Quote from: Tytanowy Janusz on May 16, 2020, 06:26:17 AM

Leading economy (most likely China together with Russia if we will not see global military conflict before) will choose new reserve currency (and settlement currency for markets like OIL).

I agree that it comes down to oil settlements. At a minimum, a reserve currency needs to
1. be stable and of relatively high value
2. have enough supply for the entire world
3. have enough liquidity for the entire world

Right now, the US dollar doesn't have enough of any of these things.
1. It hasn't been backed by anything real since 1971. People say the dollar is backed in oil sales, but commodity sales are not legitimate backing for any currency. Backing is like collateral for debt. In fact, one of the reasons the US dropped the gold standard is because lending nations knew the US did not have enough gold to cover its debts after the Vietnam War. Using the dollar to settle oil deals creates ongoing demand for it, but it does not provide real collateral. So the idea to back the dollar in oil sales was never legitimate, especially now that we've seen negative oil prices for the first time. On a side note, I bet the US never does pay the majority of its debt. Several years ago, when Christine LaGarde was still with the IMF, she made a comment (in reference to Greece) to the effect that most of this debt is never going to be repaid. I'm not sure how they intend to settle the massive amounts of sovereign debt out there right now, but I sure hope it doesn't involve the use of militaries.
2. There is a huge supply of dollars, but there are still dollar shortages internationally, right now at least. Smaller currencies are collapsing and need dollars to get them through this period. If nations aren't able to acquire the numbers of dollars they need, they will begin to lose faith in it and try to find something else. If enough of them start trying to find an alternative to the dollar, they will eventually succeed.
3. The current liquidity problems have been going on since about 2007 (maybe a little earlier). If you look at the Fed's Total Assets chart, you'll see that it did not return to normal after the Recession officially ended, and lately it appears to be spinning out of control. Quantitative Easing, in the amounts needed, would diminish the value of the dollar. Too much more liquidity would lead to less stability. I like the Weimar Republic photo in the comment I responded to because it appears to be the path the US is taking, possibly on track for one century later, almost to the day.

Then why is the dollar still the reserve currency? Because there is no alternative. The high demand is keeping it stable for the time being, like a self-fulfilling prophecy. No other nation or entity has a currency that could take the dollar's place. In my personal opinion, the world does not have any real reserve currency right now at all, and they are simply using the dollar as a default for lack of anything more suitable. Interest rates may go negative, or even if they stay where they are, the incentive for nations to use the dollar is already diminishing.

The biggest problem for the US is that it is trying to run a global currency and a domestic currency with both the global and domestic economies hanging from thin threads. And while all of that is going on, it is now subsidizing a collapsed bond market. All the so-called Fallen Angels that have been downgraded to junk are valued in the trillions of dollars. The dollar is also political power as it is used to enforce sanctions. So there is the political facet of the whole thing too. All of this is too much for a central bank to manage. It isn't possible to juggle all of that with the few tools the Fed has. I think the US domestic economy will be the thing that goes into freefall as they try to prop up the others.