The US Dollar and Trade

There’s been a ton of talk in the news about trade deals in other parts of the world, but let’s be real – do they really matter?

I don’t think so. The talking heads on the news keep talking about how other countries are diversifying away from the US dollar, but in reality, that doesn’t benefit them, especially China.

Here are some reasons why a strong dollar is not beneficial for China:

1. Currency Reserves: China is the world’s largest holder of foreign exchange reserves, which includes a significant amount of US dollars. A strong dollar increases the value of China’s dollar-denominated assets and helps to maintain the value of its foreign exchange reserves.
2. Trade: China is one of the world’s largest exporters, and a strong dollar can make Chinese goods cheaper for US consumers. This can increase demand for Chinese exports and help to boost China’s economy.
3. Investment: A strong dollar can also make US assets more attractive to foreign investors, including those from China. This can lead to increased investment in the US economy and help to strengthen economic ties between the two countries.
4. Debt Repayment: China is a major holder of US Treasury bonds, which are denominated in US dollars. A strong dollar makes it easier for China to repay its US dollar-denominated debt.

In addition, here are some reasons why the dollar will continue to be the currency of preference for quite some time:

1. Stability and liquidity: The US dollar is one of the most stable and liquid currencies in the world. It is backed by the world’s largest economy and the US government’s reputation for financial stability and fiscal responsibility. This makes it a reliable currency for international trade and investment.
2. Reserve currency status: The US dollar is also the world’s reserve currency, meaning that many central banks hold US dollars as a reserve asset. This gives the US dollar an inherent advantage in international transactions and makes it easier for foreign entities to obtain and exchange US dollars.
3. Large market for US dollar-denominated assets: The US has the world’s largest financial markets, including the New York Stock Exchange and the Nasdaq. These markets offer a wide range of US dollar-denominated assets, including stocks, bonds, and other securities, making it easy for foreign investors to invest in US assets.
4. Wide acceptance: The US dollar is widely accepted in most countries around the world, including those that do not use it as their own currency. This makes it a convenient currency for international transactions.
5. International trade: The US is one of the world’s largest trading nations, and many commodities, such as oil, are priced in US dollars. This has helped to establish the US dollar as the preferred currency for international trade.