This morning it was big news that a top Chinese economist was calling for a new, global dollar alternative. But at least at this point, a random essay musing about a new global currency, posted on a Chinese website doesn’t do much to move the market.
The Dollar index is actually up today, and alternatives to the Dollar, like gold and oil are heading down. Not that a one-day movement means anything in the long term, but at least at this point, China’s increasingly frequent statements about the Dollar all seem theoretical.
Meanwhile, you’re encouraged to read Gregor MacDonald’s post on the “curse of seinorage” and the manner in which the US has become hostage to its role of having the world’s reserve currency:
The Seinorage Curse appears to hollow out the economy by the following manner: First, the premium charged to holders of dollars becomes a new source of accrued, aggregate revenue. This extra capital flowing into the economy is initially seen as a global honouring of our economy’s strength, and innovation. But when innovation falters and less value is created, seinorage is maintained–and thus the unhealthy dynamic begins. From this point forward, whether the US economy either leads in innovation, or lags in innovation, the Dollar advantage grows regardless. It then becomes clear that manufacturing Dollars, rather than manufacturing goods, is a better value proposition. Once that dynamic is in place, then a long cycle of financialization ensues, in which innovation and talent moves from design and manufacturing to the financial sector. The financial sector then becomes rapacious, as it scours what’s left of the economy to monetise. Whereas manufacturing and innovation were once monetized, the financial sector begins to monetise itself.
The final hurrah was seen this decade, when the financial sector, unable to monetise other US based streams of income, decided to monetise housing. That was all that remained. Seinorage had allowed us to stop earning our living, and eventually we “bundled up and packaged” our real estate. Interestingly, it’s only in the aftermath of the burst housing bubble that we observe how many Americans are being ‘forced to sell” their homes. In fact, Americans had already sold them. Read the whole thing >
We’re not unlike AIG or perhaps GE — wildly dependant on our AAA rating. A blessing for so long, slowly turning into a straightjacket.