One idea that all goldbugs seem to subscribe is the one summarised by Hercules when stating that American [foreign] policy is all about the dollar.
A corollary of such premise is that America's involvement in the last two world wars must have been all about defending the dollar, a fact that I find strange because the number one reserve currency at that time was, if I am not mistaken, gold. On the same token, I also find strange the idea that America's involvement in Vietnam was equally all about defending the dollar, presumably against the inroads of the North Vietnamese currency into the global currency markets
With so much US debt in foreign hands and facing economic stagnation I presume that it would be in America's interest to devalue their currency, something that goldbugs have been predicting for quite a long time, but so far in vain. This must be undoubtedly a puzzle to them
You may say that the great problem with the US dollar as a reserve currency is that America's monetary policy and therefore the value of its currency tend to be subject to the interests of the US economy rather than those of the rest of the word, a fact epitomised in the saying: " the dollar is our currency, but it is your problem' . If you say that, I would certainly be with you. But the problem here is that China, or any other country for that matter, would have done the same under similar circumstances. And don't come to tell me that under the gold standard things were different because they were not as illustrated by the fact that countries left the standard when they found it to be convenient.
I also hear you people saying that America derives an enormous advantage from the US dollar being a reserve currency, although I must say that I tend to view your suspicions on this matter as an exaggeration Certainly that America derives from the dollar being a global reserve currency prestige, some money in the form of seigniorage and better access to the capital markets than otherwise, but that seems to me to be all. But whatever those gains are they do come at a price. When foreigners buy dollars they force down the value of their currency against the dollar, US manufacturers are thus penalized by the overvalued dollar and so must reduce production and fire workers.
Hercules mentioned a rule of thumb about the amount of reserves that a country should have in order, I presume, to be able to fight speculators or, if you prefer, to defend one's currency in case of need. If I am not mistaken he put the ideal amount at an amount enough to cover 8 months of imports.
That may well be the case, but bearing in mind what happened during both the GFC and the Asian Financial Crisis that must be only valid when expecting relatively minor periods of instability.When during the GFC capital deserted Europe for the USA, the FED had to come to the rescue with the provision of 600 billion in extra liquidity injected into the markets by means of a swap with the ECB. That is, 600 billion newly printed dollars secured by an equivalent amount in newly printed euros, dollars that the ECB end up by providing to the European banks in need of them.
Although I am not an expert, I presume that the recent arrangements between China and Australia aim also a providing extra liquidity, but for a different reason, namely the difficulty in getting renminbi outside China.
