WATCH RESERVES

“I think we are seeing the beginnings of the decline of the dollar as a global currency, as central banks are trying to hedge their bets, moving out of dollar, US treasury securities into gold and other non-traditional reserve currencies.”

“Spanish silver got everywhere. And as you say, it was, in a sense, the first true global currency in that earlier international currencies like the Dutch gilder, they got to Asia via the Dutch East India Company... but they never got to Latin America. Spanish silver got everywhere.”

“The analogy I sometimes use is like an iceberg, which melts very slowly until a whole chunk, big chunks, calve off all at once. So that's kind of the scenario I imagine.”

“But copper is inconvenient for large value or significant value transactions. Copper is not a very, it's abundant, it's not very valuable. People had to carry around large numbers of copper coins on a necklace around their neck or in their pockets. They needed something of higher value. And silver was convenient for regular commercial transactions in China.”

“By and large, this process worked well, just like the comptroller of the currency keeps careful watch on the quality of the banknotes that are printed in the United States today. The Spanish crown had a mechanism... the quality of the coin was maintained for three centuries and more. And that's what made for its wide acceptance.”

“My view at this point was, you know, I'm not trusting this economy anymore. All right. They need to dollarize and get rid of their currency altogether. I wrote a short op-ed to that effect. Meanwhile, Mark wrote a paper as well. Do you want to talk about that for a second, Mark?”

“Basically, in my view, Argentina is a country that overborrowed domestically. The central bank ended up monetizing the debt, causing hyperinflation. They borrowed excessively abroad to finance themselves. The markets gave it to them. Don't ask me why, but the markets did. And then it serially defaults. So at the core of Argentina's problem is excessive borrowing. And that's the issue that needs to be tackled.”

“Steven and Mark join us today to discuss whether dollar dominance is here to stay. You guys have a nice paper co-authored. It's the reason we're here really together to talk today. It's called Dollar Dominance is Here to Stay for the Forseeable Future. The real issue for global economy is how and why. And we'll provide a link to that in the show notes.”

“I didn't do much pressing. Obviously, the US doesn't intervene in foreign exchange markets. One still had to manage the meager foreign exchange holdings of the US, SDR transactions with other countries when they wanted to. We kind of got out of the credit stabilization business. There was Mexico in the mid-90s, there was Uruguay subsequently in the early 2000s, but it became difficult to do such operations.”

“I agree with Mark that the plans for dollarizing have been put aside, mainly because they don't have the dollars to do it. They're focusing on stabilizing the economy, which is the right way to go. And my view is if they succeed in stabilizing the economy, then that's when they should dollarize in order to preclude another fallback into chaos.”