 I'd like to express my gratitude to Lou Rockwell for his entrepreneurial genius and untiring efforts in building the Mises Institute into this intellectual powerhouse that it has become and to the Mises Institute staff for inviting me to participate in this important conference and to Paul Dietrich for sponsoring this lecture. We heard from Patrick Newman this morning about the rise of Brenton Woods in the operation of the Brenton Woods system where the dollar became the international reserve currency so I don't need to go over that idea again but I'll start with the breakup of Brenton Woods which he only touched upon. It was some expectation that when Brenton Woods system came to an end in the early 1970s that we'd move to something like a multi-polar as they called it multi-polar international reserve system and it turned out that this didn't happen. The Empire struck back and the dollar sort of miraculously reasserted itself during the the period from say 1982 to 2000. Again economists call this period especially the 1990s the great moderation where the dollar reasserted itself in its international status and I would go as far as to say that the dollar went beyond becoming just a reserve currency to becoming actually the unit of economic calculation for international trade and this has changed the way in which we should think about the future of the dollar and all the policy questions that have arisen in our discussions this week and so this is what I would just like to document for you in the talk and we'll leave it to the end to decide whether or not the you know the Death Star will be actually destroyed or whether you know some other scenario will be the final demise of the dollar. So let's start with this chart. This is a chart of the real S&P 500 S&P 500 normalized by the CPI and you could see these periods of that I'm working with these time periods that I'm working with so they on the left hand side it starts in the 1920s you see the build up to a 29 in the crash to the early 1930s and then and then the bottom that's reached after the war in June of 1949 and the conclusion from the you know economists when they see a graph like this they tend to think of capital accumulation or not the stock market you know generally moving up would indicate some degree of capital accumulation you could see that it was capital consumption during this period right and then we get this period from 49 to 66 January 1966 where the Dow base or the S&P 500 basically went up sort of steadily up you know went up and down but it's sort of trending up right this post-war boom and then the the breakup of Brenton Woods which begins really in the in this period of the late 1960s and I'm dating this to January 66 because that's what it seems to be indicated by the stock market movement right we get the bottom in June in 1982 and so again we get this period in 1970s of capital consumption perhaps but certainly not this sort of steady progress and then we see this progress renewed in this second wave of the rise of the Dow you know this re-constitution of the dollar standard to August of 2000 and the great moderation you can see in the 1990s the steeper and less jagged movement right and then and then suddenly it seems to falter again the dollar falters again and we get this renewed you know stock market crashes the dot-com bust and then and then the great recession and we're not really sure exactly what the fate of the stock market is going to be right we see this sort of boosting again but as was talked about yesterday this could just be the decoupling that we seen over time of financial markets from the real economy right and not not actual economic capital accumulation so that's the way I'm breaking up the periods so they're two faltering periods of the dollar the collapse of Brentwood's and then this post 2000 period and hopefully that re-orients now your minds to the differences between these two periods which is what I want to look at what what's causing the main difference between these two periods and now to see what the difference is let's just look at some other once we have these periods in mind look at this other data set so the blue is the annualized rate of change of the S&P 500 over these four periods these time periods that we looked at in the last graph and the orange is the annualized rate of change of real private product remaining which is the Austrian stand in for real GDP right and you can see you can see the difference the two periods of faltering of the dollar were periods of very low economic progress very low economic growth and the periods where the dollar you know was dominating the world monetary system versus a reserve currency and then if my claim is correct as a an actual unit of account of economic calculation we see much more robust growth economic growth and so that that's that's why these time periods are important and this is what I mean by the faltering of the dollar now let's add in the consumer price index and so this is the gray is the annualized rate of change of the consumer price index over these four time periods again and you can see some interesting things for example the the very extreme price inflation rates of the 1970s the first faltering of the dollar where it looks like it's on average the annualized change in the consumer price index was around 7% the gray bar right and then you could see that even though the we have found similarities in the growth rate that we mentioned in the last slide which is reproduced here again as the orange bar you can see that the rate of change of the CPI in the latest faltering of the dollar is quite low that the it's on target as the Fed would say close to 2% so so that's what that's the main difference that I'd like to call your attention to so how do we explain this well it turns out we can't explain it by looking at changes in the money stock so the the now gold bars are the true money supply and you can see again some interesting correlations right which is in the first two time periods of 47 to 66 and 66 to 82 the annualized rate of change in the true money supply is pretty similar and yet these two periods are quite different in terms of their economic growth right but more pertinent for for this talk is that you can see if you follow the next three time periods following the gray bars the price inflation indicator right you can see that it is steadily decreasing while if you pass your eyes over the gold bars and last three time periods you can see it's steadily increasing so actually there's an inverse relationship between faster growth of the true money supply and price inflation rates they're inversely related now this again arrests our attention to the main point that I want to stress which is as theory as we would know theoretically from Ludwig von Mises's work the rate of change in the purchasing power of money is determined in the same way as everything else in the market it's determined by demand and supply it's not determined by supply of a loan it's determined by demand and supply and so the question that we should pay attention to is where's the demand for money where's the demand for the dollar what's it what's happening to it to bring about this result given what you know is seeming inconsistency to explain it and well okay we know that the demand for the dollar is international and so we can split it between domestic demand and international demand right which gets us back to this very question that we've been looking at very intensely over over the conference and in order to get to this point I'm going to now turn to one of the great economists who specialize in the field of international trade and finance and in fact the one the Nobel memorial prize for his work in this field and this of course is none other than our friend Paul Krugman and Krugman Krugman is the archetypical example of what Friedrich Hayek had mentioned in his no Nobel speech where he said that you know the problem with giving economists Nobel prizes or Nobel memorial prizes is it creates hubris as Alex Bollack was talking about with the Fed and they think then that they can pronounce on anything you know they're expert in international but they're not an expert in all other fields of course this doesn't excuse Paul Krugman who doesn't seem to even be an expert in principles of economics you know that that's a different question but he said this very interesting thing is this is by the way a highly cited paper on the international role the dollar that he published in 1984 and he said this he said the future of the United States monetary system is largely a political question but the future of the international role the dollar is largely an economic one and again I would I would like to riff on this by saying that if I'm correct that the that the dollar has become essentially the unit of economic calculation for engaging in foreign trade transactions then it has a kind of status that it didn't have under Brenton Woods when it was merely a reserve currency it's still a reserve currency but now it's both whereas it didn't have this status before and that that I think it's important that we entertain this notion to to think correctly about the future of the dollar now I'm not sure you can see this okay but I just I cribbed this you know just lifted this from his paper if you can't see that this is the same thing blown up so he gets this nice little chart where he says look the demand the international demand for the dollar is both private and official or government and then he lists these subcategories according to the three functions of money right so medium of exchange a unit of account it's a store of value and just for a brief reference here it is easy to see perhaps what he means by invoicing on the unit of account right and a store of value he he's talking about banking's use of you know foreign banks use of the dollar in their you know transactions and so on the vehicle part of this he's talking about you international use of the dollar is a medium of exchange he's talking about forex exchange and right actual foreigners holding bank notes and things like this now in 1984 he concluded that it was still the reserve position of the dollar that was the most important source of the international demand for the dollar so he was still on the right hand side under this thinking that you know that's what we have to focus on is the reserve status of the dollar but actually again I would suggest that we need to move it and incorporate this other this other element so let's take a look at the evidence that I've compiled for this this is from Barry Eichengreen who put together a compilation of the currency composition of international reserves from 1947 almost the beginning of Bretton Woods up to 2015 and you can see the the solid line that moves up from the beginning is the U.S. dollar so you can see how it rises against the pound which is which is the dash line that's going down it's replacing the pound as the most important foreign currency reserve unit but you could see in about 1966 or so it reaches a peak the USD as a percent of the formally held reserves reaches a peak and then it falls and then it rebounds again it goes back up to about 1973 or so and the break in the data set is because the the compilation of the data was different and so there's a break there to indicate this and then you could see it begins to fall just like it's been doing over the last two decades right the percent of foreign exchange reserves by central banks that are held in form of dollar assets fell from about 1977 all the way to 1992 but remember what happened it's crossing over these two periods right it's falling at the end of the first faltering period of the dollar and then it continues to fall steadily through the rise of the dollar in the 80s and the 90s and so it's not really very well correlated with what's actually happening to the dollar's status internationally and then and therefore what's happening to the percing power of the dollar and so on and so forth so we shouldn't be my claim is we shouldn't be too concerned at the latter part of the drop off of the dollar now i want to go on to the evidence for the the status of the u.s dollar as a unit of account for economic calculation and this is from Rudy Judson who makes an estimate of the actual demand for u.s currency again as a percent of all holding of currency domestic and international of the dollar at home in abroad and here you can see the the solid black line is the is the estimate of all denominations of currency and you can see it sort of follows the same storyline that i'm suggesting it's flat in the 1970s to the early 80s and then and then the banknote holdings of foreigners start to increase as the dollar rebounds and then it decidedly increases in the early 1990s and then it starts to falter again in the late 90s that little blip is y2k you remember that remember the good old days when that was the thing we worried most about y2k yeah and then and then it sort of stabilizes or falls again to 2007 when the when the dollar is faltering again right we get these business cycles and so on and then it starts to pick up again and rises again so this is some evidence of better correlation than we have in reserve currency holdings this is way better correlation with the data sets we looked at before now this is the foreign holdings of us dollar banknotes uh this is the 4x exchange right where uh i'm sorry this is the continuation of the last uh slide where we take the data out to 2023 and you can see it's still rising right so the previous graph stopped at 2016 just to settle the point this is the foreign exchange turnover by currency and you can see it's steady the foreign exchange by currency is this figure of a 90% or 80 plus percent says that um on almost 90% of all foreign exchange transactions the dollar is on one side of the trade and that hasn't changed that's been stable right and this is the share of export invoicing remember Krugman said let's look at invoices let's look at vehicle holdings right uh so very high and stable percentages of dollars in invoicing in the americas in the asia in the rest of the world everywhere but europe where the euro dominates this is international banking claims steady right the blue line at the top is steady dollar holdings this is liabilities of the banks international bank liabilities are still dominate dominated by dollars and this is the share of foreign exchange debt issuance where we do see some some drop-off right of the dollars uh uh share uh in in the uh recent period and so what do we uh conclude from all of this uh well my conclusion is that uh we we should take this into account i think i think the data speaks to the uh this issue that the dollar has really um become more important in international trade and has in fact become a a medium of exchange for foreign trade uh transactions for exchange in foreign currencies because of course all businesses would like to be able to do their accounting international trade accounting in one currency right and so the the dollar dominates this and it gives it gives a greater a greater hold of the dollar's importance internationally and therefore the demand for the dollar internationally and support them of the dollar uh continuing as a uh as a uh you know in its status as a important international currency regardless of what happens to its reserve status now again i don't know what this means for the death star blowing up or not blowing up but i think uh this is an important element in our thinking out exactly how the future will play out so thank you very much for your kind attention thank you