Devine, James: > Ulhas writes:>Why does the world continue to accept debt payment in dollars? > I remember De > Gaulle refusing dollars and demanding payment in gold in '60s.< > > because the U.S. is the most powerful country in the world and in the era > since 1971-73, money based on political-military power has replaced money > based on precious metals.
US is powerful, but there are limits to US power. (e.g. US has not been able to capture Bin Laden 8 months after 9/11) US is the most powerful country in the world, but this power has grown dramatically after the disintegration of fSU. US power wasn't so all pervading in the 70s and 80s. e.g. India's trade with the Soviet block (between 15-20% of India's foreign trade) was entirely in Indian currency. US political- military power could do nothing about it. Can US compel China to hold fx reserves in dollars, if China was unwilling? Yes, precious metals have been replaced by $. But, if Euro or Yen were strong enough, the rest of the world would, perhaps, hold its reserves or a portion of them, in those currencies? Ulhas
