Pettis on the Greatly Exaggerated Death of the Dollar

Starting with some discussion of the PBoC's use of SDRs for reserve accounting and the various theories around it, he says (The titillating and terrifying collapse of the dollar. Again.):

Should the US continue playing this role? In my opinion if the economic costs do not already significantly exceed the political benefits, it is only a question of time that they begin to do so. This is the great irony of the global financial crisis. While China, Russia, and France lead the charge to strip the US of its exorbitant privilege, and the US and it’s allies resist, in fact each side should take the opposite position, especially if they wanted to benefit most from beggar-thy-neighbor policies. If the US were to take steps to prevent foreigners from accumulating US assets, the result would be a sharp contraction in international trade. The US current account deficit would fall as a direct function of the reduction in net capital inflows, and as it did so, US unemployment would fall and GDP growth rise.

At the same time the European and Chinese current account surpluses would fall exactly in line with their ability to export capital, and they would be forced to choose either to lend capital to capital-poor developing countries, forcing them into substantial current account deficits that would make repayment highly unlikely, or to suffer the consequences of a collapse in their surpluses, which almost certainly would cause both soaring debt and surging unemployment. If Europe and China were prevented from handing exorbitant privilege to the US, their economies would suffer terribly.

The U.S. dollar's reserve currency status is the price the U.S. pays for global domination of international institutions. Remove it, and the access to U.S. markets, and the U.S. loses a big carrot. This is terrible for the State Department and the Wall Street controlled Treasury Department. Not so much manufacturers and labor. Pettis later says:

The US should lead a reconvening of the world’s economic policymakers in a global conference to restructure the global capital and trade regime, so that countries looking to kick-start or goose domestic growth cannot do so at the cost of US unemployment or rising US debt levels. Enshrining SDR is is a start. If central banks were allowed only to accumulate SDRs, the US would be forced to absorb just under 42 percent of these distortions, as opposed to the roughly two-thirds it currently must absorb. Europe would be forced to absorb almost 31 percent and China, Japan and the UK between 6 percent and 11 percent.

Maybe this is possible under a Trump presidency because he would give up international power, which would be traded for wealth and jobs returning to the U.S. It will not happen under a Clinton presidency, or under any other president who prefers the status quo. It would be difficult even for Trump though, since social mood is negative. An international agreement is getting less likely over time.