Should Ireland (and the EU) bypass the US dollar for international trade?

realitykeeper · 20-09-2014 9:39am #1

Many countries are bypassing fiat currency, specifically the US dollar, by trading bilaterally with each other. The status of the US dollar as the worlds reserve currency is now a dangerous illusion to those countries that ignore the consequences of quantitative easing, i.e. money printing. The FED in the US has been printing dollars like confetti since the credit crunch of 2008. The consequences of this are as are as unavoidable as the laws of physics.

China has been spear heading this drive with bilateral trade agreements, directly exchanging goods or by trading with currencies other than the US dollar with countries like the other BRICS and many of the G20.

Unlike the US Dollar, the Euro is not a FIAT currency because it has not (yet) begun QE. The question of QE is a difficult one for the EU because despite the massive pressure on Mario Draghi to stimulate inflation through trade, the printing of money will disadvantage those with money (the Germans) for the benefit of the pigs, like Ireland for example. This is why the Germans would resist such a move and if the EU did impose QE, the German`s would send their money out of the Eurozone to the countries that do not have QE.

Anyway, getting back to bilateral trading directly for goods or through currencies other than the US dollar, - should the EU, and Ireland in particular do this. In other words, should Ireland export agricultural goods for example for a commodity we need, like oil. This would not be unprecedented. Fifteen years ago, Ireland gave its surplus milk powder to Russia in exchange for oil. Perhaps Ireland could trade with China, goods for goods or via Euro/Yuan/Renminbi.

Ireland could also opt to side with Russia in its foreign policy towards Ukraine. If it did, it could seek to be exempt from the international sanctions against Russia. This would open great trading opportunities for Ireland. Ireland is uniquely positioned to side with Russia, after all, we are prepared to pretend Northern Ireland is not part of our country for the sake of peace and the west has always been happy to recognize the UK claim to that part of our country.

Therefore, logically, the international community should recognize Eastern Ukraine as being a separate entity to Ukraine and in the dominion of the Russian Federation if that is the wish of the peoples of Russia and Eastern Ukraine.

Finally, on the topic of FIAT currencies, here are the three to be avoided as a store of wealth: US Dollar/ UK Sterling/Japanese Yen. The currency of Zimbabwe is no longer used even by the Government of Zimbabwe, so that is why it is not included in the above list.

dlouth15 · 20-09-2014 3:53pm

I don't see why it matters which currency is used for international trade. If the price of a tractor is agreed at, say, 10,000 dollars between country A and country B, then the buyer in country A purchases 10,000 dollars at the local exchange rate, hands them to the seller in country B, who then converts them back to the other local currency. The use of dollars in this example is temporary. They could also use Euros or whatever or simply agree on a price in some tradeable currency but do the transaction in one or other of the local currencies.

I think the reason China might be doing exchanges rather than trading in currencies is that the Yuan is not a convertible currency.

realitykeeper · 20-09-2014 10:11pm

dlouth15 wrote: »

I don't see why it matters which currency is used for international trade. If the price of a tractor is agreed at, say, 10,000 dollars between country A and country B, then the buyer in country A purchases 10,000 dollars at the local exchange rate, hands them to the seller in country B, who then converts them back to the other local currency. The use of dollars in this example is temporary. They could also use Euros or whatever or simply agree on a price in some tradeable currency but do the transaction in one or other of the local currencies.

I think the reason China might be doing exchanges rather than trading in currencies is that the Yuan is not a convertible currency.

I am not sure why it matters that the US dollar is the global reserve currency but I do know that is does matter in major trade agreements, unless it is deliberately circumvented. Regarding the Yuan, I may be wrong but I think it is a currency China uses for international trade and it uses the Renminbi for domestic trade in China.

Stinicker · 20-09-2014 10:13pm

Countries that do this usually find themselves suddenly getting invaded, having civil war and find themselves liberated and given democracy. I think its safer we keep the Americans as allies rather than drawing their wrath.

KomradeBishop · 21-09-2014 1:07am

Europe's currency is fiat. Europe has done QE. The effects of printing money on the value of money and on production in economies, depends on what you do with that money. Money has far more purposes than merely being a 'store of value' - that's not the be-all-end-all of a currency (e.g. a steady rate of inflation is an intentional and desirable thing).

All the same, it would be good to see the end of the US dollars status as a reserve currency - this is a way more complicated issue than it seems though (one I know a little bit about, but don't yet understand fully), because up until the recent crisis the US used its economic standing/status in the world, to hoover-up/recycle the net-trade-surplus from other countries in the world (which, if I recall correctly, the reserve currency status gave it the power to do), and it has stopped doing this since the crisis, which has played a role in the economic downturn in so many countries - and as the US loses its reserve currency status, something needs to replace the 'surplus recycling' role the US used to have (even now, the US is not currently exercising this role).

Yanis Varoufakis wrote a book on this, 'The Global Minotaur':
amazon.com/The-Global-Minotaur-Economic-Controversies/dp/1780324502

That said, there's really very little that Ireland can do to sidestep US hegemony, when it comes to the reserve currency - we just don't have the political power, and it would be very politically unwise to do.

realitykeeper · 21-09-2014 10:13am

KomradeBishop wrote: »

.... as the US loses its reserve currency status, something needs to replace the 'surplus recycling' role the US used to have (even now, the US is not currently exercising this role).

Putin favors a multi-polar world rather than having a single country with reserve currency status. The BRICS countries could each have a role to play in that.
The BRICS have recently established an alternative to the US based world bank.

It is true that the Colonel Gadaffi was over thrown after Libya stopped using the US dollar but I don`t think the Americans would mastermind a coup in Ireland if this country did something similar.

sin_city · 29-09-2014 2:09am

dlouth15 wrote: »

I think the reason China might be doing exchanges rather than trading in currencies is that the Yuan is not a convertible currency.

So why would Indonesia have one with South Korea?

I think you'll find the holder of the reserve currency normally is the main world power at the time.

Once Britain's pound sterling lost its reserve status, its empire collapsed soon after.

France's power really ended around the early 1800s when Napoleon was defeated and surprise surprise the British pound became the main currency.

You can check this from Portugal to Spain right up to today.

dlouth15 · 29-09-2014 1:51pm

sin_city wrote: »

So why would Indonesia have one with South Korea?

Well I would want to know what proportion of trade between these two countries is done in the way described by the OP.

Should Ireland (and the EU) bypass the US dollar for international trade?

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