What is the anchor asset of the dollar

  Compared with the Fed’s system, the currencies of mainstream countries are “government currency”, which is based on national strength and credit; the Fed is “federal currency”, which is independent of the US government, forming the special status of today’s dollar.
  Recently, the Federal Reserve has made many moves, raising interest rates and shrinking its balance sheet, causing shocks in the global financial market. A popular saying in China is that the Federal Reserve is an organization of private bankers in the United States, and the central banks of various countries are all institutions authorized by the governments of the host countries to operate and execute and formulate monetary policies under the authorization of the central government. Such a central bank also existed in the early United States, known as the First Second National Bank in history. Until 1913, Morgan, a legendary figure among private bankers, in order to deal with the comprehensive and systematic financial crisis and adjust the economic rhythm, united 12 banks and the seven major chaebol families in the United States to establish the Federal Reserve, the Federal Reserve Board of the United States.
  After the establishment of the Federal Reserve, it has always maintained its independence. In 1951, the Federal Reserve and the Treasury Department reached an agreement, and the Federal Reserve, as the central bank of the United States, gained policy independence and began to formulate and implement modern monetary policy. Because of its significance, the 1951 agreement is known as the Federal Reserve’s Magna Carta.
  The smartest institutional design of the Federal Reserve is federalism, that is, a reserve association composed of a dozen major banks, and the association adopts voting methods to select executive officers. At the same time, the association has set up more than a dozen local associations across the country, and these local associations have centralized banks in each jurisdiction.
  The decision-making mechanism is voting, and a bank has only one vote. The voting mechanism is also adapted to the national conditions of the United States and is formed with reference to the existing federal structure of the United States. Moreover, in order to avoid the suspicion of monopoly and dictatorship and conspiracy with the government, the Reserve Association has been transformed into a bankers association as much as possible.
  The smoke of the Second World War has not yet dissipated. Representatives of 72 countries held a meeting at the Bretton Woods Resort in New Hampshire, USA. The meeting chose the “double-pegged” international The monetary system, the dollar is linked to gold, and the currencies of various countries are linked to the dollar. This is the famous Bretton Woods monetary system. This system turned the dollar into an international currency, and the Federal Reserve became the international central bank.
  In the “double-pegged” currency system, the anchor asset of the US dollar is gold, which can be exchanged for gold at any time by countries at an exchange rate of US$35 an ounce. Unfortunately, the good times did not last long. After President Nixon took office in 1971, he implemented the New Economic Policy, one of which was the decoupling of the US dollar from gold. After the U.S. dollar was decoupled from gold, the U.S. dollar became an “anchorless currency”, and the world entered a turbulent era.
  After the decoupling of the U.S. dollar and gold, the anchor asset of the U.S. dollar chose oil. This is the famous Kissinger strategy: whoever controls oil controls all countries; whoever controls food controls all people. At the Jamaica conference in 1976, the United States signed an agreement with oil countries such as Saudi Arabia to lock in the oil/dollar transaction, so there was the petrodollar. After the rise of the euro, the United States signed an agreement with the European Union to lock the relationship between the euro and the dollar, so there was the eurodollar. Japan’s economic rise, Japan’s trade surplus holds a large number of US dollar bonds, and then relies on the US dollar to issue a large number of Japanese government bonds. Since then, China’s foreign exchange reserves have grown sharply, and China’s policy is that any US dollar entering the country must be controlled by the Chinese central bank and exchanged for the equivalent amount of renminbi. Foreign exchange reserves have become a channel for China’s currency issuance.
  In this way, oil + euro + Japan + China has actually become a reserve asset for the US dollar as an international currency, and the Fed’s system has also achieved a comparative advantage. Compared with the Fed’s system, the currencies of mainstream countries are “government currency”, which is based on national strength and credit; the Fed is “federal currency”, which is independent of the US government, forming the special status of today’s dollar.

error: Content is protected !!