The huge problem with reserve currency system is that it
puts one country (USA, in this case) in a very privileged
position - it can print the reserve currency, and exchange
it for real goods and services. This obviously can't last
forever, even though it did last for a very long time.
Historically the time frame of one lifetime is
short. For example, communism/socialism is an economic system
that does not work, yet it lasted one lifetime. Eventually
it had to collapse. I think the collapse of reserve currency
system has already started when the Euro was introduced. The
sole purpose of the Euro was for Europe to get in that
advantageous position of printing a currency and exchanging
it for real goods and services, competing with the dollar.
However, SOMEONE has to produce goods and services. We
are now at a point where the imbalances between countries
that produce goods and services (oil exporters, Asia) and
reserve currency countries (USA, Europe) have become enormous,
even though so far the "two-party" USD/EUR system keeps the
system running. This can't last forever.
I would argue that the huge boom in Europe was a direct
result of Euro gaining on the dollar as a reserve currency.
Any currency with a current account deficit in excess of
3% would already collapse. Not the USD, so far, because
of the reserve currency status. However, ultimately, the
loss of reserve currency status could make the collapse worse,
not better, since US has (mal)adjusted its economy in a major
way - the manufacturing is virtually gone. |
