Trade

The dollar as the monetary base of international trade and credit denominated in $

The dollar inflows and the weakening of the role of the dollar as the base of world trade.

The chart analysis should be continued a little further to understand how the $ exits play the role of the monetary base of a world economy whose trade has been expanding strongly during the years 98-2007.

In order for the dollar to serve as a monetary base for expanding world trade, it is sufficient for the balance of payments deficit to widen further. This is the case in the decade before the crisis.

In this case, the outflows of dollars come to supply the needs of $ indispensable to the circulation of the goods. This food is carried out in increasing volume because the deficits of the balance of payments of the US continue to widen with the development of the foreign trade of the USA (A and B). The number of dollars coming out of the US (A) to enter again (B) provides a continuously expanding monetary base; this continued expansion is sufficient to provide the number of dollars needed for the expansion of non-financial global trade (goods, services, capital income or DDI), using the US currency.

What fixes this necessary quantity in a time T is always the product of the mass of transactions divided by the number of currencies necessary to their realization. The number of additional dollars playing this role at a time T can, therefore, be assured by the increase in the dollar volumes in Noria (A and B) which is the expression of American growth proceeding in the imbalances of its external accounts.

We can, therefore, conclude that during the decade of years of growth in the growing imbalances in the US balance of payments, the US has been able to keep its currency in a hegemonic role in trade provided that the deficit in their balance of payments is allowed to deteriorate payments.

The crisis has changed everything: since 2007, the contraction of US non-financial foreign trade can no longer make the dollar play its role in world trade.

The capital input-output norm is out of step with the dynamism of world trade. There are two possible consequences: (a) growth in the Asia-Pacific region cannot always be in dollars.

The Asia-Pacific region will, therefore, have to create a monetary order favorable to the dynamism of these exchanges. This need is all the stronger as the US currency retains its value only through the massive purchase of treasury bills by foreign investors who contribute to sustaining growth in the wake of the growth of US sovereign debt. The dollar, therefore, plays a hegemonic role only temporarily. The worm has been in the fruit for about fifteen years, and the fruit is now rotten.

It goes without saying that by rebounds this monetary dislocation will enhance the role of the Euro in world trade. The US external accounts, therefore, announce the arrival of a new monetary order that will be based on three major currency areas and three major growth areas. It remains for Asia to define a protected monetary zone; we may think that this will be the business of the coming decade and that certain monetary agreements between China and its neighbors are the precursors.

Larry Stewart

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