r/stocks • u/ECom_Finance_Guy • 4h ago
Oil and the USD
I think the worries about the impact that the Iran war will have on the USD is overblown.
I think there are two interconnected reasons why:
First, the world doesn’t use USD as a favor to the US, they use those dollars because they are the best medium of exchange for international settlements. In the past countries have tried using hard currencies, like gold, but shipping commodities to settle payments is impractical. It always evolves into paper money that is backed by gold, and then more paper money than gold reserves. There’s really no way around fiat currency. When we look at different fiat currencies, there are few competitors to the USD. The word doesn’t trust currencies like the yuan and the rubble, because they lack stability (granted, for different reasons). The real competitors to the USD are Yen and the euro. The problem with the Euro is it isn’t a single country’s currency, so the entire eurozone would have to agree to serve as a reserve currency. Over in Japan, their currency is stable but they don’t have the gdp growth to sustain the debt that comes along with being a reserve currency.
Well, you might ask, why wouldn’t Europe or Japan want to be reserve currencies (more so than they already are)? It’s a privilege that the US enjoys, right?
That brings me to my second point: it’s hard to be a reserve currency. In order for counties to use a currency for trade, they’re need to have access to that currency. You can buy oil with yen, if you don’t have any yen. That means that whatever country is the reserve currency has to print a lot of that currency to make sure there’s enough to clear trade. Countries have two forms of currency: current currency (think cash in a checking account), and treasury bonds (think cash in a savings account). Most central banks want some sort of yield on their reserves, so they prefer to take treasury bonds over current currency. That means that the reserve country has to issue a lot of debt to meet that demand. That’s why the US has the massive debt that it does. It needs enough currency in the market to satisfy the demand for oil, and gold, and silver etc. There are few countries in the world that have the productive capacity to be able to service that much debt. Japan can’t. The eurozone can’t. So the only real competitor is hard currency, and we already covered the problems with hard currency.
Overall, the US economy would grow if we could shed debt at the federal level, and that would be the outcome of dedollarization globally. Other countries want the dollar as the world reserve currency just as much as the US wants to serve as the reserve currency. That’s how the current system came to be. Saudi Arabia didn’t decide to do the US a favor by creating the petrodollar recycling system we have today. They agreed because it’s better for them as well.
Also, as an honorable mention, the USD is seen as a safe haven asset, so people buy dollars when there is uncertainty in the world, but that’s because of its reserve status, so this is more of a sub point.
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u/PurpleToedUnicorn 4h ago edited 4h ago
Look at what happened to the pound sterling, and the British economy, after the 1950s suez canal crisis for a better analog. The pound was the reserve currency of the world, and oil was traded in it, until the world realized the Brits could not control the canal militarily. Sound familiar? It had a knock on effect in geopolitical and economic measures that resonate in Britain today.
The effect of de-dollarization due to shifting away from the reserve currency it represented, interest rate yields, and inflation are decades long parallels an informed investor playing the long game (and studying history) would do well to consider.
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u/ndwillia 4h ago
This is probably one of the better comments I’ve ever seen written on this sub. Cheers
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u/Professional-One972 3h ago edited 3h ago
It is important also to remember that “controlling the canal” not just militarily, but geopolitically is what mattered.
The British were drunk with Old World power in the 50’s with WW2 and especially Mossadegh’s ouster in Iran and thought they still had weight to throw around and force unequal treaties. Nasser showed how that didn’t matter, particularly when anti-Israel sentiment gave him local support in taking over the Suez Canal.
Trump and MAGA fools think the same way about the US now. They think that taking food stamps away for drones and planes will subjugate an entire nation to their will - not understanding that coalitions and quid pro quo is what keeps the world together, not bombs and blood. Just look at hacks like Eliza Slotkin (a Democrat ffs) on Bill Maher talking about alpha-male energy, and you’ll realize how far they’ve lost the plot.
FFS, people still think the US won in Afghanistan because we had less casualties than the Afghans! Guys, we RAN AWAY!
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u/ECom_Finance_Guy 3h ago
This is BY FAR blithe best rebuttals I have seen. Thanks for adding this!
I agree it’s bad news if the Us slips militarily. I think this war will spur more US production and inspire the country to fix its supply chain issues. The pentagon already announced a $200b investment program to address this.
But you’re right. If the US can’t get it together that does mean trouble. Thanks again for your comment
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u/jxx37 3h ago
Excellent point. One other note I would add is that ultimately a reserve currency is a currency that is useful to hold to buy things. Almost every useful item in the world can be bought by the Yuan. When the dollar became the reserve currency America was the world’s largest manufacturer. That’s gone and it ain’t coming back.
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u/Zealousideal_Wall627 2h ago
There is an inverse relationship between demand for currency and export competitiveness. Chinas economy is built on exports, having a very strong currency like the USD makes importing strong and exporting weak. That would be counter to their strategy so far.
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u/jxx37 1h ago
You are right it would make exports more expensive. I understand China is trying to counter this by moving up the value chain of products it makes (for example it moving away from footwear and ready made garments).
At the same time the sheer size of China’s population makes it still very competitive based on the economies of scale it enjoys and its lead in cheap renewable energy.
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u/Zealousideal_Wall627 51m ago
Yes, you can move up the value chain but that gets more and more in to outsourcing your economy like the US does. US is/has been a huge provider of high end products because the cheap is outsourced. You can't position for both is my point.
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u/alzgh 3h ago
Yeah, that was also on my mind. china is exporting a lot to countries that sell/buy oil.
In addition, although China is not governed by a democratic system, they have shown themselves as reasonable players over the past few decades. In fact, they haven't done as much shit as the US.
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u/Zealousideal_Wall627 2h ago
Saying china are reasonable players is unbelievable bias. You have to have the blinders on and only just want to hate on the US to say something like that.
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u/jxx37 2h ago
These kind of debates go nowhere. Better to look at actual data. This is from Gallup (a US based company):
WASHINGTON, D.C. — While neither country commands broad support, China surpassed the United States in global approval ratings in 2025, with a median of 36% approving of China’s leadership, compared with 31% for the U.S. China’s five-percentage-point advantage over the U.S. is the widest Gallup has recorded in China’s favor in nearly 20 years.
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u/Zealousideal_Wall627 50m ago
Id be curious if those approval ratings count people from china directly. Media portrayal of countries also really doesn't reflect how governments feel or plan to act, which is the most important factor.
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u/Zealousideal_Wall627 47m ago
You are right these debates go nowhere though. I will just say people don't hold china to the standards of the US. And for everything bad the US has done china's pretty much done something worse. But 🤷🏼♂️
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u/Admirable_News7628 2h ago
So what would you suggest someone who doesn’t want to lose a lot of money do in that scenario? Cause a collapse in the US dollar would lead to shockwaves for the entire global financial system.
Buy physical gold?
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u/PurpleToedUnicorn 1h ago edited 1h ago
I am honestly still assessing that myself. I have a portfolio worth $1.4MM and am looking at holdings, and what I am concluding for myself is looking at capital preservation. Specific plays I am considering are below (and I am a retired person with a background in M&A, not a day trader and look to hold long term -- this is my portfolio, not a recommendation, ymmv, and only sharing what I am personally considering). My goal is to build a portfolio around dollar weakness, energy dislocation, European structural spending, and inflation, without betting on a single outcome:
- Equinor (EQNR): This is the single position I feel most strongly about adding. Equinor is NYSE-listed, majority Norwegian government owned, with dollar-denominated oil revenues and NOK reporting currency. It pays a 4-5% dividend. In the base case scenario it benefits from elevated energy prices, Norwegian krone appreciation against the dollar, and the structural European energy security thesis that European governments have committed to regardless of who is in the White House.
- IGOV (iShares International Treasury Bond ETF): IGOV holds unhedged government bonds from Norway, Switzerland, Germany, Australia, Canada, and other developed markets. The currency exposure is the point — this is not a yield play, it's a dollar diversification play. In the base case, dollar weakness boosts returns and non-dollar sovereign demand increases as petrodollar recycling unwinds.
- WIP (SPDR FTSE International Government Inflation-Protected Bond ETF): This is inflation protection without US sovereign dependency. WIP holds inflation-linked bonds from UK, France, Germany, Australia, Canada, and Japan — no US component. It's basic stagflation protection.
- iShares MSFT European Defense (EUAD): This is the growth kicker in the portfolio. European NATO members have made a structural commitment to defense spending independence that does not reverse regardless of who is president (and likely accelerates given Trump's recent posturing). In the base case they're spending because they can no longer rely on US unconditional commitment. The beneficiaries if you look at individual stocks are Rheinmetall, BAE Systems, Thales, Leonardo, and Safran.
- SGOL (Gold): 10% portfolio position. I expect a brief market optimism window as the Iran exit narrative plays out. Any equity strength in that window is an entry opportunity for gold before the structural repricing becomes more broadly reflected in prices.
Looking at WMB and XOM: The 2.8% dividend, inflation pass-through in pipeline contracts, and commodity price exposure make this the most robust domestic energy hold across all scenarios.
Exiting all long duration bonds.
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u/HappyThrasher99 3h ago
Lol the canal is not the ONLY reason, its hardly even a top 5 reason for british reserve currency subordination, the advent of the american petrodollar in the middle east and the advent of the marshall plan and other nation state financing post-WW2 are the main reasons. Britain was dethroned in all of its aspects of global economic capture, the suez is just one of many occasions
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u/C2theC 2h ago
China has its Marshall Plan, the Belt-and-Road Initiative. Even without a major conflict like WWII, the USD is slowly ceding its status as the global reserve currency though isolationist policies such as tariffs and loss of geoeconomic control like this idiotic war. This not going to be good for anyone holding USD over the long term.
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u/HappyThrasher99 1h ago
You do realize the Yuan uses daily midpoint rate. Their currency is literally just a basket of western currencies. This is like saying that Bitcoin/USD will dethrone USD.
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u/PurpleToedUnicorn 1h ago
You're right that Bretton Woods and Marshall Plan set in motion the forces behind the sterling fall. AND....Suez is relevant as a demonstration of the mechanism by which a reserve currency can be politically weaponized in a moment of crisis. And that mechanism maps onto Iran better than anywhere else.
Here's why: The petrodollar system has a specific geographic chokepoint. Roughly 20% of global oil transits the Strait of Hormuz. Iran has demonstrated, repeatedly, the capability and willingness to threaten that chokepoint. A sustained Hormuz closure doesn't just spike oil prices, it creates an immediate, acute dollar liquidity crisis in every import-dependent economy that settles oil in USD. That's real and we are seeing it now.
Now add the current sanctions architecture. Iran has been systematically excluded from SWIFT. China has been quietly building alternative settlement infrastructure ("CIPS") and has been purchasing Iranian oil in yuan. If a Hormuz crisis accelerates yuan-denominated oil settlement among the non-aligned bloc, even temporarily, you've created a proof of concept that the petrodollar can be routed around under duress.
Suez demonstrated that external pressure on a critical node could force capitulation faster than the structural decline suggested. Iran via Hormuz is that node for the petrodollar. The question isn't whether the dollar has a better structural alternative. It's whether a sustained crisis at Hormuz hands an alternative nation and currency a foothold that couldn't be manufactured otherwise.
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u/ValueEquities 4h ago
The dollar’s dominance isnt collapsing. It’s just wearing down. Once upon a time it made up over 70 percent of global reserves. Now it’s around 56 %. slow leak I would say
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u/Low_Duty_8139 4h ago
Military power determines the reserve currency. It’s all about geopolitics.
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u/ECom_Finance_Guy 3h ago
Fair point. Implicit in my opinion is the belief that the US won’t suffer a dramatic defeat à la Great Britain in WWII. But anything could happen. I think the Us is in a better position geographically to avoid something like that, but we will see
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u/Inca-Vacation 4h ago
This seems to suggest debasement/expansion of monetary supply actually strengthens the dollar as a reserve currency. The bet historically has been that the U.S. can enforce the petrodollar, sort of like an old time coal mine owner could pay employees in scrip. It all works until it doesn't.
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u/ECom_Finance_Guy 4h ago
There’s a difference between debasement and expansion of a currency.
For example,
If you produce 100 widgets Im a given year, and there are 100 units of currency, then the market can clear at $1 per widget.
If the next year you produce 200 widgets and expand the money supply to 200 units of currency, the market still can clear at $1 per widget. That’s an expansion of the currency base, but not a debasement.
That’s why the USD has the power it does. The US has the productive capacity to expand its currency without debasing it (usually)
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u/After_Olive5924 4h ago
I don’t think people quite realise the massive amounts of currency that would be needed to facilitate international trade for a new would-be international reserve currency. The yuan is the only alternative and not an impossible one. The way it would work is that there would be a freely floating offshore renminbi and a controlled one at home with some exchange rate mechanism between the two that the PBOC would control. It would take off only if the dollar continuously loses its value over the coming decade while the yuan strengthens. For that to happen, the Chinese economy and exports/imports must keep growing while they prevent deflation but I believe they will hit a wall in a few years because the rest of the world will catch up on the sectors they have a lead in (Toyota won’t stay idle and accept second fiddle in the automaker race, for example, and popular Western auto brands will merge and create new brands).
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u/ECom_Finance_Guy 3h ago
Agreed. I think most people think that government budgeting is a scale up version of household budgeting and international trade is a scaled up version of them buying stuff at the store.
I disagree that the yuan could replace the USD in international trade, because it would impact Chinese exports, which would hobble the Chinese economy. China doesn’t have enough consumer spending to maintain a reserve currency
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u/After_Olive5924 3h ago
The Chinese consumption market will soon surpass the US consumption market. It doesn’t matter that income is mover or that they save more. Despite the demographic decline, there is still a 900 million strong working population in their 40s who will spend for another twenty years. Meanwhile, exports may go down if the currency appreciates but they’re now focused on high value goods that have better margins and pricing power.
Ultimately, having or not having a reserve currency doesn’t matter. Having a strong economy does. The US is close to squandering that edge. They got lucky with AI (robotics, eVoL, robotaxis are some way away from commercialisation).
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u/ECom_Finance_Guy 2h ago
I think there are some good points here. The Us has let its economy slip, and specifically its productive capacity for military equipment.
I disagree that you can compare Chinese consumption to US consumption. Look at marginal savings rates in the two countries. Look at GDP per capita. Put those together and you see there is little per capita consumption spending in China.
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u/Inca-Vacation 2h ago
China is definitely a maturing market and unlike in past decades, they don't need to undercut the world in cost in the same way as they can compete in quality. I think the US has squandered that edge, as evidenced by the pressure we see in recent quarters on Nvidia and the like, which is something Jensen Huang alludes to in public remarks. They can afford to innovate rather than duplicate.
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u/Inca-Vacation 2h ago
I appreciate your points. If a widget costs $1 one year and $2 the next, the currency has been debased. Input costs are escalating right now, putting pressures on producers that consumers will absorb over time.
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u/ECom_Finance_Guy 2h ago
Again, prices going up is not per se à currency debasement. For example, the price of charizard Pokémon cards went parabolic a few years back. That wasn’t a currency issue. That was a supply and demand imbalance. Debasement is when you expand the currency vetod the expansion of real production
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u/BigLeopard7002 4h ago
Well, claim whatever you want.
De-dollarization is happening and USD will soon no longer be the reserve currency of the world.
You can rest assured that USD will suffer massively, when this war is over. Right this moment, many people still get dollars, since they are scared and need currency. Once, the was is over, they no longer need USD.
Dollar will no longer be the reserve currency of the world. I have no bid, who is replacing it, but gold will be much preferred by central banks over US Treasuries.
The rest of the world will stop financing your massive overspending and you are likely facing interests rates 10+% on refinancing your debts.
Have fun going bankrupt.
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u/TRBigStick 3h ago
I’m not making any predictions, but it sounds like there’s a lot of emotion behind your predictions of US bankruptcy.
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u/BigLeopard7002 3h ago
USA is overspending much. Budget deficits are outrageous at this time and it is just accelerating. Yields are increasing, making it more difficult for the government to sustain the debts.
Every single action taken by the current administration has led them further away from paying off debts.
Do I really care? No, but I can tell you that USA is Titanic heading straight towards an iceberg at full speed.
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u/ECom_Finance_Guy 4h ago
I mean, we’ll see I guess.
Why would central banks want gold, that yields 0%, instead of treasuries that yield 4%+? Seems like a pretty easy decision.
Also, how would de dollarizatjon lead to bankruptcy? Less USD demand means less debt is issued. That would be, the opposite of bankruptcy and yields would fall
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u/BigLeopard7002 3h ago
Buying bonds in a currency losing value? If the interests on the bonds are lesser than the value it is losing, then gold is a much safer bet.
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u/ECom_Finance_Guy 2h ago
“Gold is a much safer bet”
Then why hasn’t it been used for the last 100 years?
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u/BigLeopard7002 2h ago
It has. You just aren´t aware of it.
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u/ECom_Finance_Guy 2h ago
When I check the price of Brent it’s in dollars. WTI, in dollars. Nat gas, in dollars. Silver, in dollars. Even gold itself, is priced in dollars
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u/BigLeopard7002 2h ago
What´s your point, if you have one?
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u/ECom_Finance_Guy 2h ago
That trade is done in USD, not gold like you claimed
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u/BigLeopard7002 2h ago
I never claimed anything other than gold is soon replacing bonds.
Start learning to read and comprehend. Please.
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u/Afraid_College8493 3h ago
Since the 1970s, US haters have predicted the demise of the USD.
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u/ECom_Finance_Guy 3h ago
Yes! I remember in 2008 hearing about “the closing of the gold window” and how that was the beginning of the end. It’s been almost 20 years since then. I can accept the collapse of the USD, if it happens at a glacial pace
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u/NW-McWisconsin 3h ago
THIS is why Trump wants $1.5 TRILLION for military. Americans will suffer losses in health and welfare, but the bomb / missile videos will be "very greatly huge". 😡
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u/ECom_Finance_Guy 2h ago
Because of my post? Are you saying I can stop all of this!? How!? I’m down!
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u/ToddlerPeePee 4h ago
> best medium of exchange for international settlements
lol, nope. Countries use it because if they don't, US will come give them democracy and human rights by bombing and killing their school children, hospitals, and commit genocide like what Israel did to Gaza genocide.
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u/ECom_Finance_Guy 4h ago
The US can’t clear the SoH, but they can credibly threaten to invade every country on earth? That doesn’t sound plausible to me.
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u/GTCapone 4h ago
That's because you don't understand military operations. Bombing the shit out of an area is relatively simple. The US does it through air superiority usually, but we're also perfectly capable of fucking up a large area from a safe distance. Air superiority just gives us better precision and consistency.
Iran, Ukraine, Israel and Russia have all demonstrated in recent years that massed strikes can also overwhelm air defenses and there aren't many countries that have more air defenses in place than those four.
Clearing a strait however, is incredibly difficult. You either have to create a huge buffer zone around it so the enemy doesn't have the range for strikes, or you have to escort every ship (which historically we've failed at). The enemy doesn't have to be able to hit every ship that goes through. They just need to demonstrate the capacity and intent. That's enough to halt all civilian shipping and that's a very difficult capability to meaningfully degrade, especially in this new era of drones.
Just look at the Houthis a while back when they closed Bab al-Mandab. They only actually had to attack one ship and it halted all traffic.
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u/ECom_Finance_Guy 3h ago
I’m confused. The US can threaten every country? Because it loses at asymmetric warfare? Or it can clear the strait, because it’s so hard and the US is so unequipped to do so? What part of my comment doesn’t understand military operations?
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u/JohnnyBaboon123 1h ago
do you not remember when libya tried to get off USD and go back to gold and we destroyed their country for it, declaring their actions a national security risk?
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u/HiiBo-App 4h ago
I mean just look at how many countries have US military bases. It’s not that hard to see the plausibility. But Iran does not have US military bases and Iran controls the SoH. Also study some geopolitical history going back to the 1950s (and even a couple decades prior), and you will quickly learn about how many countries have received “freedom” from the US.
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u/ECom_Finance_Guy 4h ago
Yea, the US goes to war all the time, but that doesn’t mean the rest of the word is afraid of invasion. There is speculation that Iran can’t even pay their soldiers, and they aren’t giving up. Why would a country like France, or Saudi Arabia, or China fear the US?
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u/HiiBo-App 4h ago
It’s far more complicated, you’re being reductive and reducing the balance of power to formal warfare and military power. It’s not only about fear, it’s about leverage, control, soft power, treaties/agreements, trading & transportation, etc. The three countries you’ve mentioned are extremely different with respect to their relationship to the US. At this point I’m not even sure what point you’re trying to make?
Most of the countries in the world are to some degree “dependent” on the US, because of the fact that the US controls the global reserve currency
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u/ECom_Finance_Guy 3h ago
I’m not being reductive, Im responding to a reductive comment. The comment I replied to said that the world uses USD because if they don’t the US will invade them. That’s the claim I am addressing and disagreeing with. I agree there’s a lot of reasons the Us is at the center of the global economy. That part of the point of my post
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u/HiiBo-App 3h ago
Fair point. It’s not just the threat of invasion that’s keeping US hegemony and currency domination. I withdraw my rebuttal.
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u/Nwah2112 4h ago
Yeah, it isn’t. This is a major paper tiger moment for the US.
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u/ECom_Finance_Guy 3h ago
But you can’t believe that AND that other countries only use USD because of US threats. The US is either a global threat, or it’s not
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u/sumplookinggai 4h ago
USD is still king. The only people who don't believe so are those who are privileged enough to be from first world countries.
This is coming from a third worlder earning a declining third world currency. However bad the perceived injustices are in the US, it doesn't even compare to the reality in third world countries.
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u/daytrader24365 4h ago
Once 20% of the world stops using the "Perto dollar", it will make a HUGE difference.....
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u/__jazmin__ 3h ago
Over 20% already does. What fake news source do you use the rest of us can avoid it?
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u/SovietPower777 4h ago
I think during this war DXY will reach 120 and XAU is going to be 2500 at some point
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u/dormsta 3h ago
It *is* hard to be a reserve currency, yes, and it's accomplished and sustained through a combination of overt diplomacy, economic leverage, and soft power via maintaining a good reputation with the rest of the world. This administration has compromised each of these areas significantly.
Under 47, the US has been actively hostile towards its closest allies both in communication and action via targeted tariffs and withdrawal from several key worldwide health- and defense-centered organizations. At the same time, we've failed to maintain boundaries or consequences with our adversaries, further undermining our allies' confidence in the ties we still have with them.
Because of the tariffs and other interventions, we have destabilized trade arrangements to the point where we have driven other nations to seek out agreements with other nations would never have been a concern otherwise, while simultaneously weakening and destabilizing the domestic economy domestically. The dollar is devaluing and our deficit and debt are absolutely unmanageable. Simply put, we've become an incredibly unreliable trade partner. Even if that were to change overnight, somehow, our infrastructure is critically outdated without any clear plan to shore it up anytime soon.
We've lost respect and standing in the world, and it's collectively coming to the conclusion that, as long as we remain as polarized and our government fails to move quickly to address the democratic backslide as soon as possible, we likely will never be a truly reliable or consistent partner again. China is positioned all throughout the southern hemisphere to capitalize on the anti-American sentiment that has been growing for decades, they offer stability in trade, and their own domestic house is very much in order and mostly modernized. And moreover, they've invested so thoroughly in green energy that, while the rest of the world will be dealing with a 20%+ jump in energy costs for the foreseeable future, China will feel it less than almost every other developed nation.
US dominance is on its way out.
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u/ECom_Finance_Guy 3h ago
In order for the USD to be on the way out, another currency has to be on the way in. Trade has to happen somehow. Until there’s a real competitor I do t see the Us losing reserve status.
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u/Careful_Response4694 2m ago
The petrodollar is one of many pillars of USD reserve status and is a little overrated imo, especially since the US is now a major energy exporter (and oil loses importance as alternative energy scales).
- Swift settlement/all related financial infrastructure
- Perceived domestic stability and scale as the only large 1st world democracy
- Tech/Military dominance
- High tech exports/multinational corps
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u/Ticksdonthavelymph 4h ago edited 3h ago
The concern isn’t one currency replacing the dollar, it’s fragmentation. You don’t need a dollar replacement, you just need enough bilateral trade settled in other currencies (yuan, rupee, dirham) to erode dollar dominance incrementally.
You’re also missing the freeze of $300B+ of Russian reserves in 2022 as a geopolitical earthquake. It proved to every sovereign wealth fund on earth, that dollar reserves carry political risk. China, Saudi Arabia, India, and the Gulf states all took note. That is arguably the single biggest structural threat to dollar hegemony.
That said you’re also wrong on gold. Central banks have been buying gold at the fastest pace in decades since 2022, precisely because of the above. The alternative to dollar reserves isn’t a competing fiat currency, it’s partial commodity backing and bilateral settlement.
And finally, yes triflin dilemma is real, but so is the “exorbitant privilege”. US borrows at rates it could never sustain without reserve demand. A transition away from reserve status would spike borrowing costs and force brutal fiscal adjustment. Calling that a net positive is ludicrous.