De-dollarization is happening at a ‘stunning’ pace
bloomberg.com
bloomberg.com
I pulled the data from the IMF for a better chart that shows how the currencies actually relate to each other [1]. Yes, there's been a substantial decline in the use of the dollar, but that's not because some other currency is shooting up to take its place. It looks like countries are diversifying their portfolios, not fleeing the dollar for another currency.
[0] https://www.eurizonsljcapital.com/dollar-smile/rapid-erosion...
[1] It's a bit slow to load, but here's the link: https://data.imf.org/?sk=c22e624f-ce09-4c9e-a70b-647defa5215...
Aren't these literally the same thing? Selling dollars and buying something else is dedollarization, regardless of whether it's for diversification or some other reason.
It's not that there's not a story here, it's that the chart they used wildly misrepresents what the story is.
(EDIT: In fact, as I write this the second highest comment on the main thread[0] is speculation about the Yuan becoming the world reserve currency, which is a reasonable line of thinking if you only look at the Eurizon chart and don't realize how misleading it is.)
Some of the things that have been happening are grossly underreported on, like this: https://thewire.in/diplomacy/india-signs-deal-to-adopt-mosco...
Let's assume you wanted a route to send/receive money from Russia now, you could do so via India - a country in the good books of both Russia and the West.
Iran has been settling oil sales to China in Yuan more and more over time: https://www.silkroadbriefing.com/news/2023/02/21/iran-increa...
Assuming the dollar gets replaced by one reserve currency is the fallacy. Like with geopolitics, we're seeing a multipolar world return.
https://markets.businessinsider.com/news/currencies/russia-d...
Yes, but there's a difference between a shift of power from one entity to another and a shift of power from one entity to many entities (distributed). That's what the people above you are saying.
Tldr: Swap != diversification
No country is currently strong enough to cement its position the way the US had, but the move away from the dollar will hurt the US a lot, by limiting the Fed and increasing inflation. It also enables other countries to have a foreign policy more antagonistic to the US, it takes away a good chunk of leverage.
Exchange rates are the net result of trade in goods and services (and capital), it's the bottom line fudge factor that makes trade work. If a country imports too much, its currency drops making foreign goods more expensive slowing imports. If it exports too much, its currency rises making its goods more expensive and slowing exports.
If the US imports a lot, it sends dollars overseas. If the foreigners want to invest in the US economy, those dollars come back in exchange for assets and the value of a dollar is not affected. If the foreigners don't want dollar denominated assets, they just buy their preferred currency instead, sending the dollar down. (In the case of investment, the US for most of its history ran a huge trade deficit. It was not a problem because economic growth meant foreigners wanted to invest here. Much of the trade deficit was caused by the purchase of capital equipment, used in driving the economy)
People who are thinking about exchanging currencies are not doing it on whim, they are doing it for underlying reasons that have to do with economic activity, productivity, long term investment opportunities, etc. These things carry currency denominated prices, but those currency fluctuations do not affect the rates of return of the investments, rather those currency fluctuations are how the books are balanced and change the rates of ebb and flow.
I doubt that. The US has been able to both support a trade imbalance and print money at prodigious rates that would be unsustainable for any other country.
I remember articles from economists pointing this out going back to the eighties.
One important reason for this is that not all dollars the US prints inflate the local money supply. Instead, they go out into the world where they are used by other countries to trade amongst themselves, without US involvement (and reserves).
It's like writing a check that is never cashed. Cool if you can pull it off.
You mention foreign investment. Well, if the value of the dollar goes down, because demand for those dollars is lower, those investments also become less attractive. Could cascade.
From who exactly? Most of developed and developing world is facing demographic collapse over the next 50 years.
The US is the largest energy producer, one of the largest food producers, the most dominant military, has relatively stable demographics and has no trouble assimilating immigrants, etc.
And i predict that this time, at the last minute, the bill will pass again, like every other time. Unless the republicans truly believe that it's worth going down with the ship for.
I.e. countries reserves will move to diversified portfolios of currencies and assets (gold, etc.) that minimize general financial risk, but also foreign economic-political influence.
Believe parent's comment was that you would want something where no/minimal part of its 'value ecosystem' touches dollars.
E.g. Chinese real estate, with rent paid in yuan and sales transactions happening in yuan
They have no laws protecting foreigners from theft/fraud. Its encouraged.
The yuan also has its own issues.
Maybe a better metric would be: How much dollar denominated debt is out there?
It seems it's the latter that's most affected (as per the link 1 you posted)
> While the Global South seems unwilling to continue to hold dollar assets, they do not seem to have the ability to divest from the US dollar as an international currency, particularly for financial transactions. We suspect it will be very difficult to overcome the strong network effects that have been behind the dollar’s international currency status.
Well no crap Sherlock
Good alternative could be a P2P currency which does not require any particular center to handle a transaction. Switching dollar to ruble or yuan does not seem like it could change something drastically.
Though I don't really understand why governments need a single currency. Just use your own currency and exchange other currencies, it'll settle down eventually.
Because commerce is much easier if everyone uses the same currency, plus the more countries use a currency the more stable the currency gets. This where two big reasons why in EU most countries decided to use Euro.
Iow, the currency's ubiquity and total amount buffer shocks to the system, in a way that multi-polar currency use could not tolerate.
If some folks decide to break {insert smaller international currency here} because they think it's overvalued and they don't use it, they probably have the means. But it's difficult to tip over a world-economy sized apple cart.
And a single trade currency also mostly keeps nation-states out of the currency warfare game, because it's a gun pointed back at their head too.
"need" is probably too strong a word. A single currency just makes things easier.
Having a single currency, or using many different currencies is sort of like the difference between a barter system vs a money system (multiple currencies is equivalent to bartering). If the buyer is trying to buy in a currency that is not desired by the seller (i.e. there is nothing that they want being sold in that currency), the seller has to offload it somehow to someone that does want it. There is a cost to that, in additional risk and effort.
Bartering works ok, up until a point. But a shared currency just removes friction, so is preferable.
Not necessarily. The US dollar is fully convertible and several countries offer accounts in USD
(though a lot of places rely happily on SWIFT)
We could "solve" inflation tomorrow, but we'd also be zeroing growth.
Ergo why the usual target is a small but acceptable bit of inflation. E.g. the US Fed's 2%
So its somewhat a false narrative on those basic facts.
The bulk of the "diversifying their portfolios" is being done by China. The de-dollarization happening in other countries is a rounding error.
Generally it is misleading to talk about the rise of "BRICS" and the "Global South". In most contexts it is only China that is relevant and the other countries are rounding errors.
Also interesting: de-dollarization may benefit the US by increasing domestic growth and investment.
To me it is obvious that any country in the world would do systematic deficits if they could do it without tanking the value of their currency.
Emerging markets are surprisingly happy to give vast amounts of oil, gold and manufactured products in exchange for claims on overseas assets that can be frozen or devalued at the stroke of a pen.
In any case, the secular dollar shorts are a perennial watering hole for our FX community. Similar to gold or commodity ETFers.
> More likely, the SWIFT sanctions will prove a mistake for "the West," when it realizes the downstream effects of cutting off Russia from the dominant payment network of the global reserve currency. Russian banks have already started offering accounts in yuan. This will lead to further balkanization (unfortunate pun notwithstanding) of world reserve currencies, which means increased decentralization and a reduced dependency on the dollar. Eventually the world will naturally diversify their reserve holdings to the point that the dollar loses its power as leverage in diplomatic negotiations.
Yuan is still only 3% of global currency reserve, behind dollar (60%) and euro (20%). https://carnegieendowment.org/politika/88926. up from 2% in 2017...
China is Russia's ally in the war, and even Russians don't even want yuan - it has been selling renminbi since the beginning of this year https://asiatimes.com/2023/04/rmb-based-trade-hasnt-worked-o....
de-dollarization is mainly happening with China, and it's only because Chinese economy is crashing fast (50% real estate price cut in matter of months, 100k+ housing inventory for sale in major tier 1 cities, 80% factory order decline from foreign companies), and it needs to have access to dollar to pay back its huge debt - 400% debt to gdp, and Guizhou just became the first Chinese province to declare bankruptcy last month.
And investors ultimately choose what the priorities of the organization are…
So that means this is probably “what happened in 1971” that decoupled labor from productivity — the US ceded labor sovereignty to the “market” that is global capitalism and “the market” started treating labor as a global market but with proceeds only going to capital owners.
Wow!!
Can you share a source for the 50% price real estate cut and 80% factory order decline estimates?
This is false, which is sad considering you're calling someone out for being wrong.
No province in China has declared bankruptcy. You're probably conflicting this from reports from questionable sources that it might happen given Guizhou's debt and poor finances, but it didn't happen.
Which is half of the Yen and Pound, and not far off from the CA$ and AU$:
* https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A...
Australia is a country of 25M people.
the service-goods shift during COVID and the shiftback after, coupled with the energy and food price shocks due to Russia-Ukraine war, definitely did not help the Chinese economy, that was already faking a higher GDP growth to paper over the cracks.
geopolitical tea leaves reading experts point to the aging population of China as a massive problem (again coupled with a lot of factors that make it a worse problem than it would be with a relatively open society, etc.), the limits to efficiency gains from centralization and big infrastructure projects (only so many miles of high-speed rail have positive ROI, only so many big dams make sense, etc), and - again - the cost of maintaining the authoritarian state.
I heard their rail service is in massive debt too. They overbuild it.
Peter Zeihan https://m.youtube.com/watch?v=pKVQDUQR8I4
https://www.noahpinion.blog/archive?sort=search&search=china
https://www.stlouisfed.org/publications/regional-economist/s...
Of course he goes down the road to the next bar where he hasn’t gotten a reputation yet, we’ll see how long it takes him to get kicked out of there.
It seems to me completely normal that the US was less sanctioned by "the West" when they invaded Iraq than how Russia was sanctioned when they invaded Europe.
I just don’t want to see it going to far and sabotaging itself. I also want to see a peaceful adjustment to a multipolar world.
It's been clear for a while that China wants to increase the dominance of it's currency. The belt and road initiative and the digital renminbi is part of that.
The swift sanctions were an accelerant, not a catalyst of de-dollarization. It was no coincidence that Russia had substantial gold reserves at the time of the invasion.
The relative strength of the two economies is really what matters, and sanctions + tariffs are a double-edged sword, the deeper you impale other countries, the deeper you impale yourself.
[1]https://www.finanzen.ch/devisen/us_dollar-renminbi_yuan-kurs
The idea of the decline of the US as a reserve currency has been "about to happen" for me entire life, and yet another cherry-picked graph won't make it more likely.
I feel like commodity prices tend to get pushed down by tech improvements.
I shared multiple articles on that matter many years ago on hackernews
This one for example: https://www.theguardian.com/business/2003/feb/16/iraq.theeur...
This one gets me banned, but i'll share it again, this is why the CIA/FED started the work on bitcoin and help spread the cryptocurrency fad, to crowdfund the tech they'll use in the post-dollar world, the digital fiats, it won't matter if the USD is dead if you control the networks
Anyways, attach your seatbelt, turbulence ahead!
(The article mentions the "Global South" - I had to look it up. That's a pretty broad region that includes all of South America, Mexico, all of Africa, South Asia.... it seems unlikely all these regions are moving off the dollar.)
The US Government has gone to War with or at the very least militarily involved with the entire World except for 3 countries: Andorra, Bhutan, and Liechtenstein. You vastly underestimate how much bad blood US Government has created over the years with various countries in their own capacities. Heck the USG spies on its own all-weather Allies and recently blew up the Nord Stream Pipeline (in a covert operation no less).
> I get that Russia, China would try to diversify — not a surprise though.
You might want to include India in the list too. And it should come as a surprise to you that there are plenty of other countries, who have been historically neutral, are badly wanting to diversify and de-dollarize. India now does trade directly in INR with 18 countries [1]. Just a year ago there were only 4 countries we traded in INR with (this is apart from the 18 new countries that we added recently). If this doesn't ring alarm bells nothing else will.
> (The article mentions the "Global South" - I had to look it up. That's a pretty broad region that includes all of South America, Mexico, all of Africa, South Asia.... it seems unlikely all these regions are moving off the dollar.)
You are unfortunately living in a bubble.
[1]: https://www.wionews.com/business-economy/rbi-allows-banks-fr...
Cyprus, Switzerland, Malta, Scandinavia, Finland, Luxembourg, Spain and Portugal (unless you count them allowing US bases as "militarily involved", but that doesn't cause bad blood so doubt it), Mongolia, Nepal, all of the former Soviet Union (except stuff like paying to get nuclear waste and weapons properly disposed of, which is even less of "militarily involved" and even less cause for bad blood), big chunks of Africa - Morocco, Algeria and Tunis (unless you count Operation Torch to free the Vichy France protectorates in favour of Free), South Africa, Rwanda, South Sudan, etc. Just off the top of my head, and I'm sure I'm missing a bunch even if I might be mistaken on one or two.
All that to say, there's no need to exaggerate American warmongering, imperialism and neo-colonialism. It has done insurmountable damage to many counties and resulted in millions if not tens of millions of dead, all for profits of American corporations. Exaggerating it makes it more easily refutable and minimises the suffering caused.
> recently blew up the Nord Stream Pipeline (in a covert operation no less).
Citation very much needed.
> You might want to include India in the list too. And it should come as a surprise to you that there are plenty of other countries, who have been historically neutral, are badly wanting to diversify and de-dollarize
Historically neural implies something has changed by de-dollarising. Nobody owes the US trade in USD. If sovereign countries want to trade with their own currencies, more power to them.
The USA went to war against Spain on false pretenses, that was more than 100 years ago but not a small thing.
https://en.wikipedia.org/wiki/Spanish%E2%80%93American_War#U...
The Wikipedia article presents different sides of the story, and my take is that the USA wanted to carve off the Spanish Empire and would use any excuse for that, a pattern repeated many times.
Not that the USA is unique in that. The point is that there are reasons for the rest of the world to resent the USA’s unchecked power, being wielded by small groups in there often to the detriment of the USA’s general population, as is happening now with de-dollarization.
The USA and its Western European puppets are becoming a much less reliable partner than we used to be, and the alternatives do not look as bad by comparison as they once did.
And that proves absolutely nothing. Promises and threats are cheap.
Yes by militarily involved I do mean having military bases as well. "Doesn't cause bad blood" -> you are talking from perspective of a Westerner/American (I am making an assumption here). It benefits US to have a military base but need not necessarily benefit the host country. Almost always there will be a compromise, "a choosing of lesser of two evils" so to speak, when a Nation has to give up sovereign space for a military of another Nation to occupy its lands. It is out of desperation. In some cases it is out of pressure too.
Which is why I consider it "military involvement". There is a stark contrast between having an Embassy in a Country vs a Military Base in a Country. The host country can always call for shutdown of a foreign Embassy and expel Diplomats. These rules are governed by World organizations like the United Nations. However, a Host country cannot expel a military base from its land unless it is written down in the agreement between the two Nations. Even then, the actual ability to shut down an already established military base is significantly costlier on the host nation if it has lesser military strength (which it most certainly has, else why would it want to host another Nation's military in the first place?).
I also include coup-de-tats as there is covert operations which involves using militia or even military of countries where USG wants Government to be toppled. The most recent example is that of Pakistan where there is widespread allegation within the country that USG along with Pakistani military toppled the previous regime. Now whether those allegations are true or not is secondary. The sentiment within the country prevails. So when I said "bad blood" I mean it as a "perception of the people on ground" sort of thing.
> Cyprus, Switzerland, Malta, Scandinavia, Finland, Luxembourg, Spain and Portugal (unless you count them allowing US bases as "militarily involved", but that doesn't cause bad blood so doubt it), Mongolia, Nepal, all of the former Soviet Union (except stuff like paying to get nuclear waste and weapons properly disposed of, which is even less of "militarily involved" and even less cause for bad blood), big chunks of Africa - Morocco, Algeria and Tunis (unless you count Operation Torch to free the Vichy France protectorates in favour of Free), South Africa, Rwanda, South Sudan, etc. Just off the top of my head, and I'm sure I'm missing a bunch even if I might be mistaken on one or two.
I talked about military involvement. It need not necessarily mean the War was not justified. It could very well be justified and it could be fought on the sides of Allies too. However, when a foreign Nation involves in any War to assist another Nation (especially in civil wars), there will always be bad blood created within the Nation as there is one section of the populace who would be targeted by strikes. You can call them "rebels" but for those "rebels" it is an invasion of their homeland. I am sure if I do further research I'll be able to find US military involvement in every one of these countries that you listed in some form or the other. Of the top of my head, US was involved in the Nepalese Civil War where it supported the Gorkha Empire against the Communist Party of Nepal.
> All that to say, there's no need to exaggerate American warmongering, imperialism and neo-colonialism. It has done insurmountable damage to many counties and resulted in millions if not tens of millions of dead, all for profits of American corporations. Exaggerating it makes it more easily refutable and minimises the suffering caused.
Not exaggerating. "Militarily involved" does not necessarily mean going into a country guns blazing. One can always covertly bring about regime change or tilt an ongoing civil war within another country in one's favour. Almost always creates bad blood among a section of the populace.
Nobody is occupying us. We asked the US to come help us. We share culture and way of life. There were no changes about anything in our country other than increased security. Occupation looks different - look at Russian-controlled parts of Ukraine to get a feel for it.
i hope you dont believe the absurb propaganda BS that Russia blew up their own pipeline...
Meanwhile, the US is faffing about with all sorts of internal initiatives that are detrimental and pointless on a grand scale. Every year they are poorer as a country, society and culture.
Just try and imagine how much collective brain-time is spent in the US discussing animal rights, DEI, free speech, activism, left/right politics, gun rights, drug legalization, etc.
That is brain time that could be spent feeding and uplifting the poor, building housing, mobilizing tech and military, building infrastructure and transport and and and.
Please lay off the news and look at stats. Facts trump narratives. Narratives exist to get clicks. Facts exist regardless of what people think.
That there are people in the US doing things you consider a waste of time does not mean "US on the way down". Go to this chart and click on Max time frame to get an idea of what's been happening with all the "faffing about" Americans have been doing: https://tradingeconomics.com/united-states/gdp
Compare to the Eurozone, China, India, and Africa to get a relative idea. USA, China, and India have been going up like rockets.
I'm inclined to agree, but you had to provide the one counterexample that actually shows sanctions being legitimately used for good against a terrible human right abusing regime.
> Just try and imagine how much collective brain-time is spent in the US discussing animal rights, DEI, free speech, activism, left/right politics, gun rights, drug legalization, etc.
> Every year they are poorer as a country, society and culture.
Agree, the US is generally on a downward spiral for multiple reasons (mostly political deadlock due to a broken political system, massive amounts of time and efforts wasted on stupid niche issues, exceptionalism making them blind to fighting with problems the rest of the developed world has solved decades ago, economic and geopolitical development in the EU, China, India, Brazil, etc.). However, as of now, and for the foreseeable future they're still the primary military and economic power in the world. However better balance, for better and worse, is on the horizon.
This is bullshit.
The truth is, there is no public common knowledge about who did this. So unless you are leaking confidential information here, you are just speculating.
Which war do you claim that US has had with Sweden?
[1] https://www.stripes.com/branches/marine_corps/2023-04-18/swe...
Note that while the chart Bloomberg used makes it look like the Yuan is poised to take over from the dollar, it's not. It's gone up... to 2.69%. This is how the currencies stacked up in Q4 2022 according to the IMF[0]:
* the US dollar (58.36%)
* the Euro (20.47%)
* the Yen (5.51%)
* the Pound (4.95%)
* the sum of all currencies not in the top 8 (3.45%)
* the Yuan/Renmibi (2.69%)
* the Canadian dollar (2.38%)
* the Australian dollar (1.96%)
* the Swiss franc (0.26%)
So it's not that the Yuan is becoming the world reserve currency, it's that countries are avoiding relying on a single reserve currency. The lesson from the Ukraine sanctions wasn't to avoid the dollar, it was that relying too much on any outside country's currency puts your sovereignty at risk, so they're diversifying.
If you look at the chart in the link below, the gains from the dollar's loss are spread out pretty evenly.
[0] https://data.imf.org/?sk=c22e624f-ce09-4c9e-a70b-647defa5215...
Whenever country like Japan stops using dollar to settle oil purchase, it is another step. With currently development around the multi-polar world, it is likely not one single currency, rather several regional block reserve currencies will arise to replace the Dollar.
You're just assuming that China would let people leave the country with their wealth. Are you forgetting that countries have control over their borders and how finances are handled?
The article is trying to imply the USD lost weight compared to renminbi/won but that has been very very marginal.
Say what you will of the Americans, they will always do the right thing, having explored all other options. I don't have any such hopes of the other powers-to-be waiting in the wings.
We sure wouldn't be having conversations like this. I'd be silent, in re-education or dead and maybe you'd be happy with that. But you'd talk about different things on different forums, for sure.
Hundreds of thousands dead Iraqis still waiting for that WMD proof.
Are you living in some sort of bizzaro parallel dimension?
They most certainly haven't since the end of WWII
Top of a very, very long list : Irak.
They didn't explore anything. The two possible explanations for the decision to go to Irak are:
1) sheer stupidity
2) advancement of US interests at the expense of killing half a million people, so in other words: sheer evil
The notion that the US does the right thing for the rest of the world, even after having done all the wrong things, is ridiculous on its face.
Half a million are only direct casualties of war. Excess deaths due to the war are over a million.
The idea of the ironic viewpoint is of course that some other countries have a larger bag of wrong things they might be willing to try.
It's a pretty common comedic trope in English writing to say that someone will do right only after doing wrong.
So, the high dudgeon in response is rather missing the point.
But Occam's razor applies here.
I'm more interested in instances when a group with power has chosen not to wielded it.
When I see people criticize "MMT" they don't even talk about the same thing. If you boil down modern monetary theory to its essence it just means that the public sectors deficit is the private sectors surplus. I.e. the government doesn't receive money via taxation, it is the source of money. If people want to hold more money then it is legitimate to have a deficit within reason. This is in comparison with the loanable funds model where the government must first collect the money from the private sector and therefore deficits are bad.
"Since it lacks any rationality". I agree magical monetary thinking lacks any rationality since it is a straw man.
It's ok I can deal with three mutually contradicting definitions of "money printing". I can deal with two contradicting definitions by now.
Specifically, it appears they didn't really do any research into what caused the Penn Railroad collapse, which was not caused by high interest rates but instead by a combination of actions which would be considered fraud today (due to conflicts of interest that would never be allowed and exceptions to financial reporting in the rail legislation).
They basically couldn't raise prices due to regulation, and no bank would loan to them. The one bank that would loan to them required they have seats on the board of directors. They loaned money at high interest rates, bought up the senior bonds with the interest payments, took control of the board, loaned money to themselves (effectively), paying dividends out of debt, and then forced bankruptcy and let it all collapse in the hope of a government bailout (which they got because rail is critical to food security and energy).
It also neglects stagflation but does mention Volcker, drawing the wrong conclusions of what really happened, doesn't mention the S&L debacle aside from a brief mention (which was huge as well), neglected the whipsaw effect.
The biggest problem I have with it, is it neglects a lot of important factors and only focuses on policy which doesn't match up with reality and largely only what fits their narrative if you didn't know better. There was also no mention of taking the currency off the gold standard in 1971. Most importantly, they don't use any of the M2 or velocity of money data. Its available from the Fed website but it doesn't support much of what they said, and shows how expansion of the money supply drives inflation in cost push or demand pull inflation.
MMT suffers from major problems. The people that subscribe to it largely only see these large sums in a very narrow context which leads to poor conclusions, and an idea that you can print money continuously into the future with no consequence. It largely was what led to quantitative easing (or money printing).
Graeber has a great book on Debt, which goes into the historical examples of what happens when you debase currency like this (no matter what you call it), and there's some very interesting research in how the Economic Calculation Problem related effects can be seen as rational pricing and price discovery fail in markets denominated in unbacked fiat. The latter being most commonly known for its historic roots as an intractable problem with non-market socialist systems where the means of production are held by a single entity. The debate/problem still isn't solved 100 years later.
Additionally, the people making policy can't control what people choose to buy and sell goods at. Inevitably you get shortages when they try, business sectors concentrate, points of failures are introduced, and people leave the business when its not profitable. Then you get things like the baby formula crisis where the only factory remaining is shut down for safety reasons (as a result of cost cutting) and no one can get baby food in Florida. Once sector concentration reaches a certain point, its a short step away from nationalization in furtherance of solving the shortages through greater regulation.
Needless to say it doesn't work, and I'd expect at least some of that to be addressed, but it wasn't. What's covered seems misleading, and very much divorced from the reality.
MMT predicts that if you print money you don't necessarily end up printing money but if you print money you definitely end up printing money.
People don't understand the difference between printed money and printed money that was printed.
It should be pretty obvious. If the central bank prints money but the government doesn't print money then no money was printed except when people withdraw their printed money into printed money. If however the government does print money it will definitely cause inflation (classical economists and MMTists agree). It is especially likely if the government prints money into the form of printed money.
Also MMTists think "MMT" shouldn't be done as it is too much like printing money because MMT is a theory of money and accounting and not a theory of printing money unlike "MMT".
I don't know why I wrote this. I believe in accounting identities which are sort of MMTish so I knee jerk when people violate accounting identities by building straw men and reusing the same words to use completely different meanings for the same of political framing.
For god's sake you can't even use money printing in its original meaning anymore. Aka governments physically creating money to increase the money supply without supplying goods in return which as I mentioned above is a bad idea.
You know the difference between the various types of "money printing" that distinguishes them from the political framing is that the ones done the most have a sort ratcheting mechanism that forces the money to come back eventually. In other words, if there was no threat of deflation, via negative interest or whatever mechanism of your choosing, then the mechanism of money creation would unwind and the money would disappear on its own without causing inflation.
Alas we don't live in that world. Deflation is scary and must be avoided so we are stuck on this inflation treadmill until people wake up and accept mitigations to the dangers of deflation which then gives central banks, governments , businesses and private citizens more leeway to steer the economy towards their preferences and away from permanent inflation and money supply increases. So the inflation treadmill it is...
https://www.nobelprize.org/prizes/economic-sciences/2008/kru...
The Denver Post ran Krugman in the business section, and offered a special on line place for businessmen to sound off against him. Quite hilarious.
And the perspective being pushed isn't just the fact of the reserve decline, but specifically that is being driven by sanctions on Russia, which seems like a huge, huge reach to push without analysis or rebuttal.
This has the smell of a deliberate hit piece, basically.
EDIT: I love how nobody replying is addressing my actual point
Perhaps in a theoretical sense they aren’t different, they are fiat money which is basically a ledger of value (which governments manipulate).
But behind the dollar is the largest economy in the world and the largest army by a long shot, and a lot of motivation to keep the dollar as the “biggest” currency in the world.
It’s backed by the most powerful nation in the world.
Inflation is a measure of how much things cost, not of how much money exists.
"Are pushing" doesn't mean anything..India is not even close to being a player.
Also...India and China...members of the "get along with each other" club
Not saying it isn’t true news or happening, but I see a lot of chatter to push the narrative since it is, like you say, convenient for some.
What the authors are doing is saying “well the dollar is stronger vs. other currencies. Let’s equate that with those other currencies being worth more in our hypothetical baseline.”
This is a bad analysis because
1) exchange rates aren’t like inflation. They move in random directions, so “correcting” the way they did is sort of nonsensical (if they extended the analysis to now, the US would be rapidly gaining share as the currency weak waned)
2) Currencies change value due to supply and demand. The dollar became strong because demand increased, but in this model that causes the dollar to lose share.
3) Add Argentinian pesos to this list and it’s the worlds true reserve currency.
I think the theory would say that this will counterintuitively result in an eventual huge dollar spike as new dollar demand but also liquidity dry up while existing demand from existing USD loans stay constant.
I think it's too early to tell. I don't believe in his USD superspike but I do think the underlying dynamic is real and this will not result in the dollar being substantially lower in the let's say 1-3 year time frame (ie DXY < 90)
For perspective, not much has changed:
https://www.schwab.com/learn/sites/g/files/eyrktu1246/files/...
or here
https://www.imf.org/wp-content/uploads/2022/06/COTW-dollar-d...
A small uptick of dollar alternatives
I'm far from an expert though, so am probably over-simplifying. I guess it's likely this would all happen slowly enough as to not be too disruptive.
At present the rest of the world generates a surplus of real stuff and supplies it to Net deficit countries in return for mere promises.
Where else are they going to sell that stuff? If they could get something concrete for it, they wouldn't be supplying it to us in return for promises.
There isn't a magical source of untapped demand in the world that can absorb this output - or it would already be being supplied.
Therefore the only practical option other than taking dollars and pounds is not to produce that sort of output at all. Which means unemployment in the producing countries, and an abandonment of the 'export led growth' belief.
The UK is still the third largest net importer on earth. We lost our reserve currency status nearly a century ago.
China is not yet ready to free up its capital account and float its currency. Therefore it cannot supply the promises the world demands.
I view the UK/US as exporters of property rights. An entry on the British land registry can confidently assure somebody of a home in 75 years in manner which nothing in the Chinese economy can. Those rights aren't perfect, subject to sanctions etc, but are generally still much stronger than what those investors have at home.
A big chunk of the UK's trade deficit goes away if you count overseas purchases of London real estate as exports rather than investments. Which I think makes sense given the low yields, high taxes and concentrated buyer base.
Except it can't, as it recently became most evident with Russians. Everyone is now running away from it and towards Dubai. The precedent is set and new risks have to be managed.
https://www.youtube.com/watch?v=JHZnVdBZJfA
My question is why is the narrative being fabricated in the first place. Certainly the governments of Russia and specially China understand that they could never be the world reserve currency. Is it just the media vying for clicks or something more insidious?
Why?
>but this is Patrick Boyle, and if you know anything about him
I don't, maybe you should start your comment with some intoduction about him instead of "...hate linking to YouTube..."?
>you know that he knows what he's talking about
He obviously knows what he is talking about. Do you?
>Russia and specially China understand that they could never be the world reserve currency
Neither of them is trying to create new reserve currency (at least neither thing of ruble or yuan being the one). The 'narrative' is about using local currencies in trade between the parties instead of using USD.
Sometimes, you want the explosives or oil more than you care about price.
The question really is, what % of world economy will be de-dollarised in 25 years time, assuming sanctions at scale end in 25 years (they haven't for Iran. Uk and Us still hold bank assets and have unfullfilled but fully paid up weapons orders on the books from the 1970s.)
I would be surprised if there isn't a significant grey market at world scale in goods transfer which simply isn't denominated at all -The "fictional" value of drugs for instance, is almost meaningless when randomly 75% of your supply chain is lost at sea. "street price" is whatever you can get. How much it's "worth" would demand somebody does realistic pricing against the % of drug supply which even resembles what it's called.
Right now, because Sanctions, Iranian and Russian Oil might as well be cocaine. Does Russia really care what currency its denominated in, if it gets a truckload of SAM missile parts?
If you were supplying goods and services to a narco-economy, what currency do you really want anyway? You can buy goods and services with drugs. Why bother with money?
Not really. Trade continues at a lower pace. Many countries "launder" the origin of Russian oil. And the western world turns a blind eye because of economic interests.
https://www.forbes.com/sites/jeffmcmahon/2023/04/18/these-fi...
It wouldn’t be surprising if this were mostly China.
This is a symptom of rates rising really quickly in the US than any de-dollarization I'd wager.
If southern Europe gets its act together, or china trades autocracy for democracy and rule of law, then maybe the dollar has something to worry about.
USD is such a fundamental leverage for the us diplomacy, i don’t think they’ll let it go without a fight. The end of USD hegemony would also probably mean the greatest economy crash since the 1920s…
Also, Saddam Hussein switched to the Euro for his oil exports in 2000. Then later the US invaded and switched it back to the $.
Low-key maneuvering against the Euro has been ongoing for years.
The U.S. on some level is literally making money. The consequences of making too much are felt by everyone in the world as opposed to just people in the U.S. If you can do that - why do anything else?
And - knowing fully well that it is a highly unpopular on american-centric HN - I still claim that, if true, this would be a very, very good thing for the planet.
Monopolies are bad. Period. Wherever they show up, they always spell trouble.
If the USD monopoly goes the way of the dodo, and I most certainly hope that happens as soon as possible given how the US has been using the USD reserve currency status as a means of exerting all kinds of unwelcome political pressure around the world, the planet will be a much, much better place.
The euro is an extremely young currency which lost almost 1/3 of its value against the USD over the past two years.
…at a time when the dollar saw the worst inflation in 40 years!
Two years ago on this day the exchange rate was ~1.2 USD per 1 EUR, today it is ~1.1, so the loss is ~9%. The current exchange rate is nothing extraordinary, and has been hit many times in the past years/decades.
My main point still stands though. Take a look at the historic volatility: https://www.macrotrends.net/2548/euro-dollar-exchange-rate-h...
The exchange rate ~2010 hovered around 1.5 and recent dipped as low as 1:1 party.
Compare that to something like the Swiss franc which has actually appreciated against the dollar over the same period and has a much longer history: https://www.macrotrends.net/2558/us-dollar-swiss-franc-excha...
Some currencies, like Swiss Franc may outperform EUR, but are not suitable as a large scale reserve currency.
edit: My current viewpoint is the s&p500 is enough of a hedge given that these companies are multinationals trading in many currencies already -- I'm often wrong though :)
There are mounting pressures in domestic consumers, and an increasing move towards “dual circulation” (with a focus on the domestic part of that duality). Then there’s the risk of a miscalculation in the East China or South China seas.
Given that CNY trades in a tight, centrally-managed range against the USD (it’s almost always between 6-7 CNY to the dollar, and only briefly traded outside that during the pandemic), I’m not sure there’s a big incentive to use CNY as a hedge against USD.
No. Just No.
Yuan is not convertible and volatile. it's only 3% of global currency reserve, behind dollar (60%) and euro (20%) https://carnegieendowment.org/politika/88926. Even Russians don't want yuan, Russia has been selling renminbi since the beginning of this year https://asiatimes.com/2023/04/rmb-based-trade-hasnt-worked-o...
Also, China's economy is crashing hard. China is now entering its third year of its own Great Depression, with 30% unemployment rate, 90% unemployment rate for new grads (it's so bad, Guangzhou government just sent 300k youth to countryside for a program), 80% retail collapse (entirely empty malls in Beijing, Shanghai, Shenzhen), 50% real estate price collapse. Guizhou is the first province to declare bankruptcy ever.
According to the office for national statistics in China, for jan/feb of 2023 http://www.ce.cn/xwzx/gnsz/gdxw/202303/27/t20230327_38464161..., car manufacturing profits is down 41%. non-metal products manufacturing profits is down 39%. chemicals manufacturing profits is down 56%. electronics manufacturing profits is down 71%!! In fact, all businesses have dropped 22% in profit. Not to mention the 1M+ SMB that failed in the last 2 years.
Apple, dell, hp, lg, Kyocera are all shifting manufacturing out of China. Apple by 50% by 2025, Dell by 2027. It is estimated that China's portion of worldwide phone production will drop from 90% to 50% by 2025, and worldwide laptop production 70% to 30% by 2027.
China's export is never recovering, when 83% of American, the world's biggest consumer segment, have negative views of China https://www.rfa.org/english/news/china/pew-china-enemy-04122...
Broader, IMO I think the USD is walking dead. I don't know when, but fundamentally you have a government debt no-one expects to be paid back, and growing quite rapidly. I respect most people would say otherwise and I'm often wrong, but I don't see how this ends with anything other than default, which will be preceeded by money printing most likely.
The US is a huge and dynamic economy, so maybe they will prove this view wrong, or more likely drag things out for a long time, but humans being humans, at the first sign people start feeling they might not get their monies worth from USD, the response will be rapid as people try to protect their worth. This de-dollarisation seems part of the process and given Ukraine/Taiwan tensions no doubt is a strong drive from other nations.
But off tangent but generally I would go with diversified vs focus on one alternative. Personally I went 15% cash and gold each from my shares a couple months back... Time will tell if I'm right or miss the next bull moment.
https://www.schwab.com/learn/sites/g/files/eyrktu1246/files/...
or here
https://www.imf.org/wp-content/uploads/2022/06/COTW-dollar-d...
The headline is technically correct just exaggerated https://upload.wikimedia.org/wikipedia/commons/a/a7/Global_R...
2. The dollar's dominance is waning.
The first is unlikely, the second is inarguable. Bilateral trade agreements that sidestep the dollar are on the rise. If Saudi Arabia and China agree to settle oil trade in yuan, that will mark the end of the petrodollar.
But what it means — if the dollar really is waning in influence — it means tough time for the soft power that the US and it’s banking system is able to exert on other nations without firing a single round.
American customers tend to be the best, pay the most so of course the customer base is largest in dollar terms (as opposed to say Euros, or Yuan (practically non-existent customer/consumer base)).
Looking at it from a strategy or top level point of view of course it looks like dollars are dominant, but from a customer point of view - and the US trade deficit its easy to see why: You have a customer base that is profitable, and a large amount of them. Far more than any other country. It is just very hard to get an alternative to an American consumer.
The poor rate of savings, the spending of more than you have, etc results in a pretty good deal for the person on the other side and the manifestation of it is in the accumulated dollar capital
It depends on where you are established or what markets are you serving.
Let's suppose you're a foreign country hitech company like Huawei, in that case, when you start disrupting US markets and US incumbents, you instead are disrupted yourself, so the US market as "valuable as it might be" ends up being worse that worthless, the reason "why your company is sanctioned" and inaccessible.
So if you plan on going real big and disruptive, possibly like Huawei was, going for the US market domination doesn't seem like the best idea.
All you have to do is not be a foreign state-controlled company and not try to circumvent sanctions to known bad actors.
Case point: Ericsson and Siemens have no issue selling in America.
He told me an amazing fact that still amazes me. The two biggest customers of china's exports are (explicitly in the following order):
Walmart
The United states of America...
*in that order*
Even if the demographics changes play out the issue is the growing economies are consuming out of investment and not capital, and do not run trade deficits (so the other party doesn't have Yuan saved up for example). So there is nothing to reinvest. Almost every country China trades with has a trade surplus with China. Which means everyone is buying from China and they don't save up Yuan, but save up the other countries currency.
This is starkly evident when US has a different set of rules for itself (my way or the highway) vs rules it expects the World to follow (rules based order). This might have worked in the past when other Countries were technologically inept at building necessary infrastructure to connect banking systems and had to rely on SWIFT. However, this is no longer the case today. Most countries now have better home grown systems where transactions are settled instantly (instead of taking multiple days) and have realized that the same can be extended when it comes to inter-country (read it as bilateral) trade too. Instead of India holding USD in a US Bank and Russia holding USD in a US Bank, and using US Bank as an intermediary for any bilateral trade (giving a cut to US Bank as well as being at mercy of the US Government), India and Russia can bypass the middleman (US Bank) and trade directly: India holding Rubles in Russian Bank, while Russia holds INR in Indian Bank. There is no SWIFT being used anywhere in between. Totally avoids sanctions as well as removes the middle man from the equation.
De-dollarization has nothing to do with US Dollars losing its value. It has more to do with the US Government losing its economic superpower status where it can control other countries through economic sanctions. Even after de-dollarization, USD might be the most sought after currency purely for its value and not for "fear of the US Government". There is no "perceived loss" for USD as such. But there is significant loss for the US Administration if it cannot use USD as a weapon against another Country. That's the point that is most important to realize. It is all about balancing power dynamics.
To have an alternative you need another country with the type of consumption the US has. So while your argument is correct about the rules and affect of sanctions it misses the point that the dollars are basically loans to America because the other country did not save them. Since the US dollars do come from somewhere vs a central bank making them or out of thin air in some way that makes America strong.
It is not as if Indian Rupees or Chinese Yuan can replace these as it would mean the consumption would need to originate from China/ or India in the first place. If you were to sell your US dollars for Chinese Yuan for example, that bag of US dollars is simply held by someone else (the person you bought the Yuan/Rupees from) - until it is finally consumed. The issue is they never tend to be consumed.
The issue with it looking at it 'strategically' like you are is it forgets that these dollars come from somewhere and they are still there because they are not spent not because of rules but because of savings habits in the other country.
I did not understand this point. How does USD became a loan to America if say India did not save them?
> Since the US dollars do come from somewhere vs a central bank making them or out of thin air in some way that makes America strong.
Again, this has nothing to do with de-dollarization. What makes America economically strong is its consumption demand. Correct. However, we are talking about removing SWIFT and US Bank as an intermediary. Russia and India can decide to fix prices (Rubles <-> INR) bilaterally for international trade (unconnected to exchange rate fluctuations) and commit a certain sum of money in each others banks to establish that rate for a period of say 5 years. And then trade against that rate. There is no involvement of USD here anywhere. Neither is a middleman (US Bank) needed here.
> It is not as if Indian Rupees or Chinese Yuan can replace these as it would mean the consumption would need to originate from China/ or India in the first place
Again, you are fixated on consumption. Even if I take your point that USD is valuable and is the one currency which is sought after, it is purely on the basis of US Government's benevolence. It can be removed just as quickly if the US Government decides to sanction your country because you woke up from the wrong side of the bed. So de-dollarization has nothing to do with, say, bilateral trade between US and India. We will still trade in USD and INR. So USD won't lose its value vis-a-vis bilateral trade between US and countries it trades with. However, there is no requirement for Russia and India to trade in USD. We can always settle trade in our own currencies.
> If you were to sell your US dollars for Chinese Yuan for example, that bag of US dollars is simply held by someone else - until it is consumed.
Okay and what does it have to do with China and India trading with each other or Russia and India trading with each other? We don't need to trade using USD.
> The issue with it looking at it 'strategically' like you are is it forgets that these dollars come from somewhere and they are still there because they are not spent not because of rules but because of savings habits in the other country.
All of this makes no sense when US Government decides to sanction my country overnight. USG sanctioned India for conducting reciprocal nuclear tests (China conducted it first and we were forced to retaliate by conducting our own nuclear tests). Bill Clinton decided that communist China is more favourable to democratic India and decided to sanction us, while not sanctioning China, for the same effing tests. We were subjected to heavy sanctions and had a tough time trading with other countries who had no connection with the conflict whatsoever. And it is not like only India was sanctioned in the past. Almost every country that has gone against US's favour have been subjected to sanctions in some way or the other. No one is going to keep tolerating a bully.
Again i will reiterate that this item will not change the reserves of US dollars in place, since even if dollars were used they would go down, then back up and there would be no net change. In terms of 'de dollarization' it would not have an impact on Central Bank Reserves.
> Again, you are fixated on consumption. Even if I take your point that USD is valuable and is the one currency which is sought after, it is purely on the basis of US Government's benevolence. It can be removed just as quickly if the US Government decides to sanction your country because you woke up from the wrong side of the bed. So de-dollarization has nothing to do with, say, bilateral trade between US and India. We will still trade in USD and INR. So USD won't lose its value vis-a-vis bilateral trade between US and countries it trades with. However, there is no requirement for Russia and India to trade in USD. We can always settle trade in our own currencies.
See point above, for India and China to trade without or with US dollars the reserves dont change. Being in the middle of the transaction in a wasteful manner is not where the power of US dollars comes from.
> All of this makes no sense when US Government decides to sanction my country overnight. USG sanctioned India for conducting reciprocal nuclear tests (China conducted it first and we were forced to retaliate by conducting our own nuclear tests). Bill Clinton decided that China is more favourable than India and decided to sanction us, while not sanctioning China, for the same effing tests. We were subjected to heavy sanctions and had a tough time trading with other countries who had no connection with the conflict whatsoever. And it is not like only India was sanctioned in the past. Almost every country that has gone against US's favour have been subjected to sanctions in some way or the other. No one is going to keep tolerating a bully.
I understand what you are saying and it is correct. And there should be no reason to use US dollars in this case - but again it wouldn't reduce the reserves of US dollars. The only way to reduce reserves is to spend them or to stop America creating them by stop selling to them.
Another thing that really doesn't get enough attention, is how recent events have jeopardized the peace that the United States Navy has provided for 70+ years.
I don't think that most people appreciate the role that the Navy plays in the world, basically creating a situation where the United States provides security to seafaring vessels all over the world, in exchange for an unspoken agreement that other countries won't build a massive navy. Of course, this state of affairs was in response to Germany and Japan building massive navies in the years following WW I.
To illustrate one potent example - Bollywood is magnitudes larger of a movie industry (even adjusted for population), however the collections in $ vs ticket sales paints a very different picture.
The issue with Bollywood for example not being larger than Hollywood despite more films and possibly a larger view base is the price of North American tickets vs the cinema ticket prices in India for US films - even if they are made abroad that are sold to US consumers. So in aggregate the US consumer alone is quite significant in dollar (but not in individual people) terms vs everyone else.
If a country were to overtake, they would have to let go of the savings culture and almost spend like an American, which may not actually be the best thing for most countries.
Yes correct. And this is not a good thing even for US. Since the consumption economy in US is driven largely by debt, what will happen when there is a default (which seems very likely to happen soon considering how US banks are collapsing like dominoes)? Who is going to bail out the US economy? Sure you can bail out banks when there is a banking crisis and is localized to only the banking sector (like 2008). But what will you do when there is an economic crisis that affects everyone? That is the real issue here. US National debt is at an all time high and is not slowing down. QE is still on full swing. One day it is all going to come crashing down. With de-dollarization, the strength of the US economy shifts from being able to control international trade and also drive up its own internal debt to finance World economy (by providing much needed liquidity for international trade through its SWIFT systems) to only having to drive up its own internal debt to finance US economy (which has all the potential to lead to runaway inflation). This shift is going to happen in the coming decade or two and I hope US Citizens are aware and prepared for the fallout.
That's why there's the recurring scene of Democrats and Republicans fighting to raise the debt ceiling.
One day the US will crash and burn, but I'm betting you a dollar it won't happen in this decade or the next.
Sure there is a Yuan denominated market, but when it comes to consumption it is a kitten relative to China's size - because most Chinese consumers opt to not spend their money and save it instead - relative to an American consumer. And the outcome of that is in China you would on average have more savings than an American, but an American would have bought more things if everything else were equal. But on the Americans version of it those dollars they spent are saved up by the vendor and show up on stats vs everyone else and they are larger.
Hundreds of billions in dirty money flow into the west every year it's like other countries are funding USA war machine
Though I imagine Americans would still be screwed.
https://m.youtube.com/watch?v=ye8dbEmBimg&pp=ygUKRXVyb2RvbGx...
Effectively, banks not in the US denote debt in dollars. The “dollars” in circulation outside the US is massively larger than the domestic supply.
“de-dollarization” is not going to happen any time soon, really. They aren’t even true “dollars”, no money or assets move. They’re completely created outside the US.
This is equivalent to "there was abnormal amount of snow last week so global warming must not be real"
Except if you want no transparency and want to be bullied around.
None of china's neighbors even trust them, I sure of hell wouldn't ( perhaps Vietnam, who gets a lot of china's sanctioned businesses).
Note : I'm Belgian, not American.
Here is a good list involving dozens of countries: https://en.m.wikipedia.org/wiki/United_States_involvement_in...
PS. Regime changes isn't what I'm saying, you're changing the subject.
Which countries are bullied now? Not 80 years ago. All neighboors of China NOW are being bullied.
I'm from Belgium and there's also something to say about something similar in our history, because of 1 king we had...
https://www.amazon.com/Bitcoin-Standard-Decentralized-Altern...
And any book with a [edit](foreword) by Michael Saylor, the man whose fraud basically popped the 2001 tech bubble isn't worth the paper it's printed on. The man should have at the time been banned from running any publicly traded company. [1] [edit] What's next, a medical ethics book by Elizabeth Holmes with a [edit](foreword) by Martin Shkrelli?
[1] https://www.computerworld.com/article/2589923/update--micros...
Not that it would be good, because it has a bunch of obvious problems, many of which would occur with gold too. Of course many commodities are used instead of currency by blocked countries. As are cryptocurrencies.
Also I think you meant to write "foreword"
Obviously the store of value part pushes up price, but there is also a big need for gold in electronics and jewellery etc. Bitcoin at the moment is largely speculation and has little use beyond that currently, though has potential to become an active currency of significance, we are yet to see that.
Nobody in North America or Europe knows how to get the fair value of gold in the crappy 14k necklaces.
USD is useful because it is a meaning unit of exchange.
If a marginal producer can generate a kilo of gold for $60k, then gold is worth around $60k/kilo. Its uses or lack thereof are not that important. If all the uses of gold went away magically, it'd be worth less for various reasons but still a similar order of magnitude.