The US dollar became the world's reserve currency during a time of booming industrial output, strong fiscal management, and chronic trade surpluses. The United States was the greatest creditor nation in world history, and lent generously to friendly nations--and even our former enemies--to help them rebuild. The US was the factory floor for the whole world, and was the only major industrial country unscathed in the Second World War.
None of that is true anymore. The US is now the world's largest debtor, and hasn't run a trade surplus in decades. Federal government borrowing is a disgrace. These titanic deficits are financed by borrowing, largely from abroad.
The huge pools of US dollar reserves held in banks around the world should be shameful to Americans, instead of sources of pride. They are now our liabilities, our borrowings from the other countries of the world, instead of our lending.
China currently has no ambitions, nor the means, to replace the dollar. But they are increasingly successful in using the Chinese RMB as a major trading currency, especially with resource--rich countries. These trading relationships further deepen their huge advantages up and down all the world's most important supply chains and logistics systems.
As more of the world's trade moves to bilateral swap arrangements with Chinese RMB, dollars will be going back to the US. Trillions of dollars coming home will add even more fuel to the already out-of-control inflation.
