it not controlled by any nation state, it's not controlled by anyone. It's just there, a tradable asset that has mathematically-defined rules for how many will ever be created. Also gets around the Triffin Dilemma by not being used as a national currency, or for general consumer purchases.

The international settlement use-case also gets around two of the traditional weaknesses of Bitcoin. The fact that it's deflationary is not concerning when used as a unit of international settlement, because national currencies can be made to be inflationary to spur consumer activity, and then just float relative to Bitcoin. And its low TPS limits also don't matter much when it's only used for general international settlement between large financial entities, rather than as a payment coin for ordinary consumer purchases.

	▲	watwut 9 hours ago \| parent [-]
		Bitcoin is used for two things - speculation and crime. It is highlynvolatile Not a good reserve currency.