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The Growing Revolt Against the US Dollar

Wendover Productions・18 minutes read

Currency exchange is crucial for international trade, with the US dollar dominating transactions due to its widespread acceptance. While there are potential challengers like a BRICS currency or China's yuan, various obstacles hinder their ability to replace the US dollar as the primary global reserve currency.

Insights

  • The US dollar is the most widely used currency globally, with 88% of transactions involving it, due to its control of world gold reserves post-World War II, solidifying its dominance in international trade.
  • Despite potential challenges from a BRICS currency, dedollarization trends, and the rise of China's yuan, the US dollar's position as the primary global reserve currency remains strong, supported by its openness, accessibility, and the absence of overwhelming international consensus against its use.

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Recent questions

  • How do Americans obtain British pounds for purchases?

    Americans can obtain British pounds by finding a British individual interested in buying something in America and willing to exchange US dollars for British pounds. This exchange allows Americans to acquire the necessary currency for transactions in Britain, facilitating the process of buying goods and services in the country.

  • Why is the US dollar involved in 88% of transactions?

    The US dollar is involved in 88% of transactions due to its widespread acceptance and stability in the global market. With 180 UN-recognized currencies available, finding a willing partner for currency exchange can be challenging, leading many individuals and businesses to opt for the US dollar as a reliable and commonly accepted currency for international transactions.

  • What factors contributed to the pound sterling's dominance?

    The pound sterling became a dominant reserve currency due to the extensive reach of the British Empire and London's status as a financial hub. By 1900, the pound sterling accounted for 62% of world reserves, solidifying its position as a key global currency for trade and financial transactions.

  • Why did the Euro fail to surpass the US dollar?

    The Euro failed to surpass the US dollar as the global reserve currency due to challenges such as the European debt crisis and lower confidence in its stability. Despite initial speculation, the Euro's inability to overcome these obstacles hindered its potential to replace the US dollar in international trade and finance.

  • What obstacles does a BRICS currency face in challenging the US dollar?

    A BRICS currency faces obstacles such as strained relationships among BRICS nations and limited adoption in Western countries. While the scale of BRICS economies and trade surplus could challenge the US dollar's dominance, these barriers may impede the successful establishment of a new global reserve currency.

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Summary

00:00

Evolution of Global Currency Systems

  • To buy something in Britain, Americans need British pounds, which can be obtained by finding a British person wanting to buy something in America for US dollars.
  • Currency represents value exchange for goods and services, allowing trading of two currencies of equal value.
  • Despite the exchange value equivalence between the Swedish Krona and Samoan Tala, trading them is hindered by low import levels between Sweden and Samoa.
  • Samoans can circumvent this by converting Talas to US dollars due to significant trade flow between Samoa and the US, making it easier to then convert to Krona.
  • With 180 UN-recognized currencies, finding a willing partner for currency exchange can be challenging, leading to 88% of transactions involving the US dollar.
  • Throughout history, dominant currencies like the Venetian ducat and Florence florin facilitated trade due to their consistent value and widespread use.
  • The Spanish real became a global currency due to the abundance of silver from Potosi mines, making it a reliable option for commercial transactions worldwide.
  • Dutch guilders gained prominence in Europe due to stability, trustworthiness, and ease of transacting, with 85% of European banks accepting them by the mid-18th century.
  • The pound sterling became a dominant reserve currency due to the British Empire's global reach and London's financial hub status, accounting for 62% of world reserves by 1900.
  • The US dollar's rise as the primary global currency post-World War II was solidified by its control of world gold reserves, leading to its continued dominance in international trade.

12:15

BRICS Currency: US Dollar Challenger or Hurdle?

  • Economists predict that a BRICS currency could challenge the dominance of the US dollar due to the scale of their economies and trade surplus, with the upcoming BRICS summit in August 2023 focusing on this topic.
  • The Euro, once speculated to become the global reserve currency, failed to surpass the US dollar due to the European debt crisis and lower confidence in its stability.
  • Evidence suggests a trend of dedollarization, with a decline in the share of US dollars in central bank reserves, but it remains uncertain if this marks a significant shift or a temporary anomaly.
  • The potential for a BRICS currency to replace the US dollar faces obstacles, including strained relationships among BRICS nations and limited Western adoption.
  • China's yuan has potential but faces restrictions on international movement, hindering its challenge to the US dollar's role as a reserve currency.
  • The US dollar's openness and accessibility, compared to the yuan's restrictions, solidify its position as the leading international reserve currency, with two scenarios potentially leading to its decline: a massive economic collapse in the US or overwhelming international consensus against the US's use of the dollar.
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