The benefits of the US dollar
A few days ago, Neil MacDonald wrote an article explaining the reasons why, despite the Candian dollar having surpassed the US dollar in value, goods in Canada still cost more. A significant part of the explanation has to do with the US dollar's status as the world's reserve currency.
Washington essentially prints the world's money and has since the end of the Second World War. All internationally traded commodities, most importantly oil, are priced in U.S. dollars.
"It gives the U.S. a huge privilege," says Prestowitz. "It means that Americans can buy and borrow in their own currency. So whereas you in Canada, if you want to buy a Toyota, you have to sell something to get U.S. dollars and then you go buy a Toyota. In America all we do is just print dollars and send the paper to Japan and we get the Toyota."
The danger isn't is that it's true, since it remains so for now, but in treating it as a truism. That is, believing that because the US dollar is the reserve currency now, it will remain so regardless of how badly the US handles it's finances.
Yesterday, I saw this story:
Foreign tourists to many of India's most famous landmarks will no longer be able to pay the entrance fee in dollars, the government says.
The ruling is aimed at safeguarding tourism revenues following the recent falls in the dollar.
Until now, foreign tourists to sites such at the Taj Mahal have had the option of paying in dollars or rupees.
By itself, the story is practically insignificant, but it isn't by itself. It's part of a growing trend of countries moving away from the US dollar where they can. Putin's continued threat to start selling oil in Euros, and China discussing diversifying their foreign currency holdings are far more significant shifts should they take place, and they yet may.
At some point, it makes more sense to sell the US dollar than wait around until your holdings in it are inflated into being worthless. When that happens, the truism of the US dollar as the world's reserve currency will burst over the catered-to US consumer in a very ugly way.
