Fed to scale back bond buying

[specuvestor]

Firstly the facts: there is an official reserve currency list by IMF. AUD was recently upgraded. And yes Swiss Franc is actually one of the 5 original component of COFER and I wont be surprised if RMB is added within the next 5 years.

http://www.investopedia.com/financial-ed...ncies.aspx

Secondly I think many still dont quite understand the fiat system after the various discussions in various threads. HitandRun had explained the Bretton Wood but didn't go far enough The mighty pound was the main exchange medium before WW1 and London was the financial center of the World. But the process of decline is much more slow than impatient humans want it to be. I doubt RMB will surpass USD in the next 20 years in terms of reserve %.

"In the 1950s the sterling area (35 countries and colonies pegged to sterling and holding primarily sterling reserves) accounted for half of world trade and sterling accounted for over half of world foreign exchange reserves. It took ten years after the end of the war (and a 30% devaluation of the pound) before the share of USD reserves exceeded that of sterling. "
http://www.worldfinancialreview.com/?p=511

The pound was backed by the British Empire ability to mine gold. But US became a dominant power after WW1 and a superpower after WW2 (those who believe in "creative destruction" should study the wars) and Europeans were owing the US truckload of money... which is mainly denominated in USD. With the Bretton Wood the USD was enshrined as the de facto currency of the world as it is the only one intrinsically backed by gold. After the fall of Bretton Wood, Kissinger actively pursued oil to be priced in USD to keep the demand of USD stable. He knew the benefits of a reserve currency status more than mere theory.

The idea of reserve currency is NOT new, the idea of a FLEXIBLE FIAT system is new. There is a difference. With reserves primarily in USD, the US is able exercise her hegemony over the other countries as they are the anchor/ pivot. Hence it was one of the core idea for the birth of Euro.
http://www.telegraph.co.uk/news/1399693/...rling.html

Thirdly though it is true that technically the Fed doesn't need to care about other countries, but since asset prices especially bonds are priced off the US$ curve, the Fed has a big impact to the world, which was not "unintended". This responsibility comes with the inherent advantage of being the reserve currency ie seniorage, reduced currency risk, intrinsic demand for US assets including debt and equity etc. And of course G7 "doesn't care" about FX since they only need to take care of their internal issues. Competitive devaluation is a non starter.

Last but not least, though I have great respect for Bernanke's pragmatic approach, especially the standby swap lines with major central banks, he is largely not considered the best central banker in the world which is recognised as either goes to RBA Glenn Stevens or Israel's Stanley Fischer (who is tipped to be the Fed vice chair, which could actually be very awkward for Yellen)
http://www.gfmag.com/tools/best-banks/11...z2nzgE1fUa
(Using 2012 as a reference as Fischer retired in 2013)