Longer-term investment flows are more central to “reserve currency status.” A Dutch insurer deems it best to keep a quarter of its investment outside of Europe. The agreement between Brazil and China overwhelmingly deals with this category. This is settlement in the sense of “now that all the corn is planted, I need to settle up at the fertilizer co-op.” Payments are made related to international trade or the remittance of interest, profits, rents, dividends and so forth. A Chinese steel mill gets 100,000 tons of Brazilian iron ore. Brazilian retailers are invoiced for clothing and housewares manufactured in China. Caterpillar’s factory in Piricicaba, Brazil, needs to remit profits back to Peoria, Ill. The Norwegian health service buys Minnesota-manufactured medical devices. The first category is called “settlement.” A Japanese importer must pay for a shipload of soybeans.
The Fed increased the money supply excessively for years. Regulation of financial markets is inadequate and shot with loopholes. Congress won’t put federal finances on a sustainable basis. Despite fundamental evolution of the global economy, the dollar is the world’s central currency because alternatives have worse problems. Moreover, despite China’s huge economy, there really are no viable challengers to the dollar on the horizon.īut yes, the dollar continues to predominate internationally because it remains “the least ugly nag in the glue factory,” as Dallas Fed President Richard W. First, bi-lateral agreements by nations to price or invoice trade in their own currencies are largely symbolic. The dollar predominates, but the Euro, pound, Swiss franc and the Japanese yen all meet the standard. dollar is the “reserve currency” for all other countries for international payments and for maintaining stocks of “foreign exchange.” This still includes gold, but mostly is currencies of other nations that are immediately and automatically accepted. The issue is the degree to which the U.S. This comes in the wake of China supplanting the United States as Brazil’s largest trading partner, a status that we took away from Britain more than a century ago.
In March, Brazil and China agreed to use their real and renminbi currencies for settling import and export bills rather than U.S. dollar for international trade and investment. There is much news of countries moving to use currencies other than the U.S.
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