How global currencies work
"At first glance, the modern history of the global economic system seems to support the long-held view that the leading world power's currency--the British pound, the U.S. dollar, and perhaps someday the Chinese yuan--invariably dominates international trade and finance. In How Global Currencies Work, three noted economists provide a reassessment of this history and the theories behind the conventional wisdom. Offering a new history of global finance over the past two centuries, and marshaling extensive new data to test established theories of how global currencies work, Barry Eichengreen, Arnaud Mehl, and Livia Chiţu argue for a new view, in which several national monies can share international currency status, and their importance can change rapidly. They demonstrate how changes in technology and in the structure of international trade and finance have reshaped the landscape of international currencies so that several international financial standards can coexist. They show that multiple international and reserve currencies have in fact coexisted in the pastupending the traditional view of the British pound's dominance prior to 1945 and the U.S. dollar's dominance more recently.
Stats for nerds
3recommend
5mentions
3people
2021–2025years
80% recommend20% neutral
Mentions per year
What Hacker News says
- > What could replace it?
It doesn't necessarily have to be one thing. We've had multi-currency regimes in the past (before one generally took over). See How global currencies work past, present, and future by Barry Eichengreen, Arnaud Mehl, and Livia Chitu:
* https://press.princeton.edu/books/hardcover/9780691177007/ho...
- See also Money: The True Story of a Made-Up Thing
* https://www.goodreads.com/book/show/50358103-money
And The Power of Gold: The History of an Obsession (2e has an intro from Volcker):
* https://www.goodreads.com/book/show/249245.The_Power_of_Gold
With all the talk of the US dollar losing its status (highly unlikely due to no realistic alternative), How Global Currencies Work: Past, Present, and Future on the history of various previously predominant currencies is also interesting:
* https://press.princeton.edu/books/hardcover/9780691177007/ho...
- How global currencies work past, present, and future by Eichengreen has a good history of currencies (from a European perspective). There were a few times when there were multiple currencies being used, and the ones used were the ones related to the countries who had the largest trade networks / 'colonies'. Of course credit was used a lot as well over long distances so folks didn't have to lug things around (Debt: the first 5,000 years by Graeber). Various cities vied between each other for the most transactions and business; Capitals of capital by Cassis has a modern era history.
Before that, gold and silver were often used as lowest common denominators internationally. See The power of gold: the history of an obsession by Bernstein for that. However metals weren't used everywhere: e.g., China used paper currencies for many years, and giant rocks where used in Micronesia:
* https://en.wikipedia.org/wiki/Rai_stones
Money: the true story of a made-up thing by Goldstein has a good pop-history overview.
Power often didn't come into play for currency choice, and neither did things "implode" as opposed to a gradual shifting in preference amongst currency users.
- > The normalcy bias of people combined with the pure arrogant hubris that the USD can not collapse will lead USD collapse
Reserve currencies do not "collapse", they get replaced. The GBP didn't collapse for example: over the course of decades the USD came up and for many years they were used equally.
So if the USD is to be replaced, the obvious question is: with what? EUR? CNY/RMB? JPY? Other? A mix?
For a paper on possible multi-currencies, see Eichengreen 2014:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2580651
For a good historical overview see How global currencies work past, present, and future by Eichengreen, Chitu, Mehl.
> The history of the world shows empires collapse. To believe the US is somehow immune is moronic
The US is not an empire. It is a hegemony: it simply exerts (exerted?) influence because of the size of its economy relative to everyone else, and it was willing to spend a whole bunch of money to basically keep the peace.
> The world has already sent a singal we have too much debt and too much spending as they have stopped buying our debt so the fed has to buy it all with money created from thin air
What signal would that be?
The US Treasury sells bonds to interested buyers, and the Fed then gets the bonds on the secondary market. No one has stopped buying US bonds.
Further, the purchase are done with US Fed reserves, which are not "real" money as they do not enter the economy and simply sit in the accounts that institutions have at the Fed.
- Why does there have to be a "war"? There have been times in history when multiple currencies have been used in parallel for international trade.
See How Global Currencies Work: Past, Present, and Future by Barry Eichengreen, Arnaud Mehl, and Livia Chitu:
> At first glance, the modern history of the global economic system seems to support the long-held view that the leading world power’s currency—the British pound, the U.S. dollar, and perhaps someday the Chinese yuan—invariably dominates international trade and finance. In How Global Currencies Work, three noted economists provide a reassessment of this history and the theories behind the conventional wisdom.
> Offering a new history of global finance over the past two centuries, and marshaling extensive new data to test established theories of how global currencies work, Barry Eichengreen, Arnaud Mehl, and Livia Chiţu argue for a new view, in which several national monies can share international currency status, and their importance can change rapidly. They demonstrate how changes in technology and in the structure of international trade and finance have reshaped the landscape of international currencies so that several international financial standards can coexist. They show that multiple international and reserve currencies have in fact coexisted in the past—upending the traditional view of the British pound’s dominance prior to 1945 and the U.S. dollar’s dominance more recently.
> Looking forward, the book tackles the implications of this new framework for major questions facing the future of the international monetary system, from whether the euro and the Chinese yuan might address their respective challenges and perhaps rival the dollar, to how increased currency competition might affect global financial stability.
* https://press.princeton.edu/books/hardcover/9780691177007/ho...
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