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The Dollar? It is THE currency, stupid!

Bill Clinton memorably said, when asked what was the single most important factor determining election  results, "It is the economy, stupid!".

However, when it comes to the success -or otherwise -of the world economy, the comment might be "It is the currency,stupid!".

Why?

Because confidence is the crucial - perhaps only - vital factor in economic matters.

And, as far as currency is concerned, confidence is definitely the only thing that matters.

Which, of course, puts the United States in an unchallengeable position.

The US $ is the words reserve currency, which basically means that everyone falls back on the Dollar in times of economic stress. Almost everywhere in the world, people trust the Dollar. In fact, they would rather have it than their local currency. Many countries have their own currencies, but most of those currencies cannot be easily used outside their borders.

The Dollar is NEVER refused, because people know it will never be refused. How's that for a tautology?

This explains why most important commodities - such as oil - are priced in Dollars. People are confident of prices which are expressed in Dollars.

Effectively, the Dollar defines the value of everything that a monetary value can be applied to, anywhere in the world.

The brilliant aspect of this for the United States is that they can keep on printing more and more Dollars, many of which are exported and never come back to their homeland. The bank notes simply get traded around the world, moving from hand-to-hand, with every recipient confident that the Dollar will be welcomed by the next hand to which it is offered.

China may have growing GDP and massive exports of all kinds of merchandise, but Chinese currency does not compare with the Dollar in terms of acceptability. In fact, almost nobody outside China would even recognize a Chinese bank note.

The Chinese hold many Dollars. In theory, they can be repatriated to the United States. In practice, however, the Chinese have to tread very carefully as to how they use their vast Dollar reserves. They cannot afford to destabilize either their biggest customer in particular, or the world economy in general.

All must bow to the Mighty Dollar and ensure it retains the confidence of everyone on the planet.

This may irritate many who do not believe that the United States should be free to print virtually unlimited amounts of Dollars - but those critics also mostly recognize that, without the Dollar, world economics would become a Black Hole. 

Few want to risk being sucked into the level of crisis that would result from a destabilization of the Dollar.

The Dollar is Donald's Trump Card - and he will play it relentlessly.

 

 

Monday, 6th March 2017

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