Long ago, when I took a class in international finance, I was surprised to learn that there were more US dollars in circulation outside of the country than inside. It would be interesting to read about the effect of the administration’s policies with regard to this aspect.
This is why USDT and USDC are somewhat important for the continued dominance of the US dollar. Foreigners have access to a digital dollar that is replicated by private industry in the form of a stablecoin. It is not produced explicitly by the government so Big Brother cannot turn it on or off, or watch you through the lens of currency.
“But how are foreigners supposed to get the dollars to invest in the US? There is only one way: They have to sell us stuff, more than they buy from us. You can argue about behavior and incentives, but this is an accounting identity, a budget constraint. More investment means more trade deficit.”
Well, not necessarily. There can be two offsetting transactions in the capital account. For instance, you finance foreign direct investment by running down previously accumulated foreign assets…
To get dollars why not just convert some of your own fiat currency to dollars? Yes, conversion without an underlying asset will reduce your currency’s exchange value over time, but since when has that been a concern of motivated politicians?
In a future war between U.S. and China - a non-zero probability - re-homed industry (think steel production, chip fabrication and shipbuilding) and domestic access to vital mineral resources may well make the difference between Mandarin and English as the future official language of America. This thought may seem laughable, but so would have the idea that Latin would become a dead language to a Roman Senator. Looking at things entirely through the lens of economics is fine for an economist in an ivory tower, but throughout history only those nations with the continued ability to defend themselves have survived. Our nation is only 250 years old - an eyeblink compared to most, and there is absolutely NO guarantee it will still be here in ten years, much less another 250. Trump's international economic policies have a dual purpose, and you are only discussing one of them. This is like discussing the economics of 'green' vehicles without also discussing the economics of lithium mining.
Your comments about the identity between trade deficits and investment by foreigners in the U.S. calls to mind points emphasized by Bill Poole (among others) while he was president of the St. Louis Fed. Politicians, and often economists, like to focus on trade deficits as the causal force. The "we're addicted to consumption" phrases. When, in reality, the other side of this identity may well be as or more causal. The U.S. has been an attractive place for foreign capital for a long time because of the combination of solid returns with lower risk compared to many if not most places in the world. Seeing the capital account as an important force also flips the narrative that somehow the U.S. being the reserve currency/debt nation is a bad thing.
Long ago, when I took a class in international finance, I was surprised to learn that there were more US dollars in circulation outside of the country than inside. It would be interesting to read about the effect of the administration’s policies with regard to this aspect.
This is why USDT and USDC are somewhat important for the continued dominance of the US dollar. Foreigners have access to a digital dollar that is replicated by private industry in the form of a stablecoin. It is not produced explicitly by the government so Big Brother cannot turn it on or off, or watch you through the lens of currency.
Thank you
“But how are foreigners supposed to get the dollars to invest in the US? There is only one way: They have to sell us stuff, more than they buy from us. You can argue about behavior and incentives, but this is an accounting identity, a budget constraint. More investment means more trade deficit.”
Well, not necessarily. There can be two offsetting transactions in the capital account. For instance, you finance foreign direct investment by running down previously accumulated foreign assets…
I’m simple minded:
To get dollars why not just convert some of your own fiat currency to dollars? Yes, conversion without an underlying asset will reduce your currency’s exchange value over time, but since when has that been a concern of motivated politicians?
In a future war between U.S. and China - a non-zero probability - re-homed industry (think steel production, chip fabrication and shipbuilding) and domestic access to vital mineral resources may well make the difference between Mandarin and English as the future official language of America. This thought may seem laughable, but so would have the idea that Latin would become a dead language to a Roman Senator. Looking at things entirely through the lens of economics is fine for an economist in an ivory tower, but throughout history only those nations with the continued ability to defend themselves have survived. Our nation is only 250 years old - an eyeblink compared to most, and there is absolutely NO guarantee it will still be here in ten years, much less another 250. Trump's international economic policies have a dual purpose, and you are only discussing one of them. This is like discussing the economics of 'green' vehicles without also discussing the economics of lithium mining.
Your comments about the identity between trade deficits and investment by foreigners in the U.S. calls to mind points emphasized by Bill Poole (among others) while he was president of the St. Louis Fed. Politicians, and often economists, like to focus on trade deficits as the causal force. The "we're addicted to consumption" phrases. When, in reality, the other side of this identity may well be as or more causal. The U.S. has been an attractive place for foreign capital for a long time because of the combination of solid returns with lower risk compared to many if not most places in the world. Seeing the capital account as an important force also flips the narrative that somehow the U.S. being the reserve currency/debt nation is a bad thing.