Editor’s note: Matthew Klein is one of the smartest global economics reporters. He describes how the US being the central banker to the world hurts our economy. The dollar is pushed too high, our debt grows to big, and economic decisions of foreign governments spill over into our economy.
The U.S. economy is about 25% of the global total in dollar terms, and significantly less if you adjust for price differences across countries. It is even smaller relative to world trade, yet the dollar is the dominant currency for trade invoicing and cross-border payments. More than 50% of all international trade is denominated in dollars, while 30% is denominated in euros. The rest is a mix of other currencies, mostly the British pound, Japanese yen, and Chinese yuan.
[Matthew C. Klein | August 28, 2019 | Barrons]
This, however, understates how much global trade is denominated in U.S. dollars because intra-European transactions, such as Germany to the Netherlands, or Hungary to Austria, are treated as equivalent to trade between Brazil and China, or between Korea and Thailand. After all, the point of European economic integration is to make national borders within Europe irrelevant for the purposes of trade and finance….
Read the full article here.
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