Dollar Dominance Intact as U.S. Fines on Banks Raise Ire

[LeveragedBuyout]

Dollar Dominance Intact as U.S. Fines on Banks Raise Ire
By Yalman Onaran - Jul 16, 2014
The record fine imposed on France’s largest bank over transactions in U.S. dollars revived European complaints about the greenback’s pre-eminence in global finance. History shows calls to supplant the currency will be futile.

The dollar hasn’t budged from its top spot for the past three decades, withstanding repeated efforts to unseat it. Almost 90 percent of the $5.3 trillion a day in foreign-exchange transactions last year involved the dollar, the same share as in 1989, data from the Bank for International Settlements show. More than 80 percent of trade finance was done in dollars in 2013, according to Swift, a global financial-messaging network.

Companies, consumers and central banks around the world prefer the dollar to other currencies, including the euro and yen, because they trust the Federal Reserve and the U.S. government to back it, according to Marc Chandler, the chief currency strategist at Brown Brothers Harriman & Co.

“There are always people who say the dollar is going to be replaced, but it hasn’t happened,” said Chandler, who’s based in New York. “The biggest threat to the dollar’s dominance is the U.S. deciding to abdicate one day, not others complaining about it for this reason or that.”

As long as the dollar maintains its central role, banks around the world will have to bow to U.S. rules and oversight. BNP Paribas SA (BNP), the French firm hit with a $9 billion fine last month, also agreed to suspend clearing dollar transactions related to oil and gas trading when it pleaded guilty to violating U.S. sanctions against transferring cash for Iranian and Sudanese entities. New rules introduced this year tightened the regulation of foreign lenders’ U.S. units.

‘Dollar Imperialism’
A week after the BNP Paribas plea, French Finance Minister Michel Sapin urged European governments to promote the euro more in international transactions. While he said he wasn’t fighting “dollar imperialism,” his comments echoed those of predecessor Valery Giscard D’Estaing, who coined the term “exorbitant privilege” in 1965, referring to the benefits the U.S. received for the dollar’s status.

When the euro was introduced in 1999, some predicted it would one day topple the dollar. Since then, the euro has only taken over the share of the European currencies it replaced in global central-bank reserves. In foreign-exchange transactions, it accounts for even less.

When the U.S. warned against doing business with Iran and North Korea in 2006, many -- including a former U.S. banking regulator -- predicted a shift by Iran and other oil-exporting countries away from the dollar. That didn’t happen.

Bestowing Benefits
After the 2008 financial crisis, when the Fed expanded its balance sheet by trillions of dollars and the government’s budget deficit swelled, some economists said that would devalue the dollar, making it unattractive. That didn’t happen either.

Currencies that have been candidates for ending the dollar’s supremacy have drawbacks of their own. The euro was on the verge of a breakup as recently as a year ago. The Chinese yuan isn’t freely exchangeable. Bitcoin plummeted after about $500 million-worth of the virtual currency went missing.

Having the global currency of choice has bestowed some benefits on the U.S., including cheaper funding of debt. It also has brought risks and responsibilities. Those became evident during the crisis, when emergency loans by the Fed to the U.S. units of European banks peaked at about $538 billion, almost as much as U.S. firms borrowed.

“The Fed is the central bank of the world,” said Joseph Quinlan, chief market strategist at Bank of America Corp.’s U.S. Trust, which oversees about $380 billion. “The rest of the world benefits from the dollar standard as well.”

Gold Standard
The world needs a central currency to make trading and finance flow smoothly because it reduces transaction costs, Quinlan said. The global monetary system relied on gold until World War II. The dollar replaced the precious metal under the Bretton Woods regime after the war. It was fully convertible to gold until the U.S. broke the pact in 1971 so it could devalue its currency. Now the values of most major currencies are set by market forces, even as the dollar remains the anchor.

Economist Fred Bergsten, who has called for a multicurrency monetary system, acknowledges that the dollar won’t lose its dominance even as others gain significance.

“The dollar’s role will decline gradually and modestly over time, but it will still remain as the dominant currency,” said Bergsten, founder of the Peterson Institute for International Economics in Washington and a former Treasury Department official. “The euro has already claimed a central role, and the yuan keeps getting more important. Neither will likely replace the dollar, though.”

Currency Reserves
Last year, about 60 percent of foreign-currency reserves of the world’s central banks were in dollars, little changed from 1995, according to the International Monetary Fund. That’s because U.S. government bonds are seen as the safest investment. Euros make up about 25 percent.

More than 60 percent of banks’ cross-border liabilities are in dollars, as they were 25 years ago, compared with about 20 percent in euros, BIS data show.

Governments and corporations issue most of their foreign-currency debt in dollars. In 2012, 52 percent of such borrowing was denominated in dollars, up from 43 percent in 1999, according to the most recent data available from the European Central Bank. While the euro’s share has remained stable at about 25 percent, the yen now accounts for 5 percent of international debt, down from 17 percent almost two decades ago.

Trade Finance
In trade finance, the yuan quadrupled its share from a year ago to claim the No. 2 spot, Swift data show. At 9 percent, it pales in comparison with the 80 percent in dollars.

“The U.S. dollar remains dominant in traditional trade finance, and we don’t see a replacement any time soon,” said Astrid Thorsen, the head of business-intelligence solutions at Swift in Brussels. “The yuan is gaining traction, and it has dethroned the euro from second place. But the competition has been between currencies other than the dollar.”

The dollar is also dominant in commodities markets. Of 1,785 active commodities-futures contracts, 1,133 are denominated in dollars, according to data compiled by Bloomberg.

U.S. regulators can go after foreign banks doing dollar transactions anywhere in the world because almost all are routed through two clearing networks in the U.S. Clearing of dollar transactions in Hong Kong and Singapore, though available for almost two decades, hasn’t taken off. Those two cities account for less than 1 percent of the global total, BIS data show.

“The Fed provides dollar liquidity, so dollar clearing will happen here,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. in Washington, which consults for some of the world’s largest banks on financial regulation. “That’s why the Fed and other U.S. regulators worry about what foreign banks do. At the end, the U.S. is on the hook.”

The Fed’s new rules for foreign banks require their U.S. units to have higher capital and liquidity. While banks might not like tighter rules or stiffer fines from U.S. regulators, they have no way out because global trade and finance will continue to require dollars, Petrou said.

 

[Beidou2020]

Dollar hasn't really been challenged by the Euro and Yen. They are not directly tradable with most currencies. Japan lacked size in GDP, trade, investment and finance to challenge the dollar. Europe had the size but not the political will to truly challenge the dollar. Everyone was ok with the dollar as reserve currency until now.

US dollar will gradually lose its dominance in certain regions once countries start to actually concentrate on using their own currencies in trade, investment and finance. There was no reason in previous decades to challenge the dollar.

Dollar will be among a number of other currencies from Euro, Renminbi, Yen, Rouble, Rupee, Real, etc. Every region will have its own dominant currency.

To have a reserve currency you need a few things.
1. Large economy.
2. Large trading nation.
3. Large investing nation (direct and portfolio investment).
4. Large financing nation (banks lending, government lending).
5. Large capital market (bonds, stocks, commodity, foreign exchange) especially government bond market with large volume trading.
6. Convertible currency under the capital account (direct investment, portfolio investment, other investment and reserve account).
7. Currency payment clearing system (US has Fedwire and CHIPS. China is developing CIPS).
8. Currency clearing banks.
9. Directly tradable currency with other major currencies.
10. Political will to promote the use of national currencies.

With the US abusing its privilege, more countries will be forced to reduce their reliance on the dollar and as a result US will lose market share in all areas. It might still be the dominant currency but its share will diminish.

 

[Chinese-Dragon]

‘Dollar Imperialism’
A week after the BNP Paribas plea, French Finance Minister Michel Sapin urged European governments to promote the euro more in international transactions. While he said he wasn’t fighting “dollar imperialism,” his comments echoed those of predecessor Valery Giscard D’Estaing, who coined the term “exorbitant privilege” in 1965, referring to the benefits the U.S. received for the dollar’s status.

The French seem to echo many of our positions when it comes to the dollar hegemony.

It's true, the dollar will continue to be the dominant currency for the foreseeable future. And it's partially our fault, since we are the largest trading nation in the world, and we are indirectly strengthening the position of the dollar by using it so much.

Trade Finance
In trade finance, the yuan quadrupled its share from a year ago to claim the No. 2 spot, Swift data show. At 9 percent, it pales in comparison with the 80 percent in dollars.

The Yuan quadrupled its share in only one year, that's not a bad trend. Though we will have to wait until our currency reforms are completed (in less than five years maybe), if we are to have any hope of competing in this area.

And some analysis from the Australians:

China currency liberalization to be a 'seismic event': Australia | Reuters

 

[LeveragedBuyout]

The French seem to echo many of our positions when it comes to the dollar hegemony.

It's true, the dollar will continue to be the dominant currency for the foreseeable future. And it's partially our fault, since we are the largest trading nation in the world, and we are indirectly strengthening the position of the dollar by using it so much.



The Yuan quadrupled its share in only one year, that's not a bad trend. Though we will have to wait until our currency reforms are completed (in less than five years maybe), if we are to have any hope of competing in this area.

And some analysis from the Australians:

China currency liberalization to be a 'seismic event': Australia | Reuters

"Partially our fault"? Why should the reign of the USD be seen as a negative for which "fault" must be assigned?

In my time here, I have often expressed puzzlement at what I have perceived as Chinese hostility to the US, while Chinese users have told me that it's nothing more than a rivalry, or competitive spirit. I think I've finally settled on an explanation, and this may come down to cultural differences. Please correct me if I'm wrong.

I think Americans look for synergies in exchanges, looking to create "win-win" scenarios while recognizing that the situation can be complex. That's why we've coined such terms as "coopetition" and "frenemy" to express the ever-shifting nature of the competitive sphere, but do not believe that positions must be permanent, or hostilities lasting. There is always room for competition, just as there is always room for cooperation when it can be mutually beneficial.

I increasingly believe Chinese see the world through a "zero sum" lens. If the US is dominant, China is subservient. If China's influence is growing, US influence is declining. And so forth. That would explain why many Chinese users here see the downfall of the US as a precondition for China's rise, and why displacement of the USD as the reserve currency will be seen as a victory instead of just a mathematical mechanism of trade.

I would suggest that we don't have to view the reserve currency issue this way. If the RMB does become the primary reserve currency, it will help US exports and provide American institutions the opportunity to maximize profit by more easily investing in a faster-growing economy. As the reserve currency, the US has not had the flexibility that most other countries have had to manipulate our exchange rates to benefit our exporters without gigantic and irresponsible increases in the money supply that create world-wide bubbles; it's ironic that the French bemoan dollar hegemony, given their penchant for devaluation of the Franc vs. the Deutschemark in the years preceding the introduction of the Euro. The last shackles of Bretton Woods will finally fall away. In addition, fiscal restraint will finally be imposed on the US government, thus encouraging some discipline in managing the deficit (as the Euro did for the profligate French government), which can only be for the good, and will benefit future generations of Americans enormously.

On the other side, Chinese institutions will be better able to diversify their portfolios, maximize their own returns by investing outward, and impose the kind of profit-focused discipline on the Chinese government that only the free market can bring. As stated previously, it will allow Chinese to develop sophisticated capital markets and relieve pressure on its banking system. It will also allow the RMB to appreciate to its true market value as representative of the largest economy in the world and largest trading nation in the world, which will help ameliorate the trade deficits of its trading partners.

What's not to like? Why should we view this as a war for financial dominance when everyone can benefit?

 

[Chinese-Dragon]

I think Americans look for synergies in exchanges, looking to create "win-win" scenarios while recognizing that the situation can be complex. That's why we've coined such terms as "coopetition" and "frenemy" to express the ever-shifting nature of the competitive sphere, but do not believe that positions must be permanent, or hostilities lasting. There is always room for competition, just as there is always room for cooperation when it can be mutually beneficial.

Win-win is great. In fact that is the basic idea of international trade as a whole, and certainly the Chinese leadership understands that in an interconnected world, the collapse of any one major economy would have a catastrophic effect on the rest of the world.

I increasingly believe Chinese see the world through a "zero sum" lens. If the US is dominant, China is subservient. If China's influence is growing, US influence is declining. And so forth. That would explain why many Chinese users here see the downfall of the US as a precondition for China's rise, and why displacement of the USD as the reserve currency will be seen as a victory instead of just a mathematical mechanism of trade.

I can see why you might perceive it to be that way, however the views of Chinese members here do not necessarily reflect the views in Zhongnanhai (China's equivalent of the White House).

The Chinese government's policy of "China's peaceful rise" shows at least the officially stated intention for China to grow and become powerful without necessarily causing a loss to other countries. Whether people believe this or not is up to them, but that is the official position at least.

Skepticism is entirely understandable, but despite the many and often deserved criticisms of the Chinese government, one thing that we would agree on is that they are very pragmatic. They'll do what works. And a zero-sum approach to world affairs is not something that works.

I would suggest that we don't have to view the reserve currency issue this way. If the RMB does become the primary reserve currency, it will help US exports and provide American institutions the opportunity to maximize profit by more easily investing in a faster-growing economy. As the reserve currency, the US has not had the flexibility that most other countries have had to manipulate our exchange rates to benefit our exporters without gigantic and irresponsible increases in the money supply that create world-wide bubbles; it's ironic that the French bemoan dollar hegemony, given their penchant for devaluation of the Franc vs. the Deutschemark in the years preceding the introduction of the Euro. The last shackles of Bretton Woods will finally fall away. In addition, fiscal restraint will finally be imposed on the US government, thus encouraging some discipline in managing the deficit (as the Euro did for the profligate French government), which can only be for the good, and will benefit future generations of Americans enormously.

On the other side, Chinese institutions will be better able to diversify their portfolios, maximize their own returns by investing outward, and impose the kind of profit-focused discipline on the Chinese government that only the free market can bring. As stated previously, it will allow Chinese to develop sophisticated capital markets and relieve pressure on its banking system. It will also allow the RMB to appreciate to its true market value as representative of the largest economy in the world and largest trading nation in the world, which will help ameliorate the trade deficits of its trading partners.

What's not to like? Why should we view this as a war for financial dominance when everyone can benefit?

I don't think our intention is to replace the US dollar as the global reserve currency (which is impractical for now), but rather to serve as a viable alternative to the US dollar, together with various other global currencies, the BRICS currencies for example.

Importantly, you can see how the US sanctions on Iran and Russia (among others) tend to worry the decision makers in Zhongnanhai. I mean, Russia is a former superpower, if American can sanction them, then what's to stop them sanctioning us? And our use of the dollar for international trade is a huge vulnerability, as can be seen in the aforementioned cases.

Do you know the US has locked off China from the international projects, such as the International space station? And it's strange, since we already have our own space station, our own space-based weapons such as ASAT, midcourse interception, the world's first ASBM platform, and we have tested HGV at higher speeds than America has?

So why is it such a problem to let us participate in the International space station? We have all that stuff already. What happens if one day, for some reason or another, the US decides that it wants to to the same, but with the US dollar instead?

Chinese exclusion policy of NASA - Wikipedia, the free encyclopedia

 

[LeveragedBuyout]

Win-win is great. In fact that is the basic idea of international trade as a whole, and certainly the Chinese leadership understands that in an interconnected world, the collapse of any one major economy would have a catastrophic effect on the rest of the world.



I can see why you might perceive it to be that way, however the views of Chinese members here do not necessarily reflect the views in Zhongnanhai (China's equivalent of the White House).

The Chinese government's policy of "China's peaceful rise" shows at least the officially stated intention for China to grow and become powerful without necessarily causing a loss to other countries. Whether people believe this or not is up to them, but that is the official position at least.

Skepticism is entirely understandable, but despite the many and often deserved criticisms of the Chinese government, one thing that we would agree on is that they are very pragmatic. They'll do what works. And a zero-sum approach to world affairs is not something that works.



I don't think our intention is to replace the US dollar as the global reserve currency (which is impractical for now), but rather to serve as a viable alternative to the US dollar, together with various other global currencies, the BRICS currencies for example.

Importantly, you can see how the US sanctions on Iran and Russia (among others) tend to worry the decision makers in Zhongnanhai. I mean, Russia is a former superpower, if American can sanction them, then what's to stop them sanctioning us? And our use of the dollar for international trade is a huge vulnerability, as can be seen in the aforementioned cases.

Do you know the US has locked off China from the international projects, such as the International space station? And it's strange, since we already have our own space station, our own space-based weapons such as ASAT, midcourse interception, the world's first ASBM platform, and we have tested HGV at higher speeds than America has?

So why is it such a problem to let us participate in the International space station? We have all that stuff already. What happens if one day, for some reason or another, the US decides that it wants to to the same, but with the US dollar instead?

Chinese exclusion policy of NASA - Wikipedia, the free encyclopedia

First, I had to admit that I'm shocked to learn of this exclusion policy. I had no idea, and it doesn't make sense. We buy Russian rocket engines for our own launches, and often use Russian rockets for our payloads and to send astronauts into space. I can't understand why Russia is fine, but China is off-limits. Thank you for bringing this to my attention.

As far as sanctioning China, I don't even see how it's possible. Russia, Iran, Cuba, Sudan, Iraq--these are all small economies with which we never had significant trade, or whatever trade we had were unilaterally stopped by the other party, so there was nothing left to lose in economic sanctions. The US and China are far too interconnected for us to attempt that, and I don't even see how it would be practicable when we import so much from China. Without letters of credit, that would all stop, and create severe stagflation here.

In any case, it's gratifying to get your read on the matter, and it again reminds me that PDF users are not a good sample when surveying Chinese attitudes. The lesson is well-learned: watch what China does, not what its more vocal citizens or media say.

 

[Chinese-Dragon]

In any case, it's gratifying to get your read on the matter, and it again reminds me that PDF users are not a good sample when surveying Chinese attitudes.

The lesson is well-learned: watch what China does, not what its more vocal citizens or media say.

Absolutely, I believe this applies equally to every country across the world as well.

First, I had to admit that I'm shocked to learn of this exclusion policy. I had no idea, and it doesn't make sense. We buy Russian rocket engines for our own launches, and often use Russian rockets for our payloads and to send astronauts into space. I can't understand why Russia is fine, but China is off-limits. Thank you for bringing this to my attention.

In fact many US scientists have protested against the NASA ban on Chinese nationals and students:

US scientists boycott Nasa conference over China ban - The Guardian

As far as sanctioning China, I don't even see how it's possible. Russia, Iran, Cuba, Sudan, Iraq--these are all small economies with which we never had significant trade, or whatever trade we had were unilaterally stopped by the other party, so there was nothing left to lose in economic sanctions. The US and China are far too interconnected for us to attempt that, and I don't even see how it would be practicable when we import so much from China. Without letters of credit, that would all stop, and create severe stagflation here.

My view of global politics (and I believe the Chinese government also has this view) is something you might call "realistic politics", or realpolitik.

According to this view, intentions and ideology do not matter, only relative power, and other practical considerations matter.

And the truth is that currently, America is holding the power. In all domains, economic/military/diplomatic.

America, like Russia, have the ability to hurt us badly. Now of course, I do not believe either one is interested in launching an invasion onto Chinese soil, or vice versa. But what I mean, are things like international sanctions involving the US dollar, and naval blockades of trade routes, both of which America could do to us.

Depending on the "good will" of others is never a good policy. You can hope for it, but you cannot depend on it, especially in a world that changes so drastically from one decade to the next. That's why we cannot depend on the dollar, no matter what America's intentions are towards us. We have no choice right now, but if we can encourage the more widespread usage of other currencies including our own, that would give us a way to hedge our bets.

 

[LeveragedBuyout]

Absolutely, I believe this applies equally to every country across the world as well.



In fact many US scientists have protested against the NASA ban on Chinese nationals and students:

US scientists boycott Nasa conference over China ban - The Guardian



My view of global politics (and I believe the Chinese government also has this view) is something you might call "realistic politics", or realpolitik.

According to this view, intentions and ideology do not matter, only relative power, and other practical considerations matter.

And the truth is that currently, America is holding the power. In all domains, economic/military/diplomatic.

America, like Russia, have the ability to hurt us badly. Now of course, I do not believe either one is interested in launching an invasion onto Chinese soil, or vice versa. But what I mean, are things like international sanctions involving the US dollar, and naval blockades of trade routes, both of which America could do to us.

Depending on the "good will" of others is never a good policy. You can hope for it, but you cannot depend on it, especially in a world that changes so drastically from one decade to the next. That's why we cannot depend on the dollar, no matter what America's intentions are towards us. We have no choice right now, but if we can encourage the more widespread usage of other currencies including our own, that would give us a way to hedge our bets.

Wise words, indeed.

 

[somsak]

Can U.S peg US dollar with gold?
Only gold is real money.

 

[mike2000]

Absolutely, I believe this applies equally to every country across the world as well.



In fact many US scientists have protested against the NASA ban on Chinese nationals and students:

US scientists boycott Nasa conference over China ban - The Guardian



My view of global politics (and I believe the Chinese government also has this view) is something you might call "realistic politics", or realpolitik.

According to this view, intentions and ideology do not matter, only relative power, and other practical considerations matter.

And the truth is that currently, America is holding the power. In all domains, economic/military/diplomatic.

America, like Russia, have the ability to hurt us badly. Now of course, I do not believe either one is interested in launching an invasion onto Chinese soil, or vice versa. But what I mean, are things like international sanctions involving the US dollar, and naval blockades of trade routes, both of which America could do to us.

Depending on the "good will" of others is never a good policy. You can hope for it, but you cannot depend on it, especially in a world that changes so drastically from one decade to the next. That's why we cannot depend on the dollar, no matter what America's intentions are towards us. We have no choice right now, but if we can encourage the more widespread usage of other currencies including our own, that would give us a way to hedge our bets.

You seem to be one of a few reasonable chinese guy on here, who makes constructive and credible arguments/discussion. I appreciate that. You and my Japanese friend nihonji are quite well informed/smart.
Well I agree with all your points. As a country(even moe so a rival country) china cant depend on the good will of the U.S, no matter U.S good intentuons or not. In fact not just chiba, but also India; Brazil or any other major big country who can posses the ability to challenge the U S in future. In politics everything is possible. There is nothing like friends just interests.
Of course I dont blsme the U.S for sanctioning ryssia, Iran, iraq (a while ago) ,cuba etc .the U.S does what is in its interest. Thats hiw countries behave (or should behave). Each should be looking out for tgeir interests. In politics sny dirty tricks are allowed as long as it serves your interests., ask Russia they too are quite good at playing that game.
The U.S of course wont give up its dominant position/hegemony without a tought fight. Same like the way my country didnt give up its superpower position without a fight. It might be economic sanctions, war, cyber war, space conflict, economic isolation etc but the I S of course will do everything it can slow down any country(be it India, China, Russia , France etc) it sees can threaten its number 1 position/hegemony. Its normal any country will react that way if it was in the position of the U S believe me. After all who doesnt want to remain/be number 1?
The next coming decades will be interesting to watch.

 

[LeveragedBuyout]

Can U.S peg US dollar with gold?
Only gold is real money.

The US used to peg the dollar to gold, but broke the gold standard during the Great Depression, and then re-established a weak relationship with gold under Bretton Woods. The gold standard is a straight jacket on monetary policy, and is naturally deflationary. Bitcoin is like gold in that it must be "mined" and its quantity is limited--and it is also deflationary. As attractive as it sounds, deflation is quite destructive due to the suppression of consumption and the increasing burden of debt. Here is Ben Bernanke's summary of the problem:

[T]he proximate cause of the world depression was a structurally flawed and poorly managed international gold standard... For a variety of reasons, including a desire of theFederal Reserve to curb the US stock market boom, monetary policy in several major countries turned contractionary in the late 1920s—a contraction that was transmitted worldwide by the gold standard. What was initially a mild deflationary process began to snowball when the banking and currency crises of 1931 instigated an international "scramble for gold". Sterilization of gold inflows by surplus countries [the USA and France], substitution of gold for foreign exchange reserves, and runs on commercial banks all led to increases in the gold backing of money, and consequently to sharp unintended declines in national money supplies. Monetary contractions in turn were strongly associated with falling prices, output and employment. Effective international cooperation could in principle have permitted a worldwide monetary expansion despite gold standard constraints, but disputes over World War I reparations and war debts, and the insularity and inexperience of the Federal Reserve, among other factors, prevented this outcome. As a result, individual countries were able to escape the deflationary vortex only by unilaterally abandoning the gold standard and re-establishing domestic monetary stability, a process that dragged on in a halting and uncoordinated manner until France and the other Gold Bloc countries finally left gold in 1936." (from "Great Depression" B. Bernanke)

In addition, gold isn't "real money," it's just another currency. In the same way everyone pegged their currencies to gold before the Great Depression, everyone pegged their currencies to the USD during the Bretton Woods regime (and the US pegged its currency to gold), but it was just as unsustainable. Only after Nixon took the USD off of the gold standard did today's free-floating system emerge.

Gold only appears to be a better solution because everyone believes in the value of gold; it has psychological value. It doesn't have real economic value, however. Its industrial uses are extremely limited. It cannot be consumed, it cannot be used as fuel. I don't see why one would buy gold over more valuable and useful commodities.

 

[senheiser]

says bloomberg