- This topic has 10 replies, 1 voice, and was last updated 1 month, 3 weeks ago by JayReyd.
- Tuesday, October 4th, 2022 at 15:33 #386896OneThatNoseOneParticipant
We need to establish some ground rules first. All currencies are only measured against *other* currencies. Typically, when you see a currency exchange rate quoted, it is quoted as a measured against the USD. For example take the following.
[Currency Year-to-Date Change](https://preview.redd.it/wsj9o2t20tr91.png?width=380&format=png&auto=webp&s=94b55351141a2ee113fa0fa86882f5d9f046497b)
The above table shows the changes in each of these currencies against the USD in 2022. The “/USD” implies a change against the USD. If media mentions change in a currency, it usually is implied to be against the USD.
Now, we have see across the board virtually all currencies falling against the dollar. Every piece of news media mentions the Indian Rupee, the Chinese Yuan, the Japanese Yen etc falling against the dollar but no one ever explains **why.**
Well the USD is the world reserve currency. Everyone likes to make the statement but no one explains what it really means. [Per the IMF](https://www.imf.org/en/Publications/GFSR/Issues/2019/10/01/global-financial-stability-report-october-2019), 40% of the world’s debt is issued in USD. [Per the BIS,](https://www.bis.org/statistics/rpfx19.htm) 88% of forex trades were between the U.S. dollar and another currency. [Per the IMF again](https://www.imf.org/en/Blogs/Articles/2021/05/05/blog-us-dollar-share-of-global-foreign-exchange-reserves-drops-to-25-year-low), 60% of known Central Bank reserves are in the USD.
Now, the economy of virtually every country is tied to that of every other country. That is to say we have a global synchronized economy. Gone are the days were a country provided for all its needs within its own borders. Countries are dependent on other countries, and these other countries are dependent on yet other countries. This means that if one country falls, they are all affected, of course to varying degrees depending on the level of inter-dependence. To illustrate this level of dependence, [the World Bank](https://data.worldbank.org/indicator/NE.IMP.GNFS.ZS) currently has the % of imports per GDP globally at 28.1%.
So we have established two things. Countries globally are heavily dependent on the USD and also on each other to varying degrees. Now with all this USD dependence for trade, what would happen if the US Central Bank, the Federal Reserve suddenly started *raising rates.* Well, higher rates means less people are willing to borrow USD and less borrowers of USD means less USD in the **global** economy.Take a look at the graph below.
This graph shows real GDP, the total value of goods and services produces in a country *adjusted for inflation.* Basically, when we remove the effects of inflation, the trade in US economy has been faltering since *the fourth quarter of 2021.* This is **coincidentally** when the Federal Reserve started raising rates. Because the global economy is dependent of USD, as we established before, this chart of effective US trade is a good estimate for global trade.
So now the main question: why are we seeing currencies fall against the USD. You probably have an idea by now. It is because we are experiencing a **US dollar shortage**. Let me erase any doubt.
The thing is it is now all about interest rates. Above we see two graphs. There is one of **US Treasury Supply** and the other of **Demand.** Treasuries are essentially loans firms or individuals provide to the US government. You can think of US treasuries as futures dollars as you may lend the US government 1 million today and you will be paid back say 1.05 million in one year.
The charts show the **demand** for these *future dollars* or treasuries has shot **up** this year, while the issuance or **supply** of treasuries has gone **down.** Which can only mean that the **price or value** of dollars must go waayyy up. So other countries must now *pay much more* to get USD to be able to trade, and must run government deficits, that is borrow money, to do so which increases inflation and *further* decreases the currency’s value relative to the USD.
The tl;dr is the world is experiencing a double whammy of a **global USD dollar shortage** that is hampering global trade and crushing the value of other currencies relative to the USD, as well as a **shortage of US treasuries** which feeds the same problem. Countries are printing more currency to pay for more expensive dollars which is further decreasing their currency’s value. Such is the real power the US Federal Reserve and the Treasury Department holds.Tuesday, October 4th, 2022 at 15:33 #386897Schloss_Ratibor
+ they have a huge army if anybody wants to change this “law”Tuesday, October 4th, 2022 at 15:33 #386898marsangelo
This is where the shitcoins get flushed outTuesday, October 4th, 2022 at 15:33 #386899Fragmented_Logik
If other countries are printing more to pay for a more expensive dollar then why are they so against the US raising rates more to stop inflation?
Genuine question*Tuesday, October 4th, 2022 at 15:33 #386900Kappatalizable
So what happens to these currencies if the US Dollar actually crashes in 2023?Tuesday, October 4th, 2022 at 15:33 #386901Beyonderr
Thanks for the elaborate post. Sorry in advance of all the one liners and other shitposts you will get from people who likely did not even read your post.
I wonder how long USD can keep this status of reserve currency in the world, given that they showed with Russia that the USD the rich Russians had did not *really* belong to them, i.e. the US seized quite a lot of money. I imagine a lot of countries that are not on good terms with the US will be wary of relying on USD in the future. Hence, I predict quite a but of USD selling soon. China is also rumored to offload a lot of USD.Tuesday, October 4th, 2022 at 15:33 #386902Ateam043
What I got from this:
If Fed Reserve raises rates, it drives demand down making everything more expensive which hits other countries.
If interest rates are down, borrowing goes thru the roof and helps other currencies to export.
So fuck if you do, fucked if you don’t scenario.Tuesday, October 4th, 2022 at 15:33 #386903Intelligent_Page2732
The Bank of England gonna print even more.
This is just a endless cycle which will result in more and more inflation.Tuesday, October 4th, 2022 at 15:33 #386904Lillica_Golden_SHIB
Bank of England will turn the printers on and things will go brrrrrrrutalTuesday, October 4th, 2022 at 15:33 #386905Rollthewindowzup
Thanks captain obvious.Tuesday, October 4th, 2022 at 15:33 #386906JayReyd
Thanks for this. Very interesting, I’ll have to read more in depth later.
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