What is a dollar

A dollar is a promise. A promise that you will be able to acquire goods and services from Americans. But it is not a specific promise for specific goods, but a vague promise. It is however a promise with momentum, and the rest of the world has coordinated around the power of the dollar for trade. This is powerful insofar as dollar-denominated markets outcompete other coordination methods.

Up to 1971, a dollar was a promise for a specific amount of gold, so the track record of our new type of dollar isn’t that long, just a bit over fifty years. Importantly, this fiat system hasn’t survived a world war. If China tried to invade Taiwan, and the US mobilized its economy when entering a war to prevent that, this system of fiat money might not survive.

More esoterically, the distribution of dollars is a mechanism of coordination between some groups against others: the rich against the poor, the old against the young, the Americans against everyone else. As dollars become more concentrated, at some point the young and dispossessed might be better off coordinating using a different currency built anew, rather than orienting their lives around taking care of older and richer people whose grip on them is through the dollar.

At that level of abstraction, it seems a more salient possibility to me that the American financial system dies not through a fairer distribution of dollars, but through replacing the dollar with a different coordination method. This description sounds innocent, but the process could become violent, akin to peasant revolts. The specific way it might manifest could be through something like the EU’s Directive on the Resilience of Critical Entities, where some industries are categorized as “critical entities” and employees can’t quit, must work.

At an international level, countries in BRICS and throughout the world are also starting to coordinate around systems of trade that use the dollar as an accounting unit, rather than as a medium of exchange. This too is dangerous for the value of the dollar.

Relatedly, it’s not clear to me that stocks are not, in some sense, a Ponzi scheme, where the value has long decoupled from profit flows and now depends on a greater fool to hold the bag. It is also not clear to me that stocks have appreciated in real terms, i.e., that you can acquire more things in the real world with inflated assets. Partly this is because in some sense prosperity is a choice a community makes together, and if a community decides not to build infrastructure, not to permit housing, to procure shitty food, then it’s not clear to me that they have wealth, even though the nominal dollar amounts in their banks might go up.

During the Russian invasion of Ukraine, I learnt that the exchange rates between different currencies depend not on the relative worth of their regions, but of the marginal desirability. And so you can get weird things, like the Russian ruble going up at times, not because Russia becomes more desirable, but because the exchange opportunities between rubles and dollars become so limited that the desires of those who can exchange them trump other considerations. Similarly, currently, more Europeans want to get American goods (iphones, social media, deliveries, the American dream) than Americans want to get European goods (museums, absence of hurricanes, better community, etc). But this is only a partial indicator of the relative worth between the two regions.

Anyways, I see some of my friends orienting their lives around receiving dollars from people they don’t respect, conditioning on beliefs that they don’t have, to do tasks that they overall find boring, and I think this is sad. I do see the appeal of earning dollars in places with high nominal wealth (but poor real wealth, like Saudi Arabia or San Francisco), and later moving to places with low nominal wealth (but high real wealth, like Spain for a Spaniard—Alonso, you were right). That said, I prefer my current approach, which is to figure out what I wan’t to do (Sentinel), and then coordinate with people that also want to make that happen so that I can get dollars insofar as I need them to execute my plans.

In summary, dollars are already an imperfect coordination method, and they would become even more so if the US gets on a war footing, or in a longer list of catastrophes. To me it doesn’t make sense to rely on the dollar remaining strong throughout a lifetime, because dollars are not really fundamentally tethered to a source of value. At the same time the above thoughts are somewhat half-baked, and I welcome thoughts & pushback in the comments!