Re: Reserve Status
Jay Mills
What wouldn’t change (according to MMT):
- The U.S. would still be monetarily sovereign. It issues its own floating fiat currency (the U.S. dollar) and can never run out of dollars or be forced to default on dollar-denominated debt.
- The U.S. government doesn’t need foreign currency or borrowing to spend. Foreign countries buying Treasuries is a savings decision—not a funding requirement for U.S. spending.
MMT view: Reserve currency status isn’t what enables spending—monetary sovereignty is.
But some real consequences could occur:
- Weaker dollar over time:
If fewer countries need to hold dollars or Treasuries, demand could fall and the dollar could gradually weaken. - Imported inflation:
A weaker dollar makes imports more expensive (especially energy and raw materials). This could raise inflation, which MMT sees as the true constraint on government spending. - Reduced global pricing power:
The U.S. might lose some influence over global pricing of oil, commodities, and tech, which could weaken its geopolitical leverage. - Interest rate impact (maybe):
If global demand for Treasuries drops, rates could rise—but MMT emphasizes that the Fed still controls interest rates and can keep them low by purchasing government debt if necessary.
Key MMT Voices:
Warren Mosler says reserve status is the result of U.S. trade deficits—not a condition for funding.
Stephanie Kelton has said reserve currency status is overrated; countries demand dollars because they want safe assets, not because we need their money.
Bottom line (MMT view):
Losing reserve currency status wouldn’t stop the U.S. from spending or cause insolvency.
But it could lead to a weaker dollar, higher import prices, and less global influence.
The real constraint remains inflation, not foreign creditors.
Best,
Jason
Warren Mosler
The US losing reserve status in the future is a topic amongst some including personal friends and family.
I did a little digging and tried to find an MMT informed analysis and the following came up:What wouldn’t change (according to MMT):
- The U.S. would still be monetarily sovereign.
- It issues its own floating fiat currency (the U.S. dollar) and can never run out of dollars or be forced to default on dollar-denominated debt.
- The U.S. government doesn’t need foreign currency or borrowing to spend. Foreign countries buying Treasuries is a savings decision—not a funding requirement for U.S. spending.
MMT view: Reserve currency status isn’t what enables spending—monetary sovereignty is.
But some real consequences could occur:
- Weaker dollar over time:
If fewer countries need to hold dollars or Treasuries, demand could fall and the dollar could gradually weaken.
- Imported inflation:
A weaker dollar makes imports more expensive (especially energy and raw materials). This could raise inflation, which MMT sees as the true constraint on government spending.
- Reduced global pricing power:
The U.S. might lose some influence over global pricing of oil,
- Interest rate impact (maybe):
If global demand for Treasuries drops, rates could rise—but MMT emphasizes that the Fed still controls interest rates and can keep them low by purchasing government debt if necessary.
Key MMT Voices:
Warren Mosler says reserve status is the result of U.S. trade deficits—not a condition for funding.
Stephanie Kelton has said reserve currency status is overrated; countries demand dollars because they want safe assets, not because we need their money.
Bottom line (MMT view):
Losing reserve currency status wouldn’t stop the U.S. from spending or cause insolvency.
But it could lead to a weaker dollar, higher import prices, and less global influence.
The real constraint remains inflation, not foreign creditors.
--
Best,
Jason
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Ryan Benincasa
Jay Mills
Ryan: Hold USD reserves → Weaken local currency → Cheaper exports → More U.S. demand
+ Reserves facilitate trade + finance U.S. deficits → Sustain U.S. import appetite
Here’s a ChatGPT analysis with China in mind:
🇨🇳 China’s USD Reserve Strategy to Boost Exports
1. Currency Management: Keeping the Yuan Weak
- China regularly buys U.S. dollars and sells its own currency (the yuan, or RMB).
- This prevents the yuan from appreciating too much, even when China runs large trade surpluses.
- A weaker yuan means Chinese goods remain cheaper for U.S. consumers, boosting exports.
📉 Example: In the 2000s, China tightly controlled the exchange rate (≈8 RMB per USD), helping drive the U.S. trade deficit with China to hundreds of billions annually.
2. Massive U.S. Treasury Purchases (Vendor Financing)
- China holds over $800 billion in U.S. Treasuries (as of 2024).
- By doing this, China helps finance U.S. government deficits, keeping U.S. interest rates lower.
- Lower interest rates boost American consumption and borrowing, fueling demand for imports—including Chinese goods.
💡 Think of it like this: China sells goods to Americans, earns dollars, and then lends those dollars back to the U.S. so Americans can keep buying more.
3. Trade and Payment Simplicity
- Because global trade runs on dollars, China holding USD reserves reduces friction when Chinese companies transact with U.S. buyers.
- It ensures that China can quickly settle international invoices, pay for dollar-denominated shipping and logistics, and absorb short-term shocks.
4. Export-Led Growth Model
- China’s economic model (especially from the 1990s–2010s) depended on exporting goods to the U.S. and Europe.
- Holding USD reserves was a strategic tool to ensure macroeconomic stability, manage the yuan, and make Chinese exports consistently attractive.
Net Effect:
China recycles its trade surplus into USD reserves → Holds down the yuan → Keeps exports cheap → Enables U.S. consumption → Drives even more exports.
This cycle helped power China’s rapid industrialization—and is one of the reasons the U.S. has run persistent trade deficits with China since the 1990s.
Jay Mills
Luke,
A weaker dollar boosts U.S. manufacturing competitiveness, supports export growth, and may lead to more domestic investment and jobs—especially in tradable goods sectors.
A weaker dollar helps but does not eliminate core structural challenges:
- U.S. labor is expensive
- Domestic production increases prices
- Developing countries still dominate low-cost goods
👉 The path forward isn’t to out-China China. It’s to specialize, automate, and strategically choose what to bring home—not everything.
✅ Most Likely to Return or Expand in the U.S.
Sector | Why It Can Compete |
Semiconductors | Strategic priority (CHIPS Act), high-tech, low labor input, national security concern |
Aerospace & Defense | Advanced engineering, national security, high-value exports (e.g., Boeing, Raytheon) |
Pharmaceuticals & Biotech | High profit margins, intellectual property–driven, reshoring incentives after COVID |
Electric Vehicles & Batteries | Green energy push, automation-friendly, massive federal and state subsidies |
Industrial Machinery & Tools | Capital-intensive, durable goods, close-to-market demand (e.g., Caterpillar, John Deere) |
Medical Devices | Highly regulated, quality-sensitive, increasingly reshored for resilience |
Specialty Chemicals | U.S. advantage in cheap energy (natural gas), environmental controls for sensitive production |
⚖️ Possibly Reshored (Under Right Conditions)
Sector | Challenges/Opportunities |
Apparel Prototyping & Fast Fashion | U.S. unlikely to produce bulk T-shirts, but small-batch, quick-turnaround production may reshore with automation |
Consumer Electronics Assembly | High labor content, but firms like Apple are exploring some U.S. production for final assembly (e.g., Mac Pro in Texas) |
Automotive | Some reshoring already happening (especially EVs), but dependent on labor costs, union pressure |
Furniture & Home Goods | Possible for high-end/custom pieces; bulk production still favors Asia |
🚫 Least Likely to Return in Bulk
Sector | Why It Won’t Likely Reshore |
Textiles (Mass Production) | Extremely low margins, high labor cost gap (Bangladesh, Vietnam) |
Plastic Toys & Basic Goods | Low skill, highly commodified, cost-driven |
Basic Electronics & Components | Complex global supply chains, heavily centered in East Asia |
Low-End Appliances | Brands rely on global volume and razor-thin margins, often made in Mexico/China |
🧭 Key Takeaways
- High-tech, capital-intensive, or policy-supported sectors are most likely to reshore.
- Labor-intensive, commoditized industries will stay offshore unless production becomes fully automated.
- U.S. competitiveness relies on strategic value, automation, and proximity to market, not just cost.
- Jason
On Jun 18, 2025, at 7:47 AM, Luke Lucas <galio...@gmail.com> wrote:Would a weakened dollar be good for US manufacturing? Allow US companies to expand?
Warren Mosler
Warren Mosler
Luke,
A weaker dollar boosts U.S. manufacturing competitiveness, supports export growth, and may lead to more domestic investment and jobs—especially in tradable goods sectors.
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