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PaperclipPerfector  15d ago (text post)   32209 thread views

Culture War Roundup for the week of April 7, 2025

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https://www.stlouisfed.org/timely-topics/how-much-u-s-currency-held-abroad-why

Currently, non-U.S. residents hold a little bit over $1 trillion in U.S. currency, and that’s about 45% or almost 45% of the total amount of U.S. currency that’s held.

foreigners holding our currency abroad are essentially making an interest-free loan to the United States …

So currency is like a government bond, but it’s a government bond that pays no interest. So if, for example, an American tourist were to go someplace in the world where U.S. dollars were accepted in exchange for payment for hotel services or restaurant services or some sort of trinkets or souvenirs, then you know if the U.S. tourist shows up in Jamaica and pays some place for souvenirs with U.S. dollars, then the U.S. tourist is getting something of value that is in exchange for little green pieces of paper that cost the United States more or less nothing to make.

Now, if the owner of the souvenir shop in Jamaica just circulates that currency within Jamaica and it stays there forever, then Americans have gotten goods and services of value — souvenirs or tourism services — in exchange for something that costs us more or less nothing. But if, say, in 10 years, somebody in Jamaica decides to take those U.S. dollars and exchange them for U.S. goods and services, then what the United States has done is gotten goods and services for 10 years in exchange for almost nothing, and then 10 years later, we have to pay for them, say, in terms of goods or services or other assets. And so we’ve gotten a 10-year interest-free loan for the amount of the currency that was paid for the original souvenirs.

Yes. Then the question is why would anyone in Jamaica (or anywhere) not chose to go on their favorite FOREX platform and immediately convert it to something else. Presumably holding or circulating dollars is a good deal in some fashion, and provides some benefit or else people wouldn't do it.

[ I can think of a number of such reasons, but it kind of doesn't matter given that they all have that choice. ]

Because everyone else’s fiat currency depreciates even faster and is all around worse than the dollar. This is just how fiat currencies are designed.

The slow and steady transition to bitcoin & hard money is marching forward…

The promise of hard money is that individuals can accumulate wealth by saving without needing to invest. Since society as a whole cannot do this, hard money systems are inherently unstable. They normally end with a coalition of indebted warriors and merchants liquidating the token-hoarders when the burden of trading real resources for tokens becomes intolerable.

The majority of the population who are not bitcoin speculators have no reason to hand over $3 trillion of real economic value to bitcoin speculators, so they probably won't.

Can you explain how moving to bitcoin & hard money would prevent the same slide into fractional reserve banking that happened under the gold standard? I’ve always thought that was the biggest problem with it.

The classical Gold Standard didn't slide into fractional reserve banking. Fractional reserve banking was baked into it from the start - the Bank of England was founded in 1694 with the explicit mission of generating a float that would be lent to the Crown in order to fund the rebuilding of the Royal Navy.

You can download historical data on the BoE balance sheet here. I calculated the bullion-to-base-money reserve ratio by dividing "Coin and bullion" assets (column O) by the sum of "Notes in circulation" (column S) and "Bankers' deposits" (column AE - this is commercial bank reserves viewed as liabilities of the central bank). The ratio oscillates between 60% and 80% during the classical Gold Standard era (roughly 1844-1914 in the UK), drops during WW1, returns to the target range in the 1920's, and then goes off a cliff due to Depression-era money printing.

To that 1T$ of foreign held dollars, you want to add the foreign held portion of the US debt (which totals 36T$), which seems to be 7.9T$. Debt will just turn into freshly printed dollars at some point in the future, so it is kinda similar to holding currency.

Of course, the GDP of the US (in 2023) was 27.7T$, so from my naive point it does not seem to be that big of a deal -- if you owe a third of a year worth of productivity, it hardly seems that you are hopelessly over-debt. It might be that the valuation of the GDP is off by some huge factor (god knows what the worth of a finance firm should be), but then the valuation of the US$ is likely off by a similar factor, so this would not change the ratio all that much, I think. One of the merits of having your debt denominated in your own currency.

Of course, this is just the feel I get from five minutes of googling, so I could be terribly wrong.

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