Is the dollar about to lose its perch as world reserve currency?

The some kind of Socialist, some kind of Marxist economist Michael Hudson thinks so, seeing the Britain-France-Germany workaround on the American sanctions against Iran announced on Thursday being a kind of wedge.

I don't think so. Rather, I think this is as much wishful thinking, which he does from time to time, in my opinion.

OK, here's the skinny.

There's three currencies, two of them state-backed, that have the possibility. None of them will become an official, or even a strongly quasi-official, world reserve currency before 2040.

First, referencing those countries above, is the Euro.

From my understanding of the EU, this could only happen officially by vote of all EU members who use the euro. That's less likely in the next 20 years than herding cats successfully.

Second, the yuan. Nope. That would require it to be depegged from the dollar. Anybody who thinks that happens in the next 20 years, thinks Trump is a free-trader.

Besides, China is doing better, per N+One, halfway down or so, with the Asian Infrastructure Development Bank giving it leverage against the World Bank.

The third is the non-state collection of electronic ledgers known as crypotocurrency.

That ain't happening, either.

The way most bitcoin systems are structured, none individually are elastic enough to get anywhere near that big even as unofficial reserve currency.

Collectively? Dude, these are libertarian wet dreams. No chance they unite into one massive megacoin.

And, as an official reserve currency? It's part of their duty as nation-states for their governments to crush bitcoin precisely because it's stateless.

File 13 this idea, Michael.

If you were engaging in sardonic humor about Trump being a deliberate wrecker of the dollar as a reserve currency, it really didn't come off that way.

==

And, while you're at it, File 13 your love for Modern Monetary Theory. Go read some Doug Henwood on that. (I'm eventually going to have to do a separate piece on this.)

Doug's piece is actually very interesting. I didn't know that Hudson is NOT the No. 1 touter of MMT at Missouri-Kansas City, which Henwood calls the Vatican of MMT. I also didn't know that Yves Smith of Naked Capitalism is a fangirl.

In usual Henwood style, Doug can be scathing. (He can be when he's wrong, as well.):

MMTers extend this hubris about the precision and power of policymaking to the realm of interest rates, which they think the central bank is completely in control of and should be kept as close to zero as possible.

That right there is silly. I don't need Doug to tell me that:

Without higher interest rates to compensate for greater default risk or longer maturities, there will simply be no one willing to buy the bonds or issue the loans.

The MMTers answer is for the Fed to be the purchaser of last resort.

Gee, isn't that something quite similar to Quantitative Easing?

Otherwise, Doug's even better further in, when he criticizes the MMTers for being lackadaisical about inflation.

Then, tying this back to Hudson's thoughts on reserve currencies, Henwood notes other nations don't have the same degree of currency-printing freedom as does the US.

Henwood then notes that a jobs guarantee program is in no way dependent on MMT.

One last thought, per Henwood: If Stephanie Kelton truly believes that just following MMT will solve climate change, she's either a tremendous idiot or an incredible liar.

See more MMT refudiation here.

And, stuff like this on Twitter is laughable.

MMT is first and foremost just a description of how our monetary system works. So, in order to rein in FIRE it’s good to know how our monetary system works

— Kathryn Cannon (@katiecannon2) February 27, 2019

Geez. Back at you.

No #MMT is not "first and foremost just a description of how our monetary system works." It is not even second or third "just a description of how our monetary system works." We are getting into #Maoist Little Red Book territory, I do think. Bye!

— ATrealDonaldTrump 🚩🌻 (@AFCC_Esq) February 27, 2019

And, that's that.

OPEC fleeing the dollar

According to Robert Fisk at the Independent, who should know, with his degree of connectedness in the Middle East, Gulf Arab states, working with Russia, China (no surprise on those two) Japan and France, are going to stop pricing oil in dollars. Gold, the euro, and a new inter-Gulf currency will be used as a “basket” currency instead.

Reuters has some in-depth analysis.

But apart from the strong political links between Gulf nations and the United States, the lack of convertibility for many Gulf currencies and China's yuan tops the list of practical hurdles for making such a shift.

"First, they will need to select a basket of currencies and issues surrounding that are: which are the currencies to be included in the basket and what ratios to use," said Victor Shum, an energy analyst at Purvin & Gertz Consultancy in Singapore.

"It's already a big hurdle just to move oil from one currency to another, let alone a basket of currencies. If there was already a significant proportion of global oil trade being priced in non-U.S. dollar now, than perhaps there would be more pressure to price crude in another currency. But we're still far from that."

So, let’s see how this plays out, and how much China is behind it, for that matter.

OPEC to consider money change?

Consider ditching your T-bills. Speculation continues to mount that OPEC will dump the dollar as the sole currency of payment. As the Euro continues to soar, and the dollar sinks even beneath the Canadian loonie, can you blame OPEC? But, will the cartel, under what will surely be intense U.S. pressure not to co-denominate, presumably with the Euro, go through with any such move?

The Euro: eroding the era of “dollar diplomacy”?

The Euro now makes up 24 percent of world foreign currency reserves, an astonishing number for a 5-year-old currency that had many detractors at the time of its introduction.

And, many countries, including China and some Gulf oil states, are looking at increasing their Euro holdings.

It sounds like more and more foreign currency traders see opportunities to leverage the two against each other. Will we have a George Soros making a major run on dollars, or Euros, instead of southeast Asian currency, in the future?