[lbo-talk] Prospects and consequences of a devalued USD

[Marv Gandall]

That's a good explanation of the deeper trend. My sense is there is a lot of closed door consensus and collusion going on between the Fed, PBOC, and other central banks about the need to gradually diversify out of the USD, which a freely convertible and revalued yuan/renminbi would greatly facilitate. But, as you suggest, there are entrenched economic interests and trading patterns in the world economy which are inhibiting that shift.

On 2010-02-01, at 12:24 PM, Julio Huato wrote:


> Doug Henwood wrote:
> 
>> So why has the dollar been
>> holding up despite that?
>> Might it be that no one
>> else is in such great shape
>> either?
> 
> The main reason, IMO, doesn't have to do with short-run expectations:
> where each country is expected to be in its business cycle.  It's
> about timing the switch to a new global currency for good.  Absent
> credible international monetary agreements, the switch can only happen
> by crisis.  Because, as economists say, the reign of a global currency
> is a self-referential dynamic system.  Like a lingua franca, a
> computing platform, a network, etc., the system has multiple
> equilibria.  At one extreme, everybody uses it because everybody else
> uses it.  At the other extreme, nobody uses it because nobody else
> uses it.  For the time being, and to the extent the victims of the USD
> can't credibly collude to dump the USD (because they are differently
> tied to the fate of the U.S. economy), the USD is safely entrenched:
> there are some upfront "transaction costs" that will fall on those
> first switching to another denomination.  But, unless the U.S.
> miraculously reverses the geo-economic trends of the last half a
> century, it is bound to happen.
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