Monday, October 26, 2009
To a large extent, isn't a reserve currency simply a function of minimizing transaction costs? Especially transaction costs relating to acquisition of supply for businesses. The dollar is useful as the basis of trade because a fair portion of global expenditures are in dollars. If more is produced in China, at a certain point, people should be comfortable holding Chinese Yuan because they know they will be able to spend it. I wonder how much of the status of the U.S. is based on its years of being the core manufacturer and agricultural producer of the world.