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After 20+ years reading this board, I'm fully aware that I'm in the minority politically compared to many of the thoughtful posters here. I'm totally okay with that. I'm old enough to respect the adage about not discussing politics in polite company. Variety is the spice of life, after all.

That being said, I'd be grateful to hear some perspective on this OP-ED (and subsequent analysis) from the political right on the topic of the world economy shifting away from the dollar as the primary reserve currency.

https://dailycaller.com/2023/03/30/opinion-the-ukr...

"...the US froze the dollar reserves of Russia's central bank. To be clear, these were not American assets, but were dollars owned by the Russian central bank and the Russian people. The seizure was intended to cause bank runs and collapse Russia's credit system. It didn't work.

Instead, it exposed the Biden administration's willingness to violate the trillions of dollars foreigners rightfully own. The danger of this precedent is difficult to overstate"

https://www.zerohedge.com/geopolitical/last-war-we...

"'And as a result, dollars begin to look much less appealing to the rest of the world - and so de-dollarization began, and it has accelerated at remarkable speed, almost without comment in the American media, over the last year'"

Is this just another angle to attack Biden? It certainly seems that this issue has been coming to a head for longer than the current administration, and I have to admit, the argument has me persuaded. I'm not looking for someone to blame. I'm just wondering, is the sky falling? Are thoughtful investors pulling their funds out of the market, or is this similar to how Buffett addresses inflation, where the best response is to continue to hold American companies that generate mountains of cash?

Thanks.

The desire and in many cases need to de-dollarize has been around for years. and for good reason :
1.we export inflation as needed
2 we constrain economic development in partners
3.we hold hostage the rest of the world to our internal and external political agenda from cliffhanger budgets (ever more frequent)to trading commodities especially oil in dollars, but to poor countries this can also mean starvation , to our not well thought out military foreign adventures, usually expensive failures in blood and treasure.

Until now, there was little possibility to challenge the USA, as what was the alternative ? and could you trust them ? the idea/concept of "baskets of currencies ", works, till it doesnt, without gold, some would say bitcoin....which also works , till it doesnt.

De dollarization is a long process and a search for alternatives. The rise of China, India, and common cause with saudi arabia and brazil , is the latest version. One day, one of these will happen. It has little to do with Biden administration per se, it is a global reluctance to have all your eggs in 1 basket , which can be manipulated at any time.

forgive my brashness, but the only people who could even wonder about this development eventually happening , is an American mentality. The lessons of history, the rise and fall of empires, the economic effects of economic and financial colonization push in the direction of dedollarization. the rest of the world has been looking at this since at least the 1970's, the EURO was an initial attempt to create a financially bi-polar world , the heft and weight was not there , and the rest of the world viewed europe as an american possesion whi in Macron's words just yesterday would only and always "follow " the United States.

its what the french admirably class in history and philosophy as the "longue duree". The subsurface movements ahve been visible for 30-50 years at least , whilst most eyes have been on the surface currents and froth of crashing breakers.

Please take this in the spirit in which it is meant , not as a political essay, but having had a global career this was readily apparent visibly, and is entirely my own opinion based on studies and career.

will it happen in my lifetime ? soon-ish ?... doubtful without a massive trigger ,but it will happen , slice by slice, market by market.... there are possible alternatives now again, actively being pursued

an interesting almost analogy if the fall of the Roman Empire, debasement of currency, a series of weak and incompetent leaders at the centre , the drsin of goods from the far reaches of the empire to subsidize the Roman lifestyle..... and the arguable trigger ?, the Justinian plague bringing high inflation and a shortage of workers...History may not repeat ,but it does sometimes rhyme.

Historically, the end of the dollar's hegemony as the reserve currency of the world has always been nigh, and perhaps always will be.

Until the early 1970s, a service we provided those foreigners who used dollars was the ability to convert, at will, their US dollars to gold at a rate of $35/ounce. This had become harder and harder for the US to support, and before the gold standard collapsed, the US had made it illegal for its own citizens to own gold beyond amounts used for jewelry, and certainly its own citizens could not convert THEIR US dollars to gold.

And finally in the early 1970s, the wheels came off the bus, or at least it was acknowledged that the wheels were gone, and we said "OK the end, no more gold for Dollars."

So one might expect that to have been the end of the US Dollar as world reserve currency. Except it wasn't. Fifty years later, and a factor of N (sorry not looking it up) inflation later, the US is the ONLY superpower in the world and its government continues to fund itself by spending the inflow of dollars being repatriated by foreigners who think American assets are just worth some crazy premium.

And we learn, perhaps, the oddest thing: no matter how bad we think we have screwed up, the rest of the world is still more screwed up than us. I mean, theoretically it seems that at some point we could kill the golden goose, or at least choke it with legalized corruption and crazy theories of social justice and libertarianism, but so far we have not.

Which isn't to say that one day, the headline "The Sky is Falling!" may not be correct, but at least historically, it does not seem to be the way to bet.

R:)

"And we learn, perhaps, the oddest thing: no matter how bad we think we have screwed up, the rest of the world is still more screwed up than us. I mean, theoretically it seems that at some point we could kill the golden goose, or at least choke it with legalized corruption and crazy theories of social justice and libertarianism, but so far we have not."

This!!!!

As much as other countries don't want to be beholden to the dollar, where else are they going to turn? The Yuan? The currency of a country where its leaders decide who gets rich and who doesn't? Where the leaders literally manipulate the price of their currency? Many people have a really hard time investing in China due to their lax rule of law protecting their investments. Given that, how is their currency going to replace the dollar? Do you really want the value of your currency holdings to be at the whim of the Chinese Communist Party? Besides, decades of a one-child policy has China facing a huge demographic wall in the coming years that will end up being a huge economic headwind to their continuing rapid growth. I won't be surprised if they end up trying to stealthily inflate their way to show continued growth. What happens to the Yuan when that all comes crashing down?

What is going on between China, India, Brazil, etc (I forget what other countries they were including. South Africa?) will sure make headlines and may get somewhat off of the ground and work for a while, but the moment one of their economies hits a rough patch and that country is forced to turn on the printing press or lower rates or whatever, each of their partners will bear some of the brunt of it and ask themselves why they got into bed with the others. So I am sure the Saudis might keep a nominal amount of their holdings in Yuan in the near future, but that amount will absolutely pale in comparison to their dollar denominated assets.

Right now a person can fill their wallet with crisp new U.S. $100 bills and then go anywhere in the world and with just a little bit of effort that person will be able to use those $100 bills to find food, shelter, and clothing from local citizens. Try filling your wallet with Yuan and doing the same. Not happening.

the only people who could even wonder about this development eventually happening , is an American mentality. The lessons of history, the rise and fall of empires, the economic effects of economic and financial colonization push in the direction of dedollarization. the rest of the world has been looking at this since at least the 1970's, the EURO was an initial attempt to create a financially bi-polar world , the heft and weight was not there , and the rest of the world viewed europe as an american possesion whi in Macron's words just yesterday would only and always "follow " the United States.

its what the french admirably class in history and philosophy as the "longue duree". The subsurface movements ahve been visible for 30-50 years at least , whilst most eyes have been on the surface currents and froth of crashing breakers.

Hummingbird has it right. De-dollarization will happen when the US is replaced (by China?) as the global hegemon.

Check out this Fact Sheet on De-dollarization from the Visual Capitalist:

https://www.visualcapitalist.com/de-dollarization-...

Nearly 60% of all the world's foreign exchange reserves are held in dollars. And what form do those reserves take? Usually US Treasuries. The US debt market is 37% of all global debt, so there are not a lot of places to go and park your money if you want to store value as a central bank. The alternatives are Europe (20%), Japan (16.7%), and, more recently, China (12.8%), but the Chinese government debt market is a third the size of the US. China has the second largest equity market by market cap at $13.4T, but the US is 333% larger, so de-dollarizing equity markets doesn't look doable. Add to that the impact Chinese policy has had on Chinese companies stock prices and you can begin to understand why the de-dollarization project is anemic at best.

The road to de-dollarization requires a road, and with a belt to secure that road you might find the route to de-dollarization. The Chinese are playing a long game of reorienting the global economy from the west to the east, and it looks like they are making some headway in this regard. While we view their forays into trade in Africa and South Asia as a new imperialism (which it might very well be), the leaders of these regions see something that has long been lacking in their relationship with the west: investment. Unlike western imperialism, the Chinese belt and road initiative isn't based on military conquest and brutal colonial exploitation. Rather I see it as an investment in the infrastructure required to reorient economic and political relationships away from the west and toward the east.

https://www.businessinsider.com/what-is-belt-and-r...

There is a reason China is now playing the role of peace maker between Iran and Saudi Arabia. Their vision of an alternative to US hegemony in South Asia, Africa, and, eventually, Europe, requires peace and stability in the countries they are investing in across the region.

This is a long game, and if it works you will see China gradually shift the center of trade away from the US and toward east Asia. When this happens, and takes root, the dollar will already have gone into crisis, along with the US economy in general. The Biden administration sees this game and is trying to play hardball with China now before they succeed in rerouting economic relations between Africa, South Asia, and Europe. The war in Ukraine is in many ways the first cold war in the emerging war between the US and China over global hegemony. Hopefully the struggle between China and the US for hegemony will not lead to war, but there is little precedent for the peaceful passage of power from one global hegemon to another.

The right wing in the US is acting as a third column in this struggle, undermining the Biden administration and putting forward isolationist candidates. US hegemony will be lost if the global vision of democracy and economic development are lost in the partisan struggle for political domination. US foreign policy in the service of maintaining global hegemony used to be a bipartisan third rail that no party could touch, but with the Trump administration it has become another point of political polarization. At a time when American politics is becoming increasingly mistrustful of democracy, advocating for democracy in the face of China's authoritarian egalitarianism looks hypocritical. Add to that the apparent selflessness of Chinese infrastructural investment around the world and you can see how the US is going to lose this cold war.

Will de-dollarization occur? Yes. But not soon, and not without a lot of much larger political and economic problems taking center stage.

As much as other countries don't want to be beholden to the dollar, where else are they going to turn?

The US has huge and growing deficits, 30T in debt and 150T in unfunded liabilities. Much of the world is turning their backs on the USD because of our politics and fiscal irresponsibility.

BTC has no deficit, no debt, no unfunded liabilities or political affiliations. As hard as governments try they just can't stop it. I give BTC a 50/50 chance of replacing the USD as the world's reserve currency in the next ten years. (That's also when Social Security goes broke.)

Sadly for the US:

- Vietnam
- War on drugs
- Covid
- Ukraine
- Dylan Mulvaney 😀
- BTC

The US has huge and growing deficits, 30T in debt and 150T in unfunded liabilities. Much of the world is turning their backs on the USD because of our politics and fiscal irresponsibility.

BTC has no deficit, no debt, no unfunded liabilities or political affiliations. As hard as governments try they just can't stop it. I give BTC a 50/50 chance of replacing the USD as the world's reserve currency in the next ten years. (That's also when Social Security goes broke.)



Social Security can't "go broke." The US Government can create US dollars with a keystroke. You can't pay your taxes with anything other than US dollars in the United States - and the payment of your taxes is enforced with a big stick. The US Government should practically always run deficits to accommodate the private sector's desire to not spend everything they make (to save some). Deficits that are too large will cause undesirably high levels of inflation, as we have seen recently, but the US should not intentionally try to run surpluses or a balanced budget (unless they they are trying for a very short time to intentionally slow the economy). Running a smaller deficit or a balanced budget is a much more effective way to cool off the economy / slow inflation than changing the price of overnight money at the Fed. Fiscal policy, not monetary policy, is the most important factor in the US economy.

It is a mistake to apply the analogy of a household budget/finances to a sovereign nation with a fiat currency that is not convertible into anything, issues debt securities solely in its own currency, and has free floating exchange rates. The US Government cannot "run out of money."

Car­men Rein­hart, former World Bank chief eco­nom­ist has written that after the second world war Amer­ica and Bri­tain slashed their debt by adopt­ing a subtle ver­sion of growth-and-infla­tion mix known as 'fin­an­cial repres­sion'. This refers to the idea that if the infla­tion rate in a coun­try stays slightly higher than the interest rate paid on long-term gov­ern­ment bonds, debt will fall because bonds are loss-pro­du­cing in real terms. There is a good chance this will be repeated soon.

Well said.

Krugman has an opinion piece on the de-dollarization hysteria, but it's behind a paywall:

https://www.nytimes.com/2023/04/14/opinion/dollar-...

Bottomline, Britain lost its reserve currency status and the pound is still fine. Replacing the dollar with the Yuan could happen, but then you'd have to trust a whimsical communist dictatorship with defending value. Ask BABA how that's going.

The US economy is still too large, and the dollar too central to global trade, and as a store of value, for it to be displaced anytime soon.

The U.S. is the top oil producer in the world by far:

https://www.eia.gov/tools/faqs/faq.php?id=709&t=6

In a world facing increasing demand for oil and steadily declining supply, there's a pretty good chance that oil will continue to be quoted, bought and sold in U.S. Dollars for decades to come.

ChatGPT's response to my question "Historically, have the currencies of mineral resource rich countries been more stable?:

"Historically, the currencies of mineral resource-rich countries have not always been more stable. While it is true that natural resources can play a role in determining the value of a currency, many other factors can also impact currency stability.

For example, political instability, corruption, economic mismanagement, and external shocks such as changes in global commodity prices or natural disasters can all affect the stability of a currency, regardless of a country's resource endowments.

Moreover, the relationship between a country's natural resources and its currency can be complex and depend on several factors, such as the extent of resource dependence, the level of diversification in the economy, and the structure of the resource industry.

In some cases, a reliance on natural resources can make a country's currency vulnerable to fluctuations in commodity prices and result in a phenomenon known as the "resource curse." This is a situation where a country's economy becomes too reliant on natural resources, and the resulting revenue can lead to a decline in the manufacturing sector, overvaluation of the currency, and other negative economic consequences.

In other cases, however, natural resources can provide a stable source of foreign exchange earnings and contribute to economic growth, leading to a stronger currency. It ultimately depends on a range of factors beyond just a country's mineral resources."

https://chat.openai.com

BTC has no deficit, no debt, no unfunded liabilities or political affiliations. As hard as governments try they just can't stop it. I give BTC a 50/50 chance of replacing the USD as the world's reserve currency in the next ten years.


I'd happily take the other side of that bet - I think it's a longshot that BTC even survives 5 more years. Despite many years of promises of it becoming the new world currency, it is making no real traction - 99.97% of people (made-up number) have never used it for anything. Governments of the USA and elsewhere are finally starting to crack down on cryptocurrency operations, and we've seen a slew of bankruptcies in just the last 12 months. The market cap of all cryptocurrencies has fallen from $3 trillion to $800 billion just in the last year. Some of the biggest players are gone (FTX, Silvergate, Signature Bank). Coinbase just received a Wells notice - we'll see where that goes. Regulators are waking up to the fact that the sector has become big enough to be systemically important, and they are, I think, unlikely to keep turning a blind eye to activities that are semi-legal or frankly illegal for securities markets.

OK, Bitcoin is up a bit from its lows, although it is still down 50% over the last 18 months. But Ponzi schemes, even ones that have lasted a long time and looked pretty stable, fall awfully fast when people start to doubt whether they represent real value or not.

dtb

BTC has no deficit, no debt, no unfunded liabilities or political affiliations. As hard as governments try they just can't stop it. I give BTC a 50/50 chance of replacing the USD as the world's reserve currency in the next ten years. (That's also when Social Security goes broke.)

The obstacles facing Bitcoin adoption as a currency--let alone a reserve currency--are so astronomically large I don't see any path for success. Bitcoin transactions are far too slow and far too expensive. And before you can say "Lightning Network" Lightning Network creates a whole host of new problems that might be unsolvable.

But the real stake through Bitcoin's heart is price instability. Today Bitcoin dropped by 2.69% but is up 52% in the last six months. You can't conduct business in a currency that volatile. You pay in Bitcoin if you like, but goods and services need to be priced in something stable, like dollars or euros.

"I'd happily take the other side of that bet"

Me too. In fact, I would probably offer some pretty good odds against bitcoin replacing the dollar.

"I think it's a longshot that BTC even survives 5 more years."

I am pretty sure Bitcoin will last more than 5 years. It just won't be meaningful.

As Mungofitch like to point out, there are still some Bennie Babies that trade on eBay for large sums of money. It is just that it is a small niche of buyers and sellers that trade them to each other. That will be Bitcoin in a few years.

"As much as other countries don't want to be beholden to the dollar, where else are they going to turn? The Yuan? The currency of a country where its leaders decide who gets rich and who doesn't? Where the leaders literally manipulate the price of their currency? Many people have a really hard time investing in China due to their lax rule of law protecting their investments. Given that, how is their currency going to replace the dollar? Do you really want the value of your currency holdings to be at the whim of the Chinese Communist Party? Besides, decades of a one-child policy has China facing a huge demographic wall in the coming years that will end up being a huge economic headwind to their continuing rapid growth. I won't be surprised if they end up trying to stealthily inflate their way to show continued growth. What happens to the Yuan when that all comes crashing down?"

I posted this earlier in the thread, but I forgot the biggest threat to De-dollarization.

A certain portion of congresscritters who think defaulting on U.S. debt (that has already been authorized to be spent) by not raising the debt ceiling is just perfectly fine.

Dumb. Dumb. Dumb.

The main reason the dollar is the world's currency is because of the rock solid stability it represents. Everyone knows how dynamic and solid the U.S economy is (and has been for over 80 years). Even when the U.S economy hits a downturn that us citizens think is terrible, it is really just a temporary hiccup. The rest of the world would literally kill to have the economic stability enjoyed by the U.S.

Now some congresscritters want to throw that away by simply not paying all of the bills for the spending they have already authorized, even though the federal government can afford it.

It is already crazy how much congress has flirted with catastrophe by playing chicken with the debt ceiling the past decade. That craziness has already hurt the dollar. To actually default would be pure insanity and could lead to de-dollarization depending upon how it plays out.

Listen, I get the need to get the federal budget under control (both decreasing spending and increasing revenue) but that said, being stupid with the debt ceiling is not the way to do it. The time to do it is during the budgeting process and then during the actual spending process when we consider what the money is spent on. The worst time to do it is after the money is spent and the bill comes.

It is like going on a spending binge on a credit card that you later regret and then when the bill comes, refusing to pay it. It means eventually you will lose you luxury home and your lavish lifestyle, but you will stupidly be proud you didn't pay that credit card bill.

It is the literal definition of cutting off your nose to spite your face.

Dumb. Dumb. Dumb.

exactly !! they and their ilk are destroying America from within.....the rest of the world was looking on askance.. they are looking on now in horror...

Now some congresscritters want to throw that away by simply not paying all of the bills for the spending they have already authorized, even though the federal government can afford it.

The federal government has 200T in debt and unfunded liabilities ... 5T in annual tax revenue. An effective default is inevitable. De-dollarization is happening. As they say: "gradually, then suddenly."

Also, I'll take the BTC bet. I propose we make the wager 1 BTC? 😀

But the real stake through Bitcoin's heart is price instability. Today Bitcoin dropped by 2.69% but is up 52% in the last six months. You can't conduct business in a currency that volatile. You pay in Bitcoin if you like, but goods and services need to be priced in something stable, like dollars or euros.

If you track the USD value in BTC, you find it is BTC that is stable and that today the USD rose by 2.69% but is down 52% in the last six months. And yet we continue to conduct business in a currency that volatile.

R:)

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