tradeIn November 2003 issue of Forbes, Warren Buffett proposed a way to keep balance of trade. A commodity exchange would trade export credits which would be necessary to import goods or services into the US. When a non-US entity buys goods or services from the US it gets export credits it can sell or use to import goods into the US. This would favor a market dynamics where import-export trade would tend to be in balance due to demand of the export credits.
What is the problem with this scheme? What is the name of it? Where can I read more about it?
It's very similar to the Financial Rand which South Africa operated during Apartheid to control financial outflows due to sanctions. Any traded dollars are already an explicit guarantee which is only honoured by the US government in exchange for goods, so the proposal you describe isn't a different system, it's just a different currency. The downside is that it would not be freely exchangeable and would have the immediate impact of ending the US dollar as the world's reserve currency (which it has simply because it is so easy to trade).
The economic impact to America of not being able to borrow easily as a result of acting as the reserve currency will be an end of cheap credit and destabilisation of the world economy.
Imagine you live in a country of consumers. One day you can buy a new TV for 500-1000 and its a good TV. Then congress comes in and says you can only trade with us if you trade evenly. Since things are so much cheaper there than here that means you have to buy 10x more than you export to us.
This consumer nation does not produce very much. So that $500 TV you put off buying for Christmas this year is $5k next year because of low supply but the same demand that existed before the trade policy.
Not only that you have stalled the economy of the supplier nation. So when the new guys you elected to put things back the way they were get in office, the supplier country is no longer able to supply. So the government overreacts again and now we are sending aid to that supplier country which gets wasted because that’s what people do with money they did not work hard to earn…
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