[wildbourgman]

I think Peter Schiff has touched on this topic. If your not familiar with him he has extensive you-tube debates and speeches. I like his speeches and interviews best. He's extremely direct and not afraid to make a prediction and why it will happen and also not afraid to say when he's been wrong and why. I think he's pretty funny too.

[SeaGypsy]

What does Peter Schiff suggest the ramifications of loss of the petrodollar & reserve status will be? (I'm antipodean, don't follow much American commentary.)

[wildbourgman]

DOOM!

[SeaGypsy]

Cool! I probably concur. The least that can be confirmed is that no US administration has shown any sign of wanting to abandon the status. Killing millions isn't something normally done for a nominal loss.

[wildbourgman]

$this->bbcode_second_pass_quote('SeaGypsy', 'W')hat does Peter Schiff suggest the ramifications of loss of the petrodollar & reserve status will be? (I'm antipodean, don't follow much American commentary.)

[SeaGypsy]

Ok, have been here before. The problem I have with this idea is that there really isn't anything to replace the reserve currency. Other major currencies are either manipulated or in dire straights, none has the volume to replace the $USD, the 'currency basket' idea which gets floated a lot is a basket case. The petrodollar is a bit different because the US is still the biggest oil buyer, of course they are not keen to have to start buying baskets of other's currency to purchase oil.

[wildbourgman]

All the theory needs is a catalyst.

[SeaGypsy]

The more countries start dealing directly in commodities, bypassing the dollar, the more they do so without suffering the wrath of Sam, the more other countries will see the benefits of such & the snowball effect could be the end of the petrodollar. As developing countries modernise their financial systems, float their currencies, trade directly with each other, the more established economies outside the USA will be drawn to such arrangements. Besides this the need for a reserve currency at all may be close to over anyhow, as both financial systems modernise & computerised currency comparisons can instantly compare around the world, to any other currency. Interesting times.

[Tanada]

Have no fear, the World Bank will issue an all new UN fiat currency and everything will be happiness and light with the One World Currency. http://en.wikipedia.org/wiki/World_Bank

[SeaGypsy]

Yeah that old chestnut, like the Amero. I can't see it happening, ever. The OWG is a fantasy. There will always be too much nationalism for the UN to monopolise the financial system, with or without the World Bank. Who trusts the UN now, let alone giving them sole authority to print money?

[Tanada]

It would not start as sole authority to print money, after all the central banks of most countries started out as just the depository of record. Growing into money printing/digitizing could be a long slow process (or it could happen overnight). A week or so ago the US Federal Reserve digitized a TRILLION dollars into existence to pay off Chinese notes that had come due. Every country with substantial holding in US Treasury notes saw this happen, it was not done in secret. Every one of those holders is now expecting the same thing to happen where their T-bills come due.

Every one of them also knows what that means for the long term value of the US Dollar.

[SeaGypsy]

Sure, then they remember the US Navy, Airforce, etc. which still has no rival.

[Tanada]

$this->bbcode_second_pass_quote('SeaGypsy', 'S')ure, then they remember the US Navy, Airforce, etc. which still has no rival.

[SeaGypsy]

Which brings up the big O.

[AndyA]

What 'reserve currency' means is that Central Banks and international businesses hold some money aside for a rainy day. The hold foreign reserves so that when foreign bills become due, if they lack the means to buy foreign currency they can use the reserves. This makes it easier to get loans from foreign banks, because they can see that you have some spare cash you can use in a tight spot. It doesn't have to be the USD, most central banks hold reserves in many currencies as well as gold. This can be sold at short notice and be used to repay loans in foreign currency. The fact that the USD is the main reserve currency means that there is greater demand for USD then Swedish Krona for example, increased demand means the US gets a better price for its currency then Sweden. So the benefit is lower interest rates for the US.

USD are a great reserve currency because there are so many of them, and there is a very liquid market. So a central bank could sell a lot of them in a short time without too many problems.

The gold standard was only one part of Bretton Woods, the other parts are the IMF, WTO and World Bank, which all support the USD by making all transactions dollar denominated. So even though the gold standard has been dropped, Bretton Woods is still functioning as intended, without the hassle of a gold standard.

The only thing that could cause the USD to lose reserve currency status would be a collapse of the US economy, because it is still backed by the IMF, WTO, World Bank and the pentagon. Getting around those things is no easy task, and can only happen very gradually, at the same time most of the worlds GDP supports the USD status.

As to the title question: Fiat money is currency which derives its value from government regulation or law. It differs from commodity money, which is based on a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange.
So yes there are many regulations and law that give the USD value, not just in the US but all over the world, you could say the USD is the worlds biggest fiat currency

[DesuMaiden]

The underlying premise is simple...it is not money that makes the world go around...it was and is always the underlying supply of cheap energy, most of it coming from oil, that makes the world go around. Cheap energy is the basis of any economy...money is just a medium of exchange for services and products. Anyone who thinks the USA economy will collapse because of inflation and money problems is wrong...energy shortages will be the real thing that kills the USA economy. The 2008 economic collapse, for example, was not due to financial issues (I.e. a housing bubble or record high levels of debt) but rather the record-high price of oil (147 dollars a barrel).

Energy is what makes the world go around and not money. That's the bottom line.

[SeaGypsy]

Nuclear is the only realistic option & time is running out on that one. Our resident proponent Tanada, calculated some number of new nuclear stations required to replace oil, I don't recall the number but it was more than 10 fold what is happening. With enough electricity you can make liquid fuels basically out of air & water.

[DesuMaiden]

So the simple answer is, yes, the USA currency is a fiat currency.

[wildbourgman]

$this->bbcode_second_pass_quote('DesuMaiden', 'S')o the simple answer is, yes, the USA currency is a fiat currency.