How America's Middle Class Has Shrunk Since 2000 - Visual Capitalist
Connect with us

Money

How America’s Middle Class Has Shrunk Since 2000

Published

on

How America’s Middle Class Has Shrunk Since 2000

This interactive visualization shows how America’s middle class has changed since the turn of the millennium. The middle class, as defined by Pew Charitable Trust, means earners making 67% to 200% of a state’s median income.

In all 50 states, the middle class has shrunk since 2000. In the above visualization, hover over any state to see the details and data.

Even more concerning is two other data sets: median income and the percentage of income that goes toward housing are both trending in an alarming fashion. Median income has dropped in most states, adjusted for inflation. Meanwhile, the percentage of income spent on housing has been increasing in most places substantially.

States in the Rust Belt have been particularly affected, with Ohio, Wisconsin, and Michigan have seen all numbers trend in the wrong direction. In Wisconsin, 54.6% of the earners were considered “middle class” in 2000. In 2013 it was only 48.9% and median income has dropped more than 10%. As a result, housing costs are now much more of a burden for people (from 24% to 31% of income).

Other states that are struggling include Nevada, New Mexico, Georgia, North Carolina, Vermont and Maine. The states that have been least affected include Idaho, Wyoming, Alaska, and Hawaii.

Powering New York

 

Subscribe to Visual Capitalist
Click for Comments

Money

Here’s How Reserve Currencies Have Evolved Over 120 Years

Today, the U.S. dollar makes up 60% of held reserve currency. See how global preferences have shifted since 1900.

Published

on

global reserve currencies 120 years

Here’s How Reserve Currencies Have Evolved Over 120 Years

Over the last 120 years, the popularity of different reserve currencies have ebbed and flowed, reflecting the shifting fortunes of leading global economies.

For example, in the year 1900, the U.S. dollar and pound sterling made up 0% and 62% of global reserves respectively. But fast forward to 2020, and the pound now represents just 4.7% of global currency reserves, while the U.S. dollar stands at nearly 60%.

Today’s motion graphic from James Eagle looks at the year-over-year change in currency reserves as a portion of total reserves, spread across 120 years.

Currency1900192019401960198020002020
U.S. Dollar0.0%28.4%27.9%61.7%57.9%71.2%59.0%
Euro0.0%0.0%0.0%0.0%17.5%18.5%21.2%
Deutsche mark14.7%4.2%0.0%0.0%12.9%0.0%0.0%
Japanese yen0.0%0.0%0.0%0.0%3.9%5.8%6.0%
Pound sterling62.0%57.3%68.9%35.1%2.4%2.7%4.7%
Chinese renminbi0.0%0.0%0.0%0.0%0.0%0.0%2.3%
French franc17.5%6.2%2.1%1.3%1.0%0.0%0.0%
Canadian dollar0.0%0.0%0.0%0.0%0.0%0.0%2.1%
Australian dollar0.0%0.0%0.0%0.0%0.0%0.0%1.8%
Swiss franc0.0%0.0%0.8%0.3%2.2%0.3%0.2%
Dutch guilder0.0%3.9%0.3%0.1%0.9%0.0%0.0%
Other5.7%0.0%0.0%1.6%1.3%1.5%2.7%

What is a Reserve Currency?

A reserve currency is a large quantity of currency held in “reserve” by monetary authorities like central banks.

Currencies are often held in reserve in preparation for investments and transactions, among other things. Our vast global trade system, which is approaching $20 trillion in value, means plenty of currencies are always needed in reserve. In fact, an estimated $5 trillion in currency swaps hands every single day.

Here are some reasons that currency reserves are held:

  • Exchange rate stability for the domestic currency
  • To ensures liquidity in times of crisis
  • To diversify central bank portfolios, which can reduce risk and improve credit ratings
    • All things equal, countries benefit economically from greater demand for their respective currencies.

      The Rise and Fall of Reserve Currencies

      Some economists argue that the demand for currencies in the long run revolves around the economic relevance of a country. In general, the larger and more powerful a nation’s economy is, the greater the network effect, and the more interlinked they are to the global economy. Thus, the greater demand there is to hold their currency in reserve.

      The last 120 years of currency reserve data shows some support for this claim. For example, Japan’s economy hit a peak in terms of its relative share of global GDP in the early 1990s, just before the effects of the Lost Decade were felt. Subsequently, their peak as a reserve currency was around the same horizon, at 9.4% in 1990.

      America’s Era of Dominance

      Due to the economic strength of the United States in the post-WWII era, the dollar is what economists call a vehicle currency.

      This means many non-dollar economies still choose to engage in international transactions using the dollar. These smaller and less accepted currencies are often converted to U.S. dollars before proceeding with any business or trade dealings. This is why, although Asian economies tend to have neighboring states as their top trade partners, they still engage in a massive portion of these transactions with the U.S. greenback as the currency of choice.

      Here are some facts that further exemplify the strength and power of the U.S. dollar:

      • More than 65 countries peg their currencies to the U.S. dollar
      • Five U.S. territories and a number of sovereign countries, such as Ecuador and Panama, use it as an official currency of exchange
      • Around 90% of all Forex trading involves the U.S. dollar
        • Additionally, the dollar is often seen as a haven in times of extreme uncertainty and tumult. Given its status as the world’s reserve currency, it can be perceived as less risky and can withstand economic shock to a greater degree relative to other currencies.

          New Challengers to the Dollar

          In the not too distant past, the U.S. displaced the UK economically and as the world’s reserve currency. Today, the U.S. economy is showing signs of slowing down, based on GDP growth.

          China is on the rise, having already displaced the U.S. as the EU’s top trade partner. With projections for China to overtake the U.S. as the world’s largest economy before 2030 in nominal terms, could a new global reserve currency emerge?

Continue Reading

Money

How Central Banks Think About Digital Currency

Central bank digital currencies are on the horizon. What do 65 central banks representing 91% of global GDP think about them?

Published

on

How Central Banks Think About Digital Currency

In the late 1600s, the introduction of bank notes changed the financial system forever. Fast forward to today, and another monumental change is expected to occur through central bank digital currencies (CBDC).

A CBDC adopts certain characteristics of everyday paper or coin currencies and cryptocurrency. It is expected to provide central banks and the monetary systems they govern a step towards modernizing.

But what exactly are CBDCs and how do they differ from money we use today?

The ABCs of CBDCs

To better understand a CBDC, it helps to first understand the taxonomy of money and its overlapping properties.

For example, the properties of cash are that it’s accessible, physical and digital, central bank issued, and token-based. Here’s how the taxonomy of money breaks down:

  • Accessibility: The accessibility of money is a big factor in determining its place within the taxonomy of money. For instance, cash and general purpose CBDCs are considered widely accessible.
  • Form: Is the money physical or digital? The form of money determines distribution and the potential for dilution, and future CBDCs issued will be completely digital.
  • Issuer: Where does the money come from? CBDCs are to be issued by the central bank and backed by their respective governments, which differs from cryptocurrencies which mostly have no government affiliations.
  • Technology: How does the currency work? CBDCs break down into token-based and account-based approaches. A token-based CBDC operates like banknotes today, where your information is not known nor needed by a cashier when accepting your payment. An account-based system, however, requires authorization to partake on the network, akin to paying with a digital wallet or card.

Digital Currency vs Digital Coins

In essence, digital currency is the electronic form of banknotes that exists today. Therefore, it’s viewed by some as a modern and efficient version of the cash you hold in your wallet or purse.

On the other hand, cryptocurrencies like Bitcoin are a store of value like gold that is secured by encryption. Cryptocurrencies are privately owned and fueled by blockchain technology, compared to digital currencies which do not use decentralized ledgers or blockchain technology.

Digital Currency: Regulatory Authority and Stability

Digital currencies are issued by a central bank, and therefore, are backed by the full power of a government. According to the Bank for International Settlements, over 20% of central banks surveyed say they have legal authority in issuing a CBDC. Almost 10% more said laws are currently being changed to allow for it.

As more central banks issue digital currencies, there’s likely to be favorability between them. This is similar to how a few currencies like the U.S. dollar and Euro dominate the currency landscape.

The Benefits of Issuing a CBDC

There are several positives regarding the issuance of a CBDC over other currencies.

First, the cost of retail payments in the U.S. is estimated to be between 0.5% and 0.9% of the country’s $20 trillion in GDP. Digital currencies can flow much more effectively between parties, helping reduce these transaction fees.

Second, large chunks of the global population are still considered unbanked. In this case, a CBDC opens avenues for people to access the global financial system without a bank. Even today, 6% of Americans do not have a single bank account.

Other motivations for a CBDC include:

  • Financial stability
  • Monetary policy implementation
  • Increased safety, efficiency, and robustness
  • Limit on illicit activity

An example of payments efficiency can be seen during the onset of the COVID-19 pandemic, when some Americans failed to receive their stimulus check. Altogether, some $2 billion in funds have gone unclaimed. A functioning rollout of a CBDC and a more direct relationship with citizens would minimize such a problem.

Status of CBDCs

Although widespread adoption of CBDCs is still far away, research and experiments are making notable strides forward:

  • 81 countries representing 90% of global GDP are exploring CBDCs.
  • The share of central banks actively engaging in CBDC work grew to 86% in the last 4 years.
  • 60% of central banks are conducting experiments on CBDCs (up from 42% in 2019) and 14% are moving forward to development and pilot arrangement.
  • The Bahamas is one of five countries currently working with a CBDC – the Bahamian Sand Dollar.
  • Sweden and Uruguay have shown interest in a digital currency. Sweden began testing an “e-krona” in 2020, and Uruguay announced tests to issue digital Uruguayan pesos as far back as 2017.
  • The People’s Bank of China has been running CBDC tests since April 2020. In all, tens of thousands of citizens have participated, spending 2 billion yuan, and the country is poised to be the first to fully launch a CBDC.

The U.K. central bank is less optimistic about a rolling out a CBDC in the near future. The proposed digital currency—dubbed “Britcoin”—is unlikely to arrive until at least 2025.

Disrupting The World of Money

Wherever you look, technology is disrupting finance and upending the status quo.

This can be seen through the rising market value of fintech firms, which in some cases are trumping traditional financial institutions in value. It is also evident in the rapid rise of Bitcoin to a $1 trillion market cap, making it the fastest asset to do so.

With the rollout of central bank digital currencies on the horizon, the next disruption of financial systems is already beginning.

Continue Reading

Subscribe

Popular