Signs of de-dollarisation emerging, Wall Street giant JPMorgan says | Hacker News Reader

Signs of de-dollarisation emerging, Wall Street giant JPMorgan says

reuters.com

What are the alternatives?

- euro

  Too many cooks spoil the kitchen, unpredictable policy, serious liability monetization issues.  Currently Europe runs the presses about as much as the US.  IT is going to be running the presses even more as the entire continent militarizes while the US's share of security agreement wanes and Europe pays for a greater share of its defense.

- yuan

  Debt to GDP ratio of 200%, highly manipulated currency (uhh how do you think the evergrande crisis just disappeared one day), *capital controls* where citizens can't take money out of the country... When capital controls are removed, necessary to achieve reserve currency status, the whole system will suddenly be incredibly unstable.

- ruble

  Is using the reserve currency of a pariah state really a consideration?

- reais

  Let's use a currency that has its name because they had to trick people into acceting a remonetization for the Nth time.

The whole dedollarization narrative is like some weird propaganda pushed by china. Look, the dollar sucks, and maybe some countries will flip to the yuan (it's easy to buy off politicians) but those countries that do are going to be utterly screwed because the it's structurally worse than the dollar, and emerging markets will be forced to be shackled to a currency controlled by a competing (producer) interest.

It doesn’t have to be just one alternative.

From what I have around Brazil is pushing a new(?) common currency for trading within Latin American countries, China is pushing Yuan for bilateral trading with several countries, and probably more blocks and trade partners follow similar policies elsewhere.

Not having all the eggs in the same basket may lead to some egg breaking, but not all of them at the same time. And the increasing perception of risk relying on dollars may make that strategy attractive.

> From what I have around Brazil is pushing

Ah yes, the BRICS idea:

> You combine Brazil's history of monetary stability, with Russia's respect for property rights, India's domestic tranquility, China's financial transparency, and South Africa's investment opportunities - and hey presto, you've got a new global money.

* https://twitter.com/davidfrum/status/1665053372402081792

An international free banking era might be exciting (ok, I think it would be exciting), but even in such a regime literally everything that I wrote still applies, and anyone choosing alternatives to the dollar for transactions in the small is going to get screwed in those individual subdomains for exactly the reasons I point out.

Nobody is looking for _the_ alternative currency. The idea is to decentralize, which is, imho, a fair deal.

> The whole dedollarization narrative is like some weird propaganda pushed by china

China or not, it's not "weird". Each country pursues its own interests (obviously, including the US). And that is... normal?

Oh sorry, I should have been clearer: it's obviously not weird for china to do it, it's weird that so many otherwise smart people buy the narrative hook line and sinker.

It's almost like diversification is the solution.

Having all debts and credits in one currency is a recipe for disaster. Not only where the US wishes to make it so (Russia), but when times are hard and the US needs to move to protect its own economy (Sri Lanka).

Hold on: the eurozone is WAY harsher on Russia than the US, they are the ones restricting the price of Russian oil, not the US (US doesn't control the shipping insurance market). I mean that's understandable, Europe is in the line of fire next

Perhas you're not sure what I mean by diversification?

If that's the case look into the original ideas from Markowitz.

If you really can't grasp the difference, consider the PIGS eurozone crisis as a Euro risk lower in USD (other than global correlation), and consider the recurrent US debt crisis (as lower in Eur other than global correlation). China weathered 2008 very well, and it was by learning from them that most of the world decided on furlough for the COVID recession.

Most economic analysis requires that you leave your prejudices at the front door.

It matters to you because we are coming to one of the harest periods for retirees in modern history. You need to know this stuff and it's a shame it's not taught in school any longer.

I mean look at one of my sibling posts: I welcome an international free banking in concept, but I claim 1) it's not going to happen in the large and 2) while it will happen in the small, every player that does it in the small will get screwed.

Theoretically diversification is a good in itself, but if all the alternatives suck, reality will come running at that theory real quick.

Well it is happening.

You have a flawed theory that does not match reality.

Bold claim. I'll making a prediction: no movement towards this outcome let's say limit 10% loss of tx percentage in usd, at this same time in 2 years.

The stats already show you to be wrong why bother with another prediction.

As shares of totals, Yuan is at record high usage. Dollars are record lows.

Case closed.

> - yuan

The Odd Lots podcast just had an episode on this:

> There's a lot of discussion these days about de-dollarization and whether the US dollar will lose its standing as the world's sole reserve currency. Generally, people seem open to the idea, but they also don't see many good alternatives out there. The renminbi is the obvious candidate to take share away from the dollar, given the size of the Chinese economy and China's role in global trade. But for various reasons, the currency isn't suited to be a global reserve currency. So what would it actually take to become one? And what would be the effects if it started to play a major role in global trade? On this episode of the podcast, we speak with Karthik Sankaran, a longtime FX veteran, about what China would have to do if it really has global aspirations for its currency, and why a more multipolar FX landscape might be good for world financial stability.

* https://www.youtube.com/watch?v=T_EZDfe4y1Q

* https://omny.fm/shows/odd-lots/what-needs-to-happen-for-the-...

Snippet/clip on prerequisite(s):

* https://www.youtube.com/watch?v=mIfMC41-Zfc

Transcript:

* https://www.bloomberg.com/news/articles/2023-05-22/transcrip...

* https://archive.is/8iNgy

The two camps I hear pushing the "de-dollarization" narrative are:

BRICS (Mostly the R and C in that) for the purposes of domestic propaganda.

Bankers and Crypto folks who use the HIGHLY unlikely specter of de-dollarization to drive up the price of things like precious metals and crypto as "safe alternatives.

Even a cursory glance at the state of the dollar shows that there is no reality to the notion of its fall, for all of the reasons you already stated and more.

We're largely headed for Bretton Woods 2.0. Nobody wants a single country to operate as controller of the world reserve/trade currency, because it gives that country a grossly unfair economic advantage over the entire world, which also loosely equates to a military advantage. Bretton Woods was designed such that the USD would be the defacto world currency with all other currencies directly set against it. To prevent the US from exploiting this position, the USD was to be directly convertible to gold at a fixed rate, which severely handcuffed the ability to do things like 'print' excessive money.

So, the ideal is we'd behave responsibility with an unimaginable amount of power at our fingertips. You'll never guess what happened next. Anyhow, after we found ourselves without enough gold to pay off our debts, we simply defaulted and withdrew from Bretton Woods, collapsing the entire system. A fun quote from Nixon's Secretary of the Treasury of the era is, "The dollar is our currency, but it's your problem." Here [1] are some interesting graphs of result economic changes after the dollar became completely free-floating.

So the "real" question is what form Bretton Woods 2.0 will take. One reasonable, if not likely, possibility is BRICS new currency, which is set to be introduced as early as August. The details have not been released, but it seems likely that it will be backed by gold in a similar fashion to the original Bretton Woods, but without any single country having uncontested control over it or the ability to 'default' the entire system. If nothing else, we sure live in interesting times...

[1] - https://wtfhappenedin1971.com/

Read Moneyland and Butler to the World. On the legal side of things, we need to close loopholes that allow shell companies to hide oligarch money, and prevent countries from selling diplomatic passports to investors that prevent their prosecution anywhere in the world.

GBP! There before the USA never mind the dollar! ;-)

Let's get Truss back as PM, so she can announce another Minibudget. Masochistic Tory voters will be screaming in combination of pain and pleasure as falling Pound will melt away their retirement funds.

Nice troll, but now that I think about it, why not?

You could do worse, but probably the same reason why you wouldn't go with say the swedish krona: volume.

Also UK has way too many issues for long term stability as of reserve currency.

Sadly cannot disagree :-(

Not a big fan of how the history of the euro played out but I think I need to provide some nuance to your claims: Policy of the ECB has been as predictable as any other CB, European Govs have become much more fiscally prudent in the wake of the euro crisis (maybe too prudent). Eurozone debt to GDP levels stands at 91% (vs. 129% in the US). The "entire continent militarizing" will not meaningfully impact debt ratios (goal is to increase avg. military budgets from ~1.3% to 2% of annual GDP). The bigger question mark in Europe is potentially unsustainable expenses for social security and (related to this) a relative decline in the working age population (as everywhere else).

- IMF special drawing rights (SDR), some basket of multiple currencies.

- Swiss Franc (CHF). "But it's such a small market" -> lol they can make more.

- Japanese Yen (JPY).

Also, please don't format with monospace, it breaks things on mobile or small screens.

> The whole dedollarization narrative is like some weird propaganda pushed by china.

The beauty of the US dollar is it's always worth a US dollar... It's strength is a measure of much foreigners trust the US economy and it's political and judicial system. What drives the demand for the dollar is the will of people to invest money in American securities and on the American capital market. I don't see it ending anytime soon.

Chinese investors invest on the Chinese market in Yuans. Rich Chinese investors invest on the US market with US dollars.

The 'unit of currency' is immaterial. It all depends on whether or not it is usable by ALL players. In a prison, they often use cigarettes rather than some monetary currencies. Maybe in the future, the 'unit of currency' could be 'barrels of oil', grams of gold, grams of platinum, etc.

The US has blocked too many people from using the Dollar that the Dollar is not as 'universal' as it once was. So people will look for another alternative, or even many alternatives.

The article is basically trash. If anything the content of the article is the opposite of the headline.

To me, on a 50+ year time frame, the rupee is more interesting than any of the 4 mentioned.

I was just thinking yesterday how if 1989 in China went differently that the dollar right now could be in trouble.

Lula's currency is pretty laughable. A currency that you share with Argentina? What could possibly go wrong?

The alternative is all of them, and more. Dedollarisation does not mean that another single currency will step into the dollar's shoes as the global reserve currency. You will more likely have multiple spheres of influence with each one having a de facto dominant currency, and you will also have more countries doing trade in multiple currencies in order to "hedge their bets" as it were.

Like, the EU has no interest in trying to force the euro on the world. But in the aftermath of Brexit and the Trump presidency, they have grown concerned about other powers having too much control over their trade.

In theory this sounds like it might work, but in practice any international reserve/settlement currency will see more inflows than outflows. This will cause that currency to appreciate, which by itself is a deal-breaker for many countries.

A good case study is pre-Euro Germany. It had all the ingredients of a secondary reserve currency and was in fact used as such. However the appreciation that resulted from those inflows was not wanted at all since it didn't fit with the export-oriented economic model and made exports noncompetitive. As a result German capital markets were never opened to foreigners to the same degree British or American markets are.

While being the world's reserve currency is undoubtedly an "exorbitant privilege" in some respects, it also has many drawbacks. I don't think India or China would be willing to issue Bonds to foreign entities at the volume that the US is doing.

The more interesting thing is that, because the dollar has no serious reserve status competitor, the maintainers of the currency can be less restrictive in its management, and people can whine about it, but since there is no alternative, they're stuck with it, except for niche use cases that don't matter on a global scale. That's where all the discussion is stemming from: the dollar isn't as good, but it's still the best. It's normal to lament things that used to be better.

Obviously forgetting about Bitcoin /s

I don't think de-dollarization is particularly pushed by places like China. From the Chinese perspective, dollarization is a good thing because it means they can engage in intl trade without needing to open up their domestic currency and deal with the potential political instability that might result.

I think it's more oft pushed by 'sound money' cranks (either gold bugs or their fellow travelers) or by particularly ornery fiscal conservatives with an axe to grind about whatever monetary policy the US is pursuing this week.

De-dollarization is pushed by china. I think you're right, the dollar hegemony is in their interest, but every country does dumb as shit things (e.g. the US re-invaded Iraq)

https://www.scmp.com/comment/opinion/article/3216363/after-d...

Actual propaganda arm of the CPC:

https://www.globaltimes.cn/content/1195115.shtml

https://www.globaltimes.cn/page/202304/1289865.shtml

https://www.globaltimes.cn/page/202304/1289944.shtml

https://www.globaltimes.cn/page/202304/1288446.shtml

De-dollarization for the Chinese is purely because of geopolitical and strategic reasons (rendering bank level SWIFT sanctions ineffective). Whether trade is done/settled in USD or yuan doesn't really affect them as they are an export economy with a peg to the USD. Switching to a currency swap system with specific countries doesn't mean the efficient market hypothesis stops holding. The underlying value of the swaps can still contain a USD peg.

Yeah, the costs of changing are greater than the costs of staying the same. But the basic idea of using a nation's currency as global reserve currency is a bad design.

"Triffin Dilemma" - a national currency used in a global context will always result in spiralling imbalances. Some China guy cited this as a proximal cause of the collapse in 2007-2008 and I don't think anyone would argue with that at all[1]. So there's a pressure to move to an OCA/OCR (optimum currency area or optimal currency region) that's more like "The World", even if that's a hypothetical space.

I mean, look at the United States today, aside from extractive industries. It's pretty much a military humping/fighting a financial industry on these teeny tiny little fast food legs. That's exactly what you would theoretically expect from an economy that's been the global currency for a couple generations, but it's a damn weird shape to bend your nation into.

The solution is not crypto, but definitely an analytically-arrived at unit that's redeemable in a bucket of commodities via a real World Bank structure. Maybe crypto could be a part of that, maybe a "carbon coin" or some other quantitative measure of future value. All this waffle spells the lie to the "international capitalism" story we've been telling ourselves - without World Cops, World Courts, World Laws, there is no World Market. It's bandits in Brioni with nukes and red tape.

[1] Although, of course, yes yes yes, his motives are suspect, but his statement was not. He wants the Yuan but no one else should.

>Signs of de-dollarisation are unfolding in the global economy, strategists at the biggest U.S. bank JPMorgan said on Monday, although the currency should maintain its long-held dominance for the foreseeable future.

So... not as scary as the title.

Anyway what is the alternative? Commodities? China's currency is too controlled. Euro(pe) is too reckless. I like Bitcoin for storing value against inflation, but its not a great currency. GBP? Maybe, but for such a small economy, that is a lot of eggs in 1 basket.

I'm the first one to be skeptical of government fiat currency holding value, but which big player is doing it better?

I think what is happening is that there is a push to settle bi-lateral trade using the currencies of the two countries that are trading, and then it will grow from there. Many Countries still use the US Dollar to settle bilateral trade between themselves.

There is a decent amount of inefficiency in doing this though because you still have to establish valuations between the bilateral currencies. How do you do that without using any reference to some kind of a reserve currency? Ie, how would you figure the 'correct' yen:peso rate with first refering to yen:usd and peso:usd? I mean, you can, but either party takes on a decent amount of risk of getting taken to the cleaners if they misjudge their direct currency ratios. Or, if you do use a reference currency, without actually settling with the reserve, the reference price can be more easily manipulated. So, that means everyone doing strict bilateral settlement has their guards up more which makes it harder to get any trade done.

> I like Bitcoin for storing value against inflation, but its not a great currency.

Why?

A right-leaning (wing?) Canadian politician, Pierre Poilievre, said crptocurrencies would be to 'opt out of inflation' about a year ago. Meanwhile:

> The number of bitcoins needed to pay for shawarmas, groceries, gas, and housing is up 73.1 per cent compared with 5.2 per cent annual inflation measured in Canadian dollars.

* https://www.hilltimes.com/story/2023/03/29/poilievres-over-i...

* https://archive.is/6Ab4T

Cryptocurrencies are way more unstable than any fiat currency (at least of developed nations).

>> I like Bitcoin for storing value against inflation, but its not a great currency.

>Why

> The number of bitcoins needed to pay for shawarmas, groceries, gas, and housing is up 73.1 per cent compared with 5.2 per cent annual inflation measured in Canadian dollars.

So its not a good currency, but its a good store of value. No Bitcoin holder is gauging the value in segments of 1 year.

> So its not a good currency, but its a good store of value.

How is it a good store of value?

> No Bitcoin holder is gauging the value in segments of 1 year.

If it cannot hold its value for one year, I have little faith that it can hold its value for more than one year.

Things in finance can happen slowly then all at once.

A more sensible form of money rather than current fiat currencies would be some token representing like a fraction of a global (investment grade) bond portfolio. Of course central bankers wouldn't like that idea because it would limit their tools to fight inflation.

> Bitcoin: a peer to peer electronic cash system

If you're buying into something that isn't "a great currency" then you are being lied to, and the thing that you're buying has been derailed from the original plan.

GBP is also not exactly a sane investment right now given that country’s economic slowdown and the recent Truss panic.

Here's 25 year trend chart.

https://www.imf.org/en/Blogs/Articles/2022/06/01/blog-dollar...

The only way the ratio would change meaningfully is if the current emerging countries dependent on China were to continue to grow strongly for the next few decades.

You could find articles with the same headline for the last 30 years.

One of favorite topic for particular breed of financial conspiracy theorists like Schiff.

ya, but have you heard about Gold? I can sell it to you too.

Gold? Schiff is selling NFTs now. That's right, NFTs, in 2023.

https://www.tradingview.com/news/cryptoglobe:a160b0028094b:0...

USD as a percentage of global foreign reserves has fallen 10% in 20 years... from 70% to 60%. If "de-dollarisation" does happen it's going to take a LONG time.

https://www.imf.org/en/Blogs/Articles/2021/05/05/blog-us-dol...

Things usually start slow until they accelerate.

Badly quoting Hemingway does not insight make.

In any case, EscapeFromNY understated the dollar's historical position. The dollar's share of global foreign reserves in 2022 is almost exactly the same as in 1980 and in 1995, and 10 percentage points higher than in 1990. <https://en.wikipedia.org/wiki/Reserve_currency#Global_curren...> As dgfitz said, "Or stop, or turn around".

Or stop, or turn around.

“The dollar's share of traded currency volumes is just shy of record highs, at 88%, while the euro's share has shrunk by 8 percentage points in the last decade to a record low of 31%. The share of the Chinese yuan, meanwhile, has risen to a record high of 7%”

Um where?

Why do exports matter for FX? Exports are local?

Not always - take oil as the obvious example where transactions are usually done in dollars regardless of the shipping from / shipping to location.

If you were in England and wanted to buy oil in Uganda for use in a subsidiary in Brazil, you would probably use USD regardless of the fact that USD is not the 'standard' currency of any of the parties.

True, but 88% is high, this article doesn't seem to make a good case for why the other trends are worrisome...

And Russia going insane is probably a good example, where they are shifting their oil direct to local currency since they have no choice given they started a war.

The Russia example there is a genuine example of de-dollarisation though, showing why exports matter.

True but as we need to cut them off, so that seems like a great move over the long term and a little pain now.

Surprising to see that so many people don't believe this is happening. Yes it is happening slowly but there quite are a lot of incentives for China and it's allies to move away from the dollar, and China has the economic power to pull it off.

Keep stacking sats

Once de-dollarization hits an inflection point there's a good chance that hyperinflation and chaos will follow. I hope we can somehow avoid that.

Well that’s when WW3 starts. The US will not allow that to happen without a fight.

I think they actually will tbh, I don't think the US has any fight left in it.

We seem to be doing our darndest in Ukraine to poke The Bear. Maybe we'll get both but I though "they" were going to wait until Trump was re-elected so they could pin the whole mess on him.

Callous isolationism and conspiracy theorizing in one post! What are the odds?

A real stunt, indeed!

But TBF, the odds are pretty good, as it is an art form refined by the Russians over centuries, and taught to MAGA movement that they funded in the US (via the NRA), and then made home-grown by the Q-anon movement... so, the odds are pretty good of seeing such stuff

You are indeed a cunning linguist!

Whatever the Russian military is these days, it ain’t a bear anymore.

"The Russian Bear" is a term that's been in use for centuries to refer to Russia herself, not necessarily her military.

https://en.wikipedia.org/wiki/Russian_Bear

That's when the aliens invade us. When we're at our weakest!

Not even the US Marines at their strongest could repel an alien invasion. If that was going to happen it would just happen regardless of our relative strength or weakness.

But but what if they die upon contact with water though?

Or their infrastructure is exceedingly vulnerable to computer viruses.

Or small-batch amphetamines made by josh hartnett

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