Weekly Updates
Weekly Updates
- There are strange parallels between the policy proposals of the two US presidential candidates and the economics of US President Nixon over fifty years ago. A weaker dollar, government involvement in prices, and a universal 10% tariff were all tried by Nixon.
- Former US President Trump has added to the parallels, making the dollar’s reserve status a political issue again. Trump threatened “you leave the dollar … we are going to put a 100% tariff on your goods.” The potential confusion around this policy is how reserve status is measured.
- Reserve status is not about transactions. A lot of international trade is done in non-dollar terms. Three quarters of non-oil European exports are invoiced in non-dollar currencies—and almost a fifth of European oil imports are paid for in euros.
- If China buys Brazilian exports and pays renminbi rather than dollars, it might be presented as China “leaving” the dollar. But the economically important issue is what Brazil does with the renminbi it now owns. If Brazil is wary of holding Chinese assets, it may decide to switch to the traditional reserve of US assets. That means selling renminbi, buying dollars, and (probably) investing in US Treasuries. Reserve status depends on where money is stored, not how goods are priced.
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