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pacomartin
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August 3rd, 2012 at 11:09:14 PM permalink


Experts see demise of dollar as world currency

It may only be a matter of time before the US dollar gets replaced as the main currency in international trade, according to economists attending the meeting of the board of governors of the Asian Development Bank (ADB) in Manila.

--------------------------
A friend recently forced the US government to reveal what is happening with it's replacement color $100 banknote. He filed a Freedom of Information Act (FOIA) request which the government is legally bound to respond to. Officially the Bureau of Engraving and Printing (BEP) s transitioning to a new data management system, (which has been under revision for over a year).

The FOIA information is not good. After several years of development, they don't seem to have made any significant headway in being able to produce the color $100 note. In the meantime they are getting close to producing the 6 billionth 2006 (or 2006A) series banknote. As I've said before, overseas business people are increasingly not accepting the 1996,2001, and 2003 series $100 banknotes because of fears of a super counterfeit note.

Roughly 6 billion of the $100 banknotes are circulating overseas, where they drive much of the economy of the world (including illegal economy). Should the Euro fall in some countries, there will be an even greater demand for banknotes of stable value. Another 2.5 billion Benjamins are circulating domestically, where as far as I know, are universally accepted as far back as the 1996 series (only collectors still have the small head Benjamins).

Other countries produce "large value" banknotes, but in relatively small quantities. The Bank of England recently produced 285 million 50 pound notes, Canada printed 310 million of the new polymer $100 banknotes, Australia has 212 million polymer $100 banknotes, Sweden has 25 million 1000 crown notes, Denmark 30 million, and Norway 22 million (worth more than $100 apiece). All of these quantities combined are still much smaller than the US Benjamins in circulation, and they are mostly used for domestic consumption.

If Spain defaults on the Euro, they might use the British 50 pound note as a reliable store of value. I base this guess on the number of Brits who live and vacation in Spain.

But basically only the Japanese Yen and the Euro have banknotes in significant quantities that are comparable to the USA $100 Benjamin. Since the partial collapse of the Euro may be part of the problem that may be of no help.

Although the peseta and the drachma may be printed again, they will be used as little as possible since people know they will devalue.
24Bingo
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August 3rd, 2012 at 11:18:36 PM permalink
A year ago, I'd have said the changeover from dollar euro was inevitable. With the Eurozone economies crumbling, however, I'm going to say it'll default to the yen if this turns out to be it, although if it lingers a bit longer, I wouldn't be surprised if the yuan will be in a position to take over.
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Nareed
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August 4th, 2012 at 4:22:47 AM permalink
Gold.
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AZDuffman
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August 4th, 2012 at 6:03:54 AM permalink
Quote: 24Bingo

A year ago, I'd have said the changeover from dollar euro was inevitable. With the Eurozone economies crumbling, however, I'm going to say it'll default to the yen if this turns out to be it, although if it lingers a bit longer, I wouldn't be surprised if the yuan will be in a position to take over.



The Euro might be lucky enough to even survive itself at the rate that it is going.

The USD is only the third-ever reserve currency after the Pound and the Roman Empire. History shows you need both a domminant and dynamic economy and military to get reserve status. This leave Japan and China out. It effectively means should the dollar lose domminance then nobody is ready to take over for perhaps 50 years. Trade could get more barter-driven, a bushel of wheat for a barrel of oil type deals.
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pacomartin
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August 4th, 2012 at 1:27:45 PM permalink
Quote: AZDuffman

The USD is only the third-ever reserve currency after the Pound and the Roman Empire. History shows you need both a domminant and dynamic economy and military to get reserve status. This leave Japan and China out. It effectively means should the dollar lose domminance then nobody is ready to take over for perhaps 50 years. Trade could get more barter-driven, a bushel of wheat for a barrel of oil type deals.



Am I the only one that finds this screw up extremely alarming?

The 1996 series was only supposed to be around for ten years in order to stay ahead of the counterfeiters. A total 8.4256 billion notes were produced of the 1996, 2001, and 2003 series.


The 2006 series note was originally intended to be color. Instead the 2006 series is the same design as the 1996 series. The BEP is getting close to printing their 6th billion note from the 2006 series. The color note may not be ready for years. By then they will probably have produced 8 billion of the 2006 series.

It's difficult to believe that the BEP is having so much trouble designing money. Nearly every country has a modern banknote.


If people around the world lose faith in the Benjamin because of counterfeiting, billions of banknotes will come flooding back. It will make the trade deficit look tiny in comparison. Possibly as many as 5-6 billion Benjamins are circulating overseas.

For example last quarter we exported $53.697 billion to Mexico, and imported $73.483 billion worth of goods for a trade deficit of -$19.786 billion. Mexicans are probably easily holding a hundred billion worth of Benjamins (possibly more). If they start cashing them in, in large quantities, it would be much worse than the trade deficit.
AZDuffman
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August 4th, 2012 at 3:03:44 PM permalink
Quote: pacomartin


For example last quarter we exported $53.697 billion to Mexico, and imported $73.483 billion worth of goods for a trade deficit of -$19.786 billion. Mexicans are probably easily holding a hundred billion worth of Benjamins (possibly more). If they start cashing them in, in large quantities, it would be much worse than the trade deficit.



If they "cashed them in" it would be a big trade surplus for the USA, and high inflation. Remember, they are currency, not bonds. You cannot walk up to the Fed with a bundle and trade them for anything but new ones in better shape. You can't eat them. They are only good for trade. So if you lose faith, you have to buy something of value from an American who will keep using them.

Of course, most will just keep trading them among themselves. Bigger idiot game.
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pacomartin
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August 4th, 2012 at 3:56:44 PM permalink
Quote: AZDuffman

You can't eat them. They are only good for trade. So if you lose faith, you have to buy something of value from an American who will keep using them. Of course, most will just keep trading them among themselves. Bigger idiot game.



Most foreigners are keeping Benjamins as a hedge against their own currency. Because the world financial system is built around the dollar, it is usually the most secure banknote. The fear of counterfeiting may mean you have limited ways to spend your Benjamins. You may believe your own banknotes to be good, but if no one will accept them then they are of limited value.

The 1996-2003 series are almost never rejected in the United States. Many people may not accept the older pre-1996 small headed Benjamins domestically. With the limited number of these bills left in circulation, you can exchange them at a bank. But overseas there is a preference for the 2006 series. It isn't rational since a good counterfeit is not going to have trouble with the serial number which is printed on banknotes after the fact, and has no security features.

But you can go to a currency exchange and trade them in for Canadian hundred dollar notes. Or you can just exchange them at a bank for local money. The banks will ship them back to the USA.

But if the foreign citizens do nothing worse than stop procuring new American banknotes that is an issue. Right now they are absorbing probably 500 million new Benjamins a year. The issue of the Benjamins is the little cousin of the Chinese government and American treasury bonds. The Chinese government does not have to cash in all their treasury bonds, they just have to stop purchasing new ones to create a situation. My guess is that if they ever move on Taiwan, they will stop buying Treasury bonds a few months before. So when the crisis actually arises, the USA will think hard about extending military support to Taiwan.
Tiltpoul
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August 4th, 2012 at 5:29:11 PM permalink
Quote: pacomartin

It's difficult to believe that the BEP is having so much trouble designing money. Nearly every country has a modern banknote.



I'm not convinced that it's the design that's the problem. Americans have had a really difficult time accepting changes to the look of money. Moreover, as currency acceptors become more commonplace, this requires a change in coding and reprogramming. Yes, it seems like a no-brainer on the surface, but let's face it: Americans are lazy.

Business owners who don't want to update their systems probably have more pull than we give them credit for. If they say they don't want an update, even though the current bill gets easier and easier to counterfeit, the BEP will be hard pressed to get changes approved. Furthermore, the general public doesn't want colored money and fancy changes, and there could be a backlash.

This is an interesting topic, just because I hadn't really thought about how the 100 hasn't changed in a long time.
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AZDuffman
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August 4th, 2012 at 6:41:07 PM permalink
Quote: Tiltpoul

I'm not convinced that it's the design that's the problem. Americans have had a really difficult time accepting changes to the look of money. Moreover, as currency acceptors become more commonplace, this requires a change in coding and reprogramming. Yes, it seems like a no-brainer on the surface, but let's face it: Americans are lazy.



I have heard that the lack of change in US Currency design is another reason people aborad accept the greenback so readily. I can at least partially buy that.
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pacomartin
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August 4th, 2012 at 6:42:34 PM permalink
Quote: Tiltpoul

I'm not convinced that it's the design that's the problem. Americans have had a really difficult time accepting changes to the look of money. Moreover, as currency acceptors become more commonplace, this requires a change in coding and reprogramming. Yes, it seems like a no-brainer on the surface, but let's face it: Americans are lazy.

Business owners who don't want to update their systems probably have more pull than we give them credit for. If they say they don't want an update, even though the current bill gets easier and easier to counterfeit, the BEP will be hard pressed to get changes approved. Furthermore, the general public doesn't want colored money and fancy changes, and there could be a backlash.

This is an interesting topic, just because I hadn't really thought about how the 100 hasn't changed in a long time.



  • While the colors are fairly subdued, the first note with some color was the $20 entered into circulation on October 9, 2003. Because there are many $20 banknotes in circulation, they started producing them in February of 2002, and it took a year and half before they were ready to release them to the public.
    You don't need replacements for the entire stock in circulation, because US money is good forever, and it takes a while for the old notes to come in and be changed.
  • The $50 color note was released September 28, 2004. Because there are so few $50 banknotes in circulation, they only had to start producing them in July of 2004, and by September they were ready to circulate them to the public.
  • The color $10 note entered circulation on March 2, 2006, but the BEP started producing them in October 2005
  • The Series 2006 color $5 note entered circulation on March 13, 2008, but they started producing them in November 2007.
  • The color $100 note was supposed to be introduced in 2006, but they decided to delay it for the fives and tnes. They began printing the 2006 series $100 note with the old design in January 2007. The color note did not start printing until February 2010, three months later they stopped printing the old 2006 series. Then disaster struck, after they had printed 1.2 billion color notes. They discovered that they were seriously defective and the color was cracking. Now someone may well ask how they didn't notice this defect until over a billion notes were printed. It would be a good question.

    Finally by January 2011 they restarted printing the old series 2006 $100 banknote again. They have done their best to hide the state of progress, but they are required by law to respond to FOIA requests.

    So the situation has had no significant progress in several years. The distribution of new $100 notes is more difficult than smaller denominations, both because of their widespread geographic coverage, there are more $100 banknotes than any other denomination except the $1, and the fact that many people that have Benjamins don't really want people to know where they got them. The problem is further compounded because people are more anxious to get rid of the old notes and get new ones because they are afraid that people won't accept the old notes. Nobody was in a rush to turn in their old monochrome $5 or $10 banknotes for color ones. Similarly, there was big headed and small headed notes circulating side by side for many years without anybody caring.

    The EMU has less of a problem, because they only have 600 million 500 notes circulating which are worth about $750 apiece. We have 8 billion Benjamins out there, which must be replaced in fairly short order.
pacomartin
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August 4th, 2012 at 7:03:07 PM permalink
Quote: AZDuffman

I have heard that the lack of change in US Currency design is another reason people aborad accept the greenback so readily. I can at least partially buy that.


That may be true, but counterfeiting concerns trump people's distaste for change. Canada had some serious counterfeiting a few years ago.They decided to go ahead and put out a whole new line of currency. Of course, they are only circulating 1.6 billion banknotes (half of which are the $20). Plus, very little money presently circulates outside of the country.

24Bingo
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August 5th, 2012 at 12:29:03 AM permalink
Quote: AZDuffman

The USD is only the third-ever reserve currency after the Pound and the Roman Empire. History shows you need both a domminant and dynamic economy and military to get reserve status. This leave Japan and China out. It effectively means should the dollar lose domminance then nobody is ready to take over for perhaps 50 years. Trade could get more barter-driven, a bushel of wheat for a barrel of oil type deals.



You can't unfry an egg. With the gold standard essentially gone, and unlikely to return whatever Ron Paul supporters would have you believe, as accustomed as we've gotten to having a world currency, the world economy is just going to have to take what it can get.
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pacomartin
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August 5th, 2012 at 1:00:27 AM permalink
Quote: 24Bingo

You can't unfry an egg.



There was quite a bit of discussion in the 1990's about fixing the exchange rate of the currencies of Europe without physically issuing a single common banknotes and coins. Most people felt that the ECU could function as a reserve currency. The most important thing was the trade barriers to goods and the free flow of people.

While it was nice to be able to see the price of shoes in Italy and Spain, and be able to compare them without using a calculator, it was not necessary.

But the finality of having a single physical currency has now hit the fan. To fix Greece is now a massive problem. Instead the EMU could have adjusted the exchange rate of the drachma to something more realistic.
AceCrAAckers
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August 5th, 2012 at 1:12:46 AM permalink
Right now, we have been on a fiat system since 1971 when Nixon took us off the gold standard.

We are all using the petro dollar. When the countries do not accept dollar for oil, then the shtf. Countries that did not sign the agreement to sell oil only in dollars are, Iran,Iraq,Lybia. See any patterns?

Any change to this paradiagm will be resisted. War on terrorism is perpetual, like war on poverty. Change is coming, and historically all fiat money has collapsed. Usual life of a fiat is 40 years and we are past this. When the derivative market cracks, we will see the dollar die. There will be a mad rush for hard assests like gold or silver.

What will replace the dollar will be a new currency backed by gold, or partially backed by gold and this process will repeat again.
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heather
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August 5th, 2012 at 3:50:21 AM permalink
Forbes was saying Chinese Yuan would be the next global reserve currency last year. Don't know if things have changed since; I don't usually read Forbes.

Quote: pacomartin



I guess I don't need to tell you that they have those in Mexico now, too. I *really* like the new Mexican notes. Different colors, sizes, and they're plastic.
AZDuffman
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August 5th, 2012 at 6:49:42 AM permalink
Quote: pacomartin

There was quite a bit of discussion in the 1990's about fixing the exchange rate of the currencies of Europe without physically issuing a single common banknotes and coins. Most people felt that the ECU could function as a reserve currency. The most important thing was the trade barriers to goods and the free flow of people.



I seem to remember they had a "Eurodollar" not to be confused with Euros. It represented USD Deposits of the countries or something, and was traded. I can't remember hearing of it since the Euro. It was purely it was purely virtual.
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pacomartin
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August 5th, 2012 at 7:44:14 AM permalink
Quote: AZDuffman

I seem to remember they had a "Eurodollar" not to be confused with Euros. It represented USD Deposits of the countries or something, and was traded. I can't remember hearing of it since the Euro. It was purely it was purely virtual.



Euro Dollars go back to 1957 after the invasion of Hungary. The Soviet Union had money denominated in US Dollars, but after they invaded Hungary they were afraid the American government would freeze their accounts.

But banknotes are the refuge of the middle class. You live in Mexico and the peso was devalued by 50% relative to the dollar in 1993. You don't have the connections to safely open a bank account in America. So you keep $10K in Benjamins in a safe in your house as a hedge against the peso. Many people in Europe do that as well (as well as Americans who bought Euros back when they were trading at rates below the dollar.
pacomartin
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August 5th, 2012 at 8:34:10 AM permalink
Quote: heather

Forbes was saying Chinese Yuan would be the next global reserve currency last year. Don't know if things have changed since; I don't usually read Forbes.
I guess I don't need to tell you that they have those in Mexico now, too. I *really* like the new Mexican notes. Different colors, sizes, and they're plastic.



Quote: Bank of Mexico on Polymer notes

Why did Banco de México decide to use polymer to manufacture banknotes?The polymer banknote is more hygienic. Polymer banknotes last longer and are replaced less frequently, therefore representing a cost saving for Banco de México. Furthermore, they remain in good condition longer, thus making it easier to appreciate their security features.

What disadvantages do polymer banknotes have? They tear more often than paper banknotes. However, 20-peso polymer banknotes last three times longer than paper banknotes, and remain in much better condition. Should a polymer banknote tear, please go to any commercial bank office to exchange it, so it can be withdrawn from circulation. In most cases, these banknotes maintain their value.

Do polymer banknotes that have been patched with tape continue to have value? Yes. Polymer banknotes, like those of other denominations which have been patched with clear plastic tape, are still legal tender. It is worth mentioning that banks have the obligation to exchange them and to abstain from putting them back into circulation.



The Yuan is very tied to the US dollar, and cannot be a world currency in the next 5-10 years.

The plastic notes in Mexico are nice, but they have different problems in Mexico. The small notes are seldom deposited in the bank in small town or rural Mexico, so they circulate for years without being replaced. This problem is present in first world currencies, but is worse in Mexico because of the number of people without bank accounts.

Mexico issued about MXN$1800 per person (less than US$140) in banknotes of 200 pesos or smaller, and roughly MXN$4500 per person (roughly US$340) in the 500 and 1000 peso denomination. Mexico has significant number of US banknotes (and some Canadian) circulating within it's borders.

Right now Mexico has almost no problem with counterfeiting. If the US banknotes fade in popularity and the 1000 peso banknote gets more popular, that situation may change.

It is difficult to know where the half to 2/3 trillion dollars in American currency that is estimated to be in other countries is located. But if 10% is in Mexico, the value of American currency in Mexico may exceed the value of all the pesos. The American currency is not evenly distributed, as this photo of $200 million in a Mexican drug dealers house indicates.

Nareed
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August 5th, 2012 at 9:05:22 AM permalink
Quote: pacomartin

The plastic notes in Mexico are nice, but they have different problems in Mexico.




Oh, indeed. Like the childish habit among a large segment of the population to consider any torn bill as worthless. Worse yet, the person refusing to accept a note never admits to refusing it. Oh, no. it's always "I'm fine with it, but the bus driver won't take it," or "I'm fine with it, but the corner store won't take it," or "I'm fine with it, but the bank won't take it." SO everyone's fine with the torn notes, but no one will take them.

Quote:

If the US banknotes fade in popularity and the 1000 peso banknote gets more popular, that situation may change.



If the 1,000 peso note becomes popular, you'll know the four horsemen are not far behind.

Listen, one time I needed to pay something like, oh, 647 pesos, or some amount close to that. I tried a 1,000 peso note and was told "we don't have change for that." So I gave them two 500 notes, and miraculously they did have change for that. When I pointed out it was the same thing, I received a blank, utterly non-comprehending look in return.
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pacomartin
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August 17th, 2013 at 12:33:25 AM permalink
It is only 30 days until the new color c-note is released. Production was $25 billion of c-notes in July. There is a good chance that they will have 50% of the notes required to replace the $863 billion of the old notes circulating at the beginning of 2013.

While it looks like there won't be a massive crisis, it will still take the government close to two years to produce enough c-notes to replace the entire current circulation. While US money is legally valid forever, the old notes will quickly be regarded with some suspiscion.

I would get rid of all my c-notes this month. There is no point in waiting.
AcesAndEights
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November 1st, 2013 at 7:09:48 PM permalink
Quote: pacomartin

It is only 30 days until the new color c-note is released. Production was $25 billion of c-notes in July. There is a good chance that they will have 50% of the notes required to replace the $863 billion of the old notes circulating at the beginning of 2013.

While it looks like there won't be a massive crisis, it will still take the government close to two years to produce enough c-notes to replace the entire current circulation. While US money is legally valid forever, the old notes will quickly be regarded with some suspiscion.

I would get rid of all my c-notes this month. There is no point in waiting.


I wouldn't be that paranoid. I trust my local Wells Fargo branch to accept my old C-Notes for several years, since I have a history with them. Maybe an extra procedure or something a few years down the line...

Speaking of which, I tried to get some of the new bills the day or so they came out and several branches didn't have any. I have about $3K I'd like to trade in semi-soon, but one teller/manager predicted they wouldn't make it out this way (west coast) until nearly Christmas! I don't believe that, but anyway.
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SanchoPanza
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November 1st, 2013 at 7:52:31 PM permalink
Exclude the reniminbi and you exclude one-quarter of the globe.
Buzzard
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November 1st, 2013 at 9:29:30 PM permalink
I think the dollar survives. I remember in the 70's and 80's when Japan was gonna surpass the US. And now it's China. The fat cats that run this country usually win out.
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soxfan
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November 1st, 2013 at 9:35:51 PM permalink
As Germany has actual ownership of the gold in Fort Knox, they next global reserve currency will be a fully gold backed German mark, hey hey.
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