Dollar as the World’s Reserve Currency

The US government has been relying on the US dollar’s status as the world’s reserve currency to fund its ongoing budget deficits. Now some elements of the punditry are speculating about the end of the dollar’s reign. China, in particular, is looking for ways to move away from relying on the dollar as its primary place to keep cash.

Democracies around the world are having trouble balancing their government deficits as the people demand more and more from their governments while not wanting to pay the requisite level of taxes. The level of government promises today remind us of the level of reparations payments required of the German people in the Treaty of Versailles after World War I. The German people did not understand what was happening to them, but after high budget deficits and ever increasing money supply growth to pay the debts helped prop up the German economy for a while, then the Germans suffered through one of the worst hyperinflations in the history of the world. The economic collapse led to a moral collapse in the German society and to Hitler coming to power. One of the truly sad events in history.

This explains the German reticence to bail the Greeks out of their indebtedness. And it makes us wonder about the other countries in the world with high budget deficits.