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Strategies & Market Trends : The Art of Investing -- Ignore unavailable to you. Want to Upgrade?

To: stuffbug who wrote (6942)	4/7/2023 11:00:53 PM
From: Sun Tzu	Respond to of 10711

>> the number 1 factor propping up the dollar as a reserve currency, and will continue to do so for the rest of this decade, is the mammoth, liquid and trusted treasury bond market. In general I agree with you, and I listed this as a key reason for the USD to remain the reserve currency for now. But the issue is nuanced and this is a good place to address that. Free market value is decided by the marginal buyer. This point is often lost on people. This is essentially how market tops happen in any security. The vast majority of the shareholders may still believe in their bank or tech company whose stock they hold, but because the market cannot absorb the relatively little surplus, it tanks. Similarly, there are trillions of eurodollars around. But what will happen to the USD value if say there is a meager surplus of 0.1% in a quarter? Prices will deteriorate rapidly. Someone will step in and buy it at a bargain. But then it happens again. And before you know it, it will not be considered as stable or liquid anymore. How can this happen in reality? Well, if countries start trading in their local currencies or via barter and/or OPEC stops quoting oil exclusively in USD, then the marginal demand will shrink and the US government won't be able to run as huge of a deficit as it has been. That will create a lot of pain for Americans even though the USD will still remain the reserve currency and the least dirty laundry. This is your typical black swan event. It is not likely to happen at any given time. But when it happens, it will have an outsized impact. And as I said, 2030 +/- 3 is a pretty good estimate. 2035 +/-7 is a near certainty, imo. >> I think the next reserve currency won't be issued by single country - perhaps a basket approach such as the SDR proportionately backed by BRICS countries. I agree. The best viable option, is a trade weighted basket of currencies and commodities. The key question is who will be the organization to manage and clear it. >> Read a tweet on Central Bank gold purchases. 2022 was a record year: +1,136 tonnes There is only one reason for buying gold - lack of trust in the other currencies. This is an example marginal shrinking demand for USD as a reserve currency. #ticktock