The U.S. $ is being held up by a contraction in the E-$ market. The contraction of the E-$ market has been going on since 2007. It was accelerated by Basel III’s LCR, and Sheila Bair’s assessment fees on foreign deposits, which changed the landscape of FBO regulations. It helped make E-$ borrowing more expensive, less competitive with domestic banks (the exact opposite of the original impetus that made E-$ borrowing less expensive, when E-$ banks were not subject to interest rate ceilings, reserve requirements, or FDIC insurance premiums). And now Powell has eliminated required reserves.
Worth noting that the coordination problem arises in social media. Everyone is on Tumblr because everyone else is on Tumblr. Until something is too much, and the Great Tumblr Exodus happens.
So I can predict that dollar dominance will appear continuous, even while being eroded, until some one event is the "straw that breaks the camel's back" and market participants flee to euros en masse, overnight.
It's not that "the U. S. dollar is a reserve currency", it's that U.S. Treasury securities are a reserve asset because the market for Treasuries is deep and liquid. A reserve asset is something that can be sold in very large amounts (billions of dollars) without changing its price. If you try to sell $50 billion of the government bonds of most major countries, you will create market disarray and will push down the price. This is not true of US Treasuries because the Treasury has over $30 trillion in debt and its bonds and notes trade in the billions daily. This is true of no other country's debt--certainly not China's. The global trading volume in Chinese government debt is negligible and Chinese government bonds denominated in yuan barely trade at all. The principal threat to the dollar as a reserve asset is gold and gold has been doing quite well lately; but I don't think that the gold market is as liquid as the Treasury market.
You make a useful technical distinction that the post´s level of generality glosses over, but the argument proves too much and ultimately collapses into the same conclusion.
The point about Treasury market depth is correct and important. The reserve asset function rests not just on the dollar as a currency but on the existence of a deep, liquid, benchmark safe asset that can absorb large institutional flows without price disruption.
No other country's sovereign debt market comes close — you´re right that Chinese government bond markets are negligible in global trading terms, and right that this is a structural constraint on renminbi internationalization that is separate from and arguably more binding than the currency question itself.
This argument actually strengthens the post´s concern rather than refuting it. If the dollar's reserve status rests critically on the depth and credibility of the Treasury market, then the fiscal trajectory — debt approaching 175 percent of GDP by mid-century, a One Big Beautiful Bill adding another $2 trillion, and episodic debt-ceiling brinkmanship that has already produced one technical near-default — is precisely the threat to monitor.
A Treasury market that is deep because there is $30 trillion in outstanding debt is also a Treasury market that is increasingly dependent on the continued willingness of foreign holders to absorb new issuance at acceptable yields. That willingness is not a physical property of the market; it is a function of institutional confidence. The distinction between "currency" and "reserve asset" does not escape the governance concerns the post raises — it relocates them.
On gold:you´re right that gold lacks the liquidity of Treasuries for large institutional transactions. But the more interesting recent development is not gold as a reserve asset in the traditional sense but central bank gold accumulation — particularly by China, Russia, and a range of emerging market central banks — as a hedge against precisely the weaponization risk the essay identifies.
They are not trying to replace Treasuries with gold for day-to-day liquidity management; they are trying to reduce the share of reserves that can be frozen by US sanctions. That is a different function and a different threat than the liquidity comparison you draw.
Turkey has lately been selling billions of dollars worth of gold to support the Turkish Lira which caused the price of gold to dip but also suggests a degree of liquidity.
The U.S. $ is being held up by a contraction in the E-$ market. The contraction of the E-$ market has been going on since 2007. It was accelerated by Basel III’s LCR, and Sheila Bair’s assessment fees on foreign deposits, which changed the landscape of FBO regulations. It helped make E-$ borrowing more expensive, less competitive with domestic banks (the exact opposite of the original impetus that made E-$ borrowing less expensive, when E-$ banks were not subject to interest rate ceilings, reserve requirements, or FDIC insurance premiums). And now Powell has eliminated required reserves.
Worth noting that the coordination problem arises in social media. Everyone is on Tumblr because everyone else is on Tumblr. Until something is too much, and the Great Tumblr Exodus happens.
So I can predict that dollar dominance will appear continuous, even while being eroded, until some one event is the "straw that breaks the camel's back" and market participants flee to euros en masse, overnight.
It's not that "the U. S. dollar is a reserve currency", it's that U.S. Treasury securities are a reserve asset because the market for Treasuries is deep and liquid. A reserve asset is something that can be sold in very large amounts (billions of dollars) without changing its price. If you try to sell $50 billion of the government bonds of most major countries, you will create market disarray and will push down the price. This is not true of US Treasuries because the Treasury has over $30 trillion in debt and its bonds and notes trade in the billions daily. This is true of no other country's debt--certainly not China's. The global trading volume in Chinese government debt is negligible and Chinese government bonds denominated in yuan barely trade at all. The principal threat to the dollar as a reserve asset is gold and gold has been doing quite well lately; but I don't think that the gold market is as liquid as the Treasury market.
You make a useful technical distinction that the post´s level of generality glosses over, but the argument proves too much and ultimately collapses into the same conclusion.
The point about Treasury market depth is correct and important. The reserve asset function rests not just on the dollar as a currency but on the existence of a deep, liquid, benchmark safe asset that can absorb large institutional flows without price disruption.
No other country's sovereign debt market comes close — you´re right that Chinese government bond markets are negligible in global trading terms, and right that this is a structural constraint on renminbi internationalization that is separate from and arguably more binding than the currency question itself.
This argument actually strengthens the post´s concern rather than refuting it. If the dollar's reserve status rests critically on the depth and credibility of the Treasury market, then the fiscal trajectory — debt approaching 175 percent of GDP by mid-century, a One Big Beautiful Bill adding another $2 trillion, and episodic debt-ceiling brinkmanship that has already produced one technical near-default — is precisely the threat to monitor.
A Treasury market that is deep because there is $30 trillion in outstanding debt is also a Treasury market that is increasingly dependent on the continued willingness of foreign holders to absorb new issuance at acceptable yields. That willingness is not a physical property of the market; it is a function of institutional confidence. The distinction between "currency" and "reserve asset" does not escape the governance concerns the post raises — it relocates them.
On gold:you´re right that gold lacks the liquidity of Treasuries for large institutional transactions. But the more interesting recent development is not gold as a reserve asset in the traditional sense but central bank gold accumulation — particularly by China, Russia, and a range of emerging market central banks — as a hedge against precisely the weaponization risk the essay identifies.
They are not trying to replace Treasuries with gold for day-to-day liquidity management; they are trying to reduce the share of reserves that can be frozen by US sanctions. That is a different function and a different threat than the liquidity comparison you draw.
Turkey has lately been selling billions of dollars worth of gold to support the Turkish Lira which caused the price of gold to dip but also suggests a degree of liquidity.