A decentralized algorithmic stablecoin that is overcollateralized like DAI is a demonstrably working solution. The smart contracts on Ethereum that control the DAI have sensible incentives for market participants to maintain the peg and the overcollateralization is sufficient. There is no need to trust any central party.
If a mass of transactions were sufficient, then Bitcoin would be much more stable. It is true that the USD is relatively stable not because the USG somehow "guarantees" its value rather than because the dollar is legal tender in the US. It is overwhelmingly the path of least resistance to use it for transactions in the US. The eurodollar system (international dollar denominated finance) is significant but the main stabilizing mechanism is the self-regulation of its issuance through US banks.
I disagree. The USD use case as legal tender pales compared to the international markets and what it represents. In the FTX OTC market, for example, about 90% of the $98 trillion in holdings is USD. That is just one example.
There are:
And that doesnt include the Repo markets or any of the daily transaction activity (which is into tends of trillions daily).
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Why is the USD relatively stable in terms of consumer prices in the US?
Because the Fed (arguably part of US government, although it is a quasi-private entity) manages USD inflation (defined as consumer prices) to try to target 2%. If the value changes by much more than that, they adjust monetary policy to try to get back to 2%. This is not always successful (as now, with 9% inflation, not really stable at all over time if it persists), but mostly tends to be.
That's what I was talking about said but Taskmaster disagreed if I understood him correctly. The management you talk about does not happen directly but by setting the key interest rate that affects the rate at which commercial banks lend money and by open market operations in which the Fed purchases bonds.
You are right. The Fed has to manipulate and play games since they do not do money. There are no USD involved in what the Fed does anymore. There was a time when settlements were done in physical cash where they could affect things directly. This is no longer the case.
So their operations are nothing more than expectations of what is happening. The Fed front runs everything in an effort to get the markets to buy in.
They actually put out swap arrangements which is technically purchasing (with an agreed upon sale) but they are not buying with USD like you or I would.
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Interesting. This is the key point.
Or because everyone else is using USD denominations because of the extensive international financial tools in the USD based banking system and also their big f-ups themselves :p
The large trade deficit. Since the US has so many imports, it has relative stability as compared to other countries. Other countries have to deal with their local currency while having to buy and sell internationally in USD. This means currency movements really come into play.
Plus, the USD is spread over the globe (and more areas) than even the Euro, which is essentially regional.
The size, depth, sophistication, and liquidity of the USD give it a lot more stability than other currencies.
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Smack down, brutal counter. May I ask, where do you pull those numbers from?
Have to did through many different sources. A lot of them come from the Fed themselves. Few realize the Fed's website is a treasure trove of data.
Others come from research papers. Of course, when dealing with these numbers it is often guesstimates at best (who can count to 1 trillion let alone 100 trillion).
The banks put out a lot of research. Plus you can look at the market makers.
For example, I used Morgan Stanley's holding $500 billion in repledge Treasuries in one video. That came from their own filings.
For example, the FX reserves are out there by all central banks. A lot of this is just basic arithmatic.
FRED, which is put out by Federal Reserve of St Louis, is a valuable website too.
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I need to start reading these Papers from time to time too. It seems to me that understanding those is a very basic skill that I still lack.
Thanks for the explanation, I’ll start digging from those starting points.