2001 - I am now a member of the WTO. Now the whole world will be my oyster. But the US is my favourite market, and I want to sell everything over there. Good thing I am pegged to the US dollar.
2003 – Whee! I’m so flush with dollars! This peg is the best thing in the world. I continue to sell more wares to the US consumer, who doesn’t seem to know when to stop buying. And despite my accumulation of dollars, my wares continue to drop in price, because I keep the peg. I don’t care about my local consumer, I just want him to find work. I will sterilize all these US dollars so they don’t find their way into funding the locals’ taste for foreign goods.
2005 – Okay, I play along because everybody’s getting worried about the rising US deficits. I change my fixed peg to a managed peg. Everybody feels a bit better, though what was the big diff? I manage my peg so its stays fixed to the exchange level I want.
2007 – Uh, oh, my economy’s overheating. Too many people speculating on growth. After all, I’ve managed to grow double digits for more than a decade straight. Money continues to roll in, and more jobs are moving here from that consuming monster, the US, and from all over the world. I now want to move up the production scale. Hmmm, I think I want technical jobs to move over here too. Why not? My peasant workers work cheap, they don’t complain, and I’m still pegged to the dollar!
2009 – The US is printing money like mad! They continue to prop up their false economy, and look what it’s doing to my precious hoard! They’re losing their value! And what am I going to do with all this fixed income government bonds, whose yield is being destroyed by this madness? I better move my investment towards other things…like commodities, and perhaps, I’ll start buying companies abroad. That will help prop up other countries' wretched currencies, and perhaps…… this will benefit my long-term plan of bringing all global jobs here at home.
2011 – What am I going to do with all these commodities? There’s no more demand for my finished goods, and I fear that I may have wasted all that money I put into this junk. And my investment in foreign companies! These foreigners have no respect for the shareholder. They’re just burning through the capital I invested in them. They keep telling me they can’t make money if they don’t get access to my home market. As if!
2013 – The US is still printing like there’s no tomorrow. And they’re using this funny money to pay me the interest and principal on their bonds. They have no shame! I’ll yet show them who’s the boss. But I can’t just dump my US holdings without hurting myself in the process. After all, I’m now their biggest creditor, because of all my accumulated dollars. Oh what an idiot I’ve been! What am I gonna do?
2015 – I’ve been buying real assets in the US, mainly real estate, mines, and all that stuff. After all, they don’t make more of these anymore. I’m hoping this gives me a good hedge to the falling dollar value.
2017 – Shit! There’s another US market collapse! My real estate holdings, gone down the drain. My mining investments, they’re worthless now that nobody can afford to buy anything anymore. This lost decade is turning out to be a real bummer. I’m still trying to figure out how to get a positive yield on my dollar holdings. My local economy is now in shambles. With foreign demand having disappeared more and more these past few years, it would now take a miracle for me to keep pumping out goods. Even if I sell them at 10% of what it cost me to produce, nobody buys. I don’t know what will happen now that more of my own local population is out of work. Not much local demand has been created here, because if I try too hard to stimulate local demand, it won’t be long before these irritating foreigners start selling more to my locals, and God forbid that I start buying more abroad than I sell to them.
2019 – US lawmakers are pressuring me for the umpteenth time to abandon my peg. What do they want to happen? Don’t they realize that if I abandon my peg, their currency will have a meltdown? They won’t be able to rollover their debts. These Americans are so foolhardy, they don’t know what they want.
2021 – Yikes! The US just demonetized the dollar. It’s now issuing an entirely new currency, at a fraction of the exchange for the old one. And they're rationing it just to locals. My whole stash is now worthless! I should have given up the peg years ago, and just given the money to my local people to spend abroad. Now they don’t have jobs, I don’t my US dollars, and the world is now moving on without me. Where has this world gone to? Waaaaaaahh!!
update: Confessions of a consummate dollar hoarder