[SnS_12]

Originally Posted by thanixravindran

But for payment in any foreign currency, there has to be equivalent demand for that currency in other markets. Example: If India is paying in Rupees, Russia should have something to buy in Rupees (Balance of payment) or use Indian rupee to buy something from some other county. For the sheer number of countries, I think this is practically infeasible as not every country can balance their trades. So I believe this is where Gold become the standard of exchange and later the dollar. So essentially all countries can use Gold or Dollar and buy anything across the globe. Am I right? A crude analogy I can think of

If you look at what happened after WWII, global currencies were pegged against the US$ and the US$ against gold at a price of US$ 35 to a ounce of gold (Bretton Woods agreement). This meant that all national currencies were valued in relation to the US dollar since it had become a dominant reserve currency. The gold standard also increases the trust needed for successful global trade — the idea is that paper currency has value that is tied to something real.

The goal of this type of monetary policy is to prevent inflation as well as deflation, and to help promote a stable monetary environment.

But then USA had the Vietnam war happening and this is when governments don’t like the gold standard as a war increases expenditure and they don’t have enough gold in reserves to print more money against. However global leaders got suspicious about US in the 70’s that they were printing more than they had gold to back it so they started to give back US$ in exchange of physical gold.

By 1971, President Richard Nixon had called for a temporary suspension of the US$ convertibility. Countries were then free to choose any exchange agreement, except the price of gold. In 1973, foreign governments let currencies float; this put an end to Bretton Woods, and the gold standard was ousted.

From the 1970s to today, most countries have run on a system of fiat money, which is money issued by the government that is not backed by a commodity. The value of money is set by supply and demand for paper money, as well as supply and demand for other goods and services in the economy. The prices for those goods and services, including gold and silver, can fluctuate based on market conditions.

So now you understand how US used this to their benefit to print as much money as they want and the petrodollar to maintain demand for the excess cash printed...

Hence, countries like Turkey when they see economic hardship they buy up US$ as it will hold up value better than their own currency. But what will countries do if the US$ it self starts dropping in value what will they do with the US$ in the gold standard they would have at least got back gold against the US$ but now nothing...

Also, countries like China devalue their currency against the US$ and hence become a good market for exports and manufacturing. But the US$ they earn they don’t exchange it for their currency as it will increase the value of their currency and instead buy US treasury bonds so the money goes back in the US financial system. As the world feels US can never collapse and US$ can never loose it value but ultimately its just a piece of paper and has nothing tangible to value it against.

The increase in cost of living we see today aka inflation has all started after moving away from the gold standard. During the gold standard inflation never reached in double digits.

Now if you look at gold when does the value of it increases? Whenever the world looses confidence in global economy or markets. So who gains from keeping gold prices low? Individuals or governments? Also, who holds huge stack of gold? Individuals or governments? Hence, there is a belief that governments have been artificially suppressing the value of gold so that it doesn’t become a more valuable mean of exchange against the US$. Between 99 and 2002 the Bank of England sold a massive amount of gold and bought instead Euros and US$ against the sale. Other countries reserve banks like France, Switzerland also did the same thing. So, with such amount of gold put up for sale it keeps the price down.

Net net countries feel that gold is a competitor to their national currency as gold is money and their currency is basically a money substitute. Fiat money gives power to the governments and Real money keeps the power with the people. With Real money governments can only spend what they earn and if they want to earn more they need to tax their citizens more but with Fiat money they can print as much as they want. So now you understand how America has been able to fund so many wars when in reality a country takes decades to recover from a single war.

But with all the financial instability in the markets recently look at gold prices and where it has reached or could reach. And who has been buying more gold its the non mainstream central banks like Mexico, China, India and Russia and not the top central banks who are involved in the international bank of settlements.

With gold there is a saying that you don’t own it until you hold it. As most of the gold traded in the world stays either with new York Federal reserve or Bank of England and if these guys put sanctions on you you can’t even sell your own gold. Russia had already planned keeping these things in mind and prepared accordingly for the current situation.

[SnS_12]

Originally Posted by thanixravindran

If this above context is correct, then, isn't Yuan be the natural successor given China's economic heft?

Wouldn’t it just mean replacing the Yuan with US$ and repeat the whole issue all over again. By not backing a currency by anything tangible and backing the world’s currency with that one single currency as a global reserve gives it immense power and control over everyone else and this power is misused which is happening in the case of America currently with all the Trillions of US$ printed without thinking of the consequences of such a move. 80% of the US$ printed and in circulation currently has been printed in the last 24 months. Now you know why the inflation is so high in US now. They have just misused this faith the world had on their currency as just passed on their inflation on the whole world. They had problems in 2019 and the virus came and their money printers went online and printed money at lightning speed to keep their economy afloat at the cost of the rest of the world.

Now, can you even imagine giving the same kind of power to China by pegging your money against theirs? Russia knows what China is capable off and will use them till they need they know they won’t come for their help unless it benefits them more like in the current situation. With Fiat money you need a country which can be trusted with its money printing to be kept in check and there is no country on whom you can trust on this and especially not China. Further China is a economic giant because they have devalued their currency against the US$ hence became the manufacturing hub for the world. If countries go back to the gold standard China might loose this edge and countries might get their jobs back.

A country which is rich in energy and has other commodities to sustain itself without deepening on others is an economic giant in today’s world as energy is the core to everything and hence country have less leverage over you. China and India cannot take this place yet as we rely on other countries for our energy needs. All this going green energy will take time and we are still decades away before they can actually replace fossil fuel. Countries like Germany will be off Nuclear Energy by end of this year you think green energy alone can provide electricity for the country they would continue to buy gas for many years and Russia knows this.

All this global warming and climate change talks hence is considered by many a reason for taking these powers from these Energy Rich countries. As America has a lot of Oil and Gas it doesn’t need to import for its needs but for countries like Saudi will collapse if it can’t sell Oil and hence you see a change in the governments attitude over the years and trying to generate new sources of income.

Finally pegging your currency to Gold will work for Russia as this is a tried and tested model and other countries will feel secure about it after seeing the effects of the experiment of replacing it with Fiat money in the last 50 years. Gold has been a medium if exchange for 1000’s of years. It holds its value and is easy to store and can be kept for ever. Which other commodity can provide this can you store wheat if you think the prices are so high and it is a good alternate as a reserve currency?

[thanixravindran]

Originally Posted by SnS_12

If you look at what happened after WWII, global currencies were pegged against the US$ and the US$ against gold at a price of US$ 35 to a ounce of gold (Bretton Woods agreement). This meant that all national currencies were valued in relation to the US dollar since it had become a dominant reserve currency. The gold standard also increases the trust needed for successful global trade — the idea is that paper currency has value that is tied to something real.

Originally Posted by SnS_12

Wouldn’t it just mean replacing the Yuan with US$ and repeat the whole issue all over again. By not backing a currency by anything tangible and backing the world’s currency with that one single currency as a global reserve gives it immense power and control over everyone else and this power is misused which is happening in the case of America currently with all the Trillions of US$ printed without thinking of the consequences of such a move.

Hello SnS_12, Thanks for your detailed posts on this subject. I have read about the history of the Dollar and reserve currency as well the gold standard. Your explanation aligns well with my reading.

I know in India Gold is considered God's metal since time immemorial. I don't recollect reading any other metal of such prominence in our history. No wonder it is used in trade and as 'reserve' by our kings along with 'grains' for rainy days.

Now back to the topic, my belief is Industrial revolution changed the way the trade was done by West with East especially India and China. If I understood correctly, it was mined more and used to correct the imbalance British and other Europeans created (along with Silver from Latin America) on the trade with East. I also read that India and China were trade surplus during those times but don't know how true those claims are.

And the sheer practicality of the usage of a rare earth metal has made it to adopt the balance of trade post the Industrial revolution. Apart from this, I could not find any other reason why Gold standard came into the picture in trade. I fully agree how Dollar a fiat currency was tied to it and become the sole reserve currency and tilted the balance one side. Don't you think it is because of the economic (and military) heft of USA that helped in achieving it (Before it was Britain who dominated with Gold and its Pound sterling) and maintaining it with Petro Dollars from Middle East?

Main reason I asked about Yuan or RMB is the only way I see the economic might comparable and catching up after Industrial revolution by any country was with China.

I can understand the bigger countries trying to move away from Dollar (Example: India buying gas/oil from Russia and exchange with Tea, with China through exchange of natural resources Vs Finished goods) and may even possible in our lifetime but don't the other countries need a medium of exchange given the diverse nature of economies and trade?

Is there any reason why this currency reserve or trade settlement was not on the table of WTO talks when the trade was globalized? This is the reason I asked about BANCOR which seem to have been proposed by UK? but did not get acceptance at the end of World War 2.

Finally not fully related to the above but somewhat related, is there any reason SWIFT type of financial systems are under control of select countries without any WTO like protection? Is the WTO all about tariffs and penalties of trade but not on financial systems? Or the negotiations so weak to leave the financial system out of the ambit?

[SnS_12]

Originally Posted by thanixravindran

Now back to the topic, my belief is Industrial revolution changed the way the trade was done by West with East especially India and China. If I understood correctly, it was mined more and used to correct the imbalance British and other Europeans created (along with Silver from Latin America) on the trade with East. I also read that India and China were trade surplus during those times but don't know how true those claims are.

The gold standard as we know it came into affect in the 18th century and till then people used to trade in silver, gold coins or little less valuable metals. But then certain countries were running trade deficit and were falling short of coins and that is the time the invention and spread in use of paper money started and gold coins were eventually supplanted by banknotes, creating the gold standard.

Originally Posted by thanixravindran

I fully agree how Dollar a fiat currency was tied to it and become the sole reserve currency and tilted the balance one side. Don't you think it is because of the economic (and military) heft of USA that helped in achieving it (Before it was Britain who dominated with Gold and its Pound sterling) and maintaining it with Petro Dollars from Middle East?

Originally Posted by thanixravindran

Is there any reason why this currency reserve or trade settlement was not on the table of WTO talks when the trade was globalized? This is the reason I asked about BANCOR which seem to have been proposed by UK? but did not get acceptance at the end of World War 2.

The answer to both the above is the bargaining power the US brought to the table at the Bretton Woods conference compared to the Brits. Brits were heavily indebted and broke after WWII and were seeking flexible exchange rates and US on the other hand had around 60% of the total known gold in the world and pushed for a fixed rate which tied US$ to the gold and ultimately had it their way

Originally Posted by thanixravindran

Main reason I asked about Yuan or RMB is the only way I see the economic might comparable and catching up after Industrial revolution by any country was with China.

I can understand the bigger countries trying to move away from Dollar (Example: India buying gas/oil from Russia and exchange with Tea, with China through exchange of natural resources Vs Finished goods) and may even possible in our lifetime but don't the other countries need a medium of exchange given the diverse nature of economies and trade?

The global order at the moment is balanced on the US$ and its a complex web and hence what happens to the US and its currency affects the whole world. If US$ starts loosing value maybe Euro might try to replace it as the new world reserve but how that will happen is to be seen how do the other world currencies get their valuation aligned so that their business are not affected. Countries like Japan and China will not like the US$ to de value as they own high amount of US debt and plus even if they do want their money back what will they do later as their economy is dependent on the US as its their biggest consumer. The world has no experience with the global monetary system being dependent 100% on Fiat money as earlier there were always some sort of gold standard angle in play along with it. So how do you account for those Us$ printed and flowing in the global system without destroying global economies.

Hence, how will the financial system react and behave no one can say accurately but when things go south financially people would not like to try a new alternative and would stick to a try and tested method. This is where the global order could change dramatically and major countries who are current economic power house can have trouble holding on to that. On paper US still has the highest Gold reserves but if some reports are to be believed than China has nearly two to three times of that amount with them which has not been officially disclosed (Not surprising with Chinese data). And then you have countries like Canada who have zero gold reserve as per official data. So is China planning to replace what US did after WWII and make its currency the new global reserve backed by Gold??

One thing is for sure in the current Ukraine crisis that all countries like China, India who have not sided the west on this issue have been increasing their gold holding along with Russia. Is this a mere coincidence or they have planed something together to get gold back into the money market as a dominant player is to be seen.

Originally Posted by thanixravindran

Finally not fully related to the above but somewhat related, is there any reason SWIFT type of financial systems are under control of select countries without any WTO like protection?

The system is dominated by US as the major currency transacted through this system is US$.

[Samurai]

A Quora question: What country is poorer than most people think?

https://www.quora.com/What-country-i...t-people-think

Plenty of people have named USA/US, but one answer on the top gives most detailed answer.

[aargee]

Originally Posted by Samurai

A Quora question: What country is poorer than most people think?

https://www.quora.com/What-country-i...t-people-think

Plenty of people have named USA/US, but one answer on the top gives most detailed answer.

Surprising that the Quora says it's a country in Asia, while most (and yours truly) of us think it's Africa. Possible they mentioned it's Asia as there's no one standard to measure the scale of poor & poverty as the basis of poverty/poor depends on atleast GDP or people's living standard or income per capita that I can think off.

This site says it's Africa based on the source of information from World Bank, & U.N. Human Development Report

Another independent site (sources unknown) states Africa

Another US based independent site (which ofcourse could be biased) also states Africa

Our famous Wikipedia also states Africa defining the criteria to be based upon GDP per capita where Africa tops the list

[Samurai]

Originally Posted by aargee

Surprising that the Quora says it's a country in Asia, while most (and yours truly) of us think it's Africa

Look at the question again.

What country is poorer than most people think?

Most people think Africa as you said. So that doesn't count.

[aargee]

Originally Posted by Samurai

What country is poorer than most people think?

Most people think Africa as you said. So that doesn't count.

Sir, in that case, many Countries count as it's perspective & can change with every individual; on that account India & even China will qualify. Until a few years ago, I used to think China was bragging that they're strongest economies with decorated Shanghai, Beijing & Shenzhen district, while most unheard parts of China are still under poverty.

[Samurai]

Originally Posted by aargee

Sir, in that case, many Countries count as it's perspective & can change with every individual; on that account India & even China will qualify.

Lots of people think India is poor, so it doesn't count. China will qualify, and Quora answer does mention that.

Ultimately, this is about income inequality, which is what really matters. When we say rich country, we are counting everyone. But if you look from income inequality numbers, USA, France, UK, China are much worse than India. What that means is a small minority has most of the income when compared to majority which has the least. For example, top 10% of US population has 18 times more income than the bottom 90%, on average. It is only 8.6 times in India.

[aargee]

Originally Posted by Samurai

Ultimately, this is about income inequality, which is what really matters. When we say rich country, we are counting everyone

Thanks for clarifying Sir Yes, on that account, yes we all tend to generalize. There's some amount of poverty in every developed/rich country & few rich people in every poor country!!

Originally Posted by Samurai

What that means is a small minority has most of the income when compared to majority which has the least

Got it!! It's the analogy of Extrimistan from Black Swan.

[carboy]

Originally Posted by Samurai

For example, top 10% of US population has 18 times more income than the bottom 90%, on average. It is only 8.6 times in India.

But their poor have more money than probably 70% of Indians.

India's median (not average) income is around 2 Lakhs per annum - i.e. 2,600$ a year. i.e. 50% of India earns less than 2,600$ per year.

In the US, anyone earning less than 25,000$ a year is considered low income. 12,500$ a year is Federal Poverty Level. US median income is 36,000$ dollars per year - i.e. 50% of Americans earn more than 36,000$ a year.

The difference in the standard of poor between India & US is so vast that we shouldn't even be comparing them. And this would be true even after considering Purchasing Power Parity.

[Samurai]

We all love Amazon retail shopping, but what is the human cost of it?

The video is mistitled, it refers to the last story in the video.

https://www.youtube.com/watch?v=pI8frDL9WvE

[hdus001]

Originally Posted by Samurai

For example, top 10% of US population has 18 times more income than the bottom 90%, on average. It is only 8.6 times in India.

I'm guessing this is based on disclosed income. I think it's common knowledge this isn't very accurate in India. All you have to do is look at the declared assets of politicians to know this is several orders of magnitude way off.

[am1m]

Is the present Sri Lankan economic crisis similar to what we went through in 1991? I have only a very basic understanding of economics, but seems very similar with a rise in external debt and depleted forex reserves? Or are those just 2 symptoms of any economic crisis and the causes are different? So would a series of reforms like we were forced in to in the 90s work for Sri Lanka? Or again, is that too broad a generalization- some reform will be needed for sure, but again something different?

(Thanks in advance for any explanations.)

[locusjag]

Originally Posted by am1m

Is the present Sri Lankan economic crisis similar to what we went through in 1991? I have only a very basic understanding of economics, but seems very similar with a rise in external debt and depleted forex reserves? Or are those just 2 symptoms of any economic crisis and the causes are different?

The first blow to SL was struck by the Tamil Nadu Towheed Jamaat's acolytes as they wrought havoc on the island in April 2019, during Easter, with a series of bomb blasts. Sri Lanka's Tourist footfalls fell 20% in 2019 year-on-year.

Then came 2020-2021's pandemic...

Tourism has for long been SL's 5th largest source of national income and hence a lot of pain was felt.

Amid all of this economic pain, Mahinda Rajapaksa unfortunately listened to and was misled by Indian firebrand environmental activist Vandana Shiva, on the virtues of organic farming. So in April 2021, he summarily banned chemical fertilizers, with an eye on a windfall benefit of reduced chemical fertilizer import bills. What followed next was plummeting farm output levels and SL found itself short of food grains (rice mostly) and even its Tea production took a massive hit. Tea exports from SL are held in high esteem over and above India's tea...but their usual export item is missing from the international market now mostly.

Then Russia invaded Ukraine and oil prices shot up. And all hell broke loose in Sri Lanka shortly thereafter.

This is my reading of the sequence of events that have affected Sri Lanka. This seems nothing like India's problems in 1990.