Summary:
What is the world’s reserve currency? It is a status earned by a country’s currency because it is the most relied upon for trade, savings, and economic transactions. Currently, the U.S. dollar holds the status of the dominant world reserve currency, surpassing other competing currencies, including the euro, yen, pound, renminbi, Canadian dollar, Swiss franc, and the Australian dollar. The U. S. has held the status of the dominant world reserve currency since 1944.
The flawed system has led to an insolvency problem in the U.S. due to the continuous accumulation of debt and the payment of interest on the debt by issuing more debt. The entire American enterprise is bankrupt, morally, ideologically, spiritually, and economically. Few will discuss it because they are the beneficiaries of a radically skewed system that favors the top tier of financial interests. At the other end of the economic system lies a gigantic welfare and redistribution system that the unproductive and parasitic classes gladly feast on, operated by profiteers, while acting as a downward drag on the economy overall. Fifty percent of the national budget is allocated to social services, welfare, and the redistribution system.
Article:
This status is deserved but is also transitory without systemic change. It can be replaced at any time due to failure to manage the full faith of the currency properly. BRICS is the current bundle of currencies competing against the dollar.. It is arguable whether competing currencies are good or bad. Still, one thing is clear: deficit spending would cease if no one were willing to finance the U.S. deficit spending extravaganza. Inflation would cease.
The currency includes those held on deposit by the U.S. central bank and large, regulated financial institutions, which are intended for investments, international trading transactions, and the settlement of international debt obligations, as well as those currencies held by ordinary people worldwide. A reserve currency serves to influence/affect the domestic exchange rate with currencies from other countries. The U.S. currently has the status of the world’s reserve currency due to prior agreements and the continued strength of the dollar.
Competing for the position of the world’s dominant reserve currency:
Groups of countries are constantly competing to disrupt the reserve currency status and replace it with one that they and their partner countries control. Brazil, Russia, India, China, and South Africa formed the BRICS. Twenty-two countries have applied for membership.
https://en. wikipedia. Org/wiki/Reserve_currency
https://en. Wikipedia. org/wiki/Member_states_of_BRICS
Historically, the status of the holder of the primary world reserve currency at an international level may come and go, be shared with top competing currencies, or be replaced entirely with a different one For example, the International Monetary Fund, an international organization that was created at the same time the Bretton Woods Accordwas implemented, established a system referred to as special drawing rights, where the participant members could borrow, like how US-regulated lenders could borrow from the Federal Reserve.
The (SPR) basket is determined by predetermined formulas from currencies of the U. S. Dollar, Euro, Chinese Yuan, Japanese Yen, and Pound Sterling. The fixed number of units contributed by each currency is reevaluated every five years. The IMF was established initially by 29 participating countries at the Bretton Woods Conference, and the SDR basket is a key component of the international monetary system, providing a benchmark for the value of different currencies.
Today, its population has grown to about 183 countries. Any new currency standard could be negotiated between the stakeholder participants or forced upon them, depending on the form of government involved.
https://www. investopedia. Comm/terms/r/reservecurrency. asp
https://en. wikipedia. Orgg/wiki/Reserve_currency
https://home. Treasury. Govv/system/files/206/Appendix1FinalOctober152009. pdf
The Bretton Woods Accord: The gold standard
How did the USA attain the status of the world reserve currency holder? After World War II, a new international financial system was established through a formal agreement at the Bretton Woods Conference, which became known as the Bretton Woods System. Participants, which included world leaders, consisted of representatives from 44 different countries in 1944. The USA negotiated that the dollar should be held as the world reserve currency because the U. S. agreed that Gold would back the dollar. At the Goldtime, the U. S. had the largest supply of Gold and was a significant industrial power that ran a trade surplus. Gold was pegged at $35 per ounce. The U.S. negotiated anchor status because it guaranteed to other central banks that it could sell its Gold reserves for settlement purposes.—Any conflicts arise between the economic interests of short-term domestic objectives and long-term international objectives.
At the same meeting in 1944, the World Bank was established with significant input from the United States, solidifying its role as a crucial source of financial aid for developing nations. The goals were to provide financial resources to create a path of stable, sustainable, and equitable growth, thereby lifting countries out of poverty. The World Bank is an independent organization of the United Nations, and the U.S. has a tremendous influence on its operations and success.
The Bretton Woods Accord and the gold standard fell apart:
Today, there is significant pressure from financial stakeholders around the world that suggests the U. S. is about to lose its status as a world reserve currency holder.
The two primary reasons are:
#1: In 1971, President Richard Nixon unilaterally canceled the gold standard conversion option. He meant that Gold would no longer support all future transactions backed by or pegged to the Gold dollar, but only by the full faith and credit of the U. S. Government. At that point, the Bretton Woods system effectively fell apart. The potential shift away from the dollar is a pressing issue that could significantly alter the global inflationary landscape, potentially leading to inflation and financial hardship.
Historic Deficit Spending Since the creation of the Federal Reserve System in 1913.
#2: The U.S. has historically financed its deficit spending by continually issuing new debt instruments that international financial participants have been forced to purchase, whether willingly or not. This historical context is crucial to understanding the current economic situation. Other countries have effectively been forced to finance U.S. deficit spending and remain quiet about excesses and wastefulness. The reliability of other countries continuing to invest in our debt has come to an end. Understanding this historical context is key to grasping the current economic challenges the U.S. is facing. And, just like China, the U. S. operates a one giant Ponzi scheme.
The U.S. collects approximately $5 trillion in taxes and spends around $7.55 trillion on all government programs and debt services, including accrued direct debt. The budget shows the creation of instruments worth between $X and $Yan Y annuallyThat has compounded to approximately $40 trillion in direct debt, which is expected to be paid back by the U.S. Additionally, the U.S. has off-balance-sheet accrued debt obligations, including unfunded pension obligations, Medicare, Medicaid, and financial obligations, amounting to approximately $15 trillion.T he $15 trillion in the above direct debt and accumulated unfunded future obligations are accelerating at an alarming rate. Financial participants worldwide are increasingly expressing dissatisfaction with being forced to use the dollar to complete business transactions and settle their debts. This growing discontent is a clear indication of the changing global economic landscape and the urgency for the U.S. to address its fiscal policies, as it suggests a potential shift in the international monetary order.
Spoiled Children Always demand preferential treatment:
Many see the U.S. as a spoiled child, having used the negotiated superior status of the dollar to gain additional unearned advantages. Many of the world’s economic participants believe that the U.S. standard of living is financed on the backs of non-beneficiaries and operates from a false sense of privilege. As stated above, the major economic powers, including China, Russia, India, Turkey, Brazil, the EU, and others, are currently attempting to replace the dollar-reserve exchange system with a different one. They will most likely use a combination of national currencies to create the new reserve system. They intend to circumvent and make the U. S. system just another competing currency.
Most Americans have grown accustomed to the U.S. having a strong dollar and a high standard of living as a result. The government has financial tools available to prop up or weaken the dollar as desired. But what will happen one day when the U.S. wakes up and realizes that its privileged status has been circumvented? What happens when world economic participants refuse to buy any more of the U.S.’s compounded debt? This may occur over an intermediate time frame, such as 3 to 5 years. Some will argue that the end is closer. The spoiled rotten kids are going to be knocked down quite a few notches. The potential loss of this privileged status is a stark reality that the U.S. must address.
The injection of Fiat Currency causes inflation, which causes the erosion of purchasing power, which keeps ordinary people on a financial treadmill:
The value of the dollar will drop like a rock. The U.S. government has only a limited number of financial tools to support the dollar. Suddenly, the U.S. would be forced to get serious about eliminating deficit spending and cutting up the unlimited credit cards. You can imagine the day when our leaders must tell the population the unpalatable truth that the U.S. will cut spending by 25% across the board. You have heard the term squealing pigs.
All the false entitlements, unearned freebies, corporate crony handouts, tax preferences for friends of the system, and free lunches will cease to exist. Since about two-thirds of the population currently looks forward to government transfer payments and redistribution benefits in multiple forms, there could be riots on the streets. You can’t take away what I am entitled to, even though I didn’t earn it.
All products, goods, and services will cost more because the value of each dollar will go down. We are experiencing that daily. The extent to which the dollar’s purchasing power will depreciate remains to be seen. It is assumed that our purchasing power could decrease by 40% to 50% over a 3- to 5-year time frame. The question remains when. Also, if nothing is done, hyperinflation will eventually erode the quality of life in America, except for the top 1% who will continue to make money on financial repression.
The question remains. n Also, if nothing is done, hyperinflation will eventually erode all quality of life in America to a peasant status, except for the top 1% who use high-leverage strategies, while governments around the world continue down the path of systematic financial repression.
The key for the public is tto utilizetheir resources tand enhancetheir skill sset, therebyeearning more ratherthan aaccruingdebt.