Following up on "The Alphaville Long Read On SWIFT and Russia (and reserve currency status)", the reason I threw the "reserve currency" bit into the headline is: any attempt to exclude Russia from SWIFT effectively de-dollarizes their external transactions and leads to the implementation of alternative payment messaging systems.
Although the U.S. currently has reserve currency hegemony, both the EU and China want to be the next currency hegemon and some very bright people understand that beyond the headlines are some profound effects on world power.
As a side note on effects behind the headlines, if the reader is curious as to why Justin Trudeau reversed his decision to use the Emergency Act, even though he had just won a (party-line) vote ratifying his initial action, my guess is someone very high up in the ultimate corridors of power, meaning Toronto rather than Ottawa, explained what capital flight meant, both in theory and in practice.
Anyway, I digress. Here is Charles Hugh Smith at his Of Two Minds blog taking a different angle of attack to get to the essence of the reserve currency issue. January 19, 2022:
Choose One, But Only One: Defend the Billionaire's Bubble or the U.S. Dollar and Empire
The Empire is striking back, protecting what really counts, and the Billionaire Bubble sideshow is
folding its tents.
One of the most enduring conceits of the modern era is that the Federal Reserve acts to goose growth and therefore employment while keeping inflation moderate (whatever that means--the definition is adjustable). This conceit is extremely handy as PR cover: the Fed really, really cares about little old us and expanding our ballooning wealth.
Nice, except it doesn't. The Fed's one real job is defending the U.S. dollar, which is the foundation of America's global hegemony a.k.a. The Empire.
One thing and one thing alone enables global dominance: being able to create "money" out of thin air and use that "money" to buy real stuff in the real world. The nations that can create "money" out of thin air and trade it for magnesium, oil, semiconductors, etc. have an unbeatable advantage over nations that must actually mine gold or make something of equal value to trade for essentials.The trick is to maintain global confidence in one's currency. There is no one way to manage this, as confidence in a herd animal such as human beings is always contingent. Once the herd gets skittish, all bets are off....
....MUCH MORE
For our purposes that's really all there is to it. For at least the last 500 and more likely the last 5000 years the reserve currency was as much a source of power as it was a reflection of it.
Or as Valéry Giscard d'Estaing said when he was de Gaulle’s finance minister, it's an "Exorbitant Privilege".
And no one likes giving up their privileges.
