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US dollar hegemony starts to crumble

Martin Everson

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Mentor Group Gold
Jan 2, 2018
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US dollar hegemony starts to crumble amid developing economies' shift to other currencies for settlements

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Countries across the world have accelerated de-dollarization and increasingly shifted to other currencies that would provide stability, which, according to some experts, is a result of the US' irresponsible monetary policies, including monetary and fiscal splurges in the previous years and unrelenting sanctions on Russia by weaponizing the dollar.

Major economies have made various attempts to reduce their relianance on the US currency since the 2008 global financial crisis, but never in the last decade have there been so many countries making notable moves toward de-dollarization as there have been in the last two weeks.

China and Brazil have reached a deal to settle trade in their own currencies, ditching the US dollar as an intermediary, the AFP reported on Wednesday, citing the Brazilian government.

It's reported that the yuan assets have surpassed the euro to become Brazil's second largest in the country's foreign reserve, accounting for 5.37 percent of Brazilian central bank holdings at the end of 2022, compared with the euro's 4.74 percent share.

India, which the US aims to court with the aim of containing China's rise, is shying away from the dollar. India and Malaysia can now use the Indian rupee to settle trade in addition to other currencies, the Times of India reported on Sunday, citing the Indian Ministry of External Affairs.

In addition, finance ministers and central bank governors from the Association of Southeast Asian Nations (ASEAN) discussed the reduction of their reliance on the US dollar, euro, yen, and British pound for financial transactions, and started to trade settlements in local currencies at a regional meeting held last week in Indonesia, local media outlet the ASEAN Briefing reported on Wednesday.

Lost dollar charm

Most importantly, the dollar's decades-old dominance of international oil trade is beginning to fall apart, as a growing number of major economies have begun to trade in other currencies. China, on Tuesday, completed its first purchase of liquefied natural gas (LNG) from France's TotalEnergies using cross-border yuan settlement.

Tu Yonghong, a professor at the International Monetary Institute at Renmin University of China in Beijing, told the Global Times on Sunday that the yuan's internationalization is gaining pace after the buyers' pricing power on the market has shifted from the US to China at the global bulk commodities' market.

"The US has gone from being the largest importer of crude oil to being an exporter, while China has become the world's largest buyer of oil," she explained.

"The global de-dollarization drive is gaining pace. The US has constantly abused the dollar as an international reserve currency over the last two decades, which hurt other currencies and economies," Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times. As the world heads toward multi-polarity and the US is no longer the world's largest trade economy, the dollar hegemony will fall apart gradually which seems an inevitable trend, according to Dong.

Tan Xiaofen, an expert at the School of Finance at the Central University of Finance and Economics, told the Global Times on Sunday that de-dollarization has shown an irreversible trend regarding international trade valuation and settlement.

"The conflict between Russia and Ukraine, the COVID pandemic, and other geopolitical factors have made countries rethink about financial security," said Tan.

Tu said that many countries have proposed to adapt to the needs of the development of the digital economy. Therefore, it is necessary to reform the international payment system, including the digital currency settlement instead of US dollar.

For example, the multiple central bank "digital currency bridge project" has moved from the experimental phase to the pilot phase. The project can realize point-to-point settlement using bilateral currencies, so it can greatly improve the efficiency of trade and reduce costs, according to Tu.

Irresponsible US policy

Backed by the world's largest gold reserves thanks to the Bretton Woods Agreement, the dollar was crowned as the world's reserve currency after World War II. Other countries rushed to accumulate dollar assets, believing it's a safe haven.

However, the US' irresponsible monetary policies have time and again caused negative spillovers to developing countries. The 2008 US sub-prime loans caused global financial crisis, the US Federal Reserve' ultra-loose monetary policy after the outbreak of the pandemic in 2020, and currently, the radical pace of its financial tightening, have all hurt other economies, severely.

The US flooded the globe with massive monetary and fiscal stimulus measures and then resorted to the most aggressive tightening of monetary policy seen in decades to tame runaway inflation, which have seriously disturbed the global financial markets. As a result, many developing economies that export commodities and borrow in dollars are facing risks including inflation, local currency depreciation, and capital outflows.

"In fact, the global de-dollarization has started a long time ago, and the recent aggressive interest rate hike policy of the US and the US banking system crisis have made countries worry about the robustness of the US financial system, which may lead to increased volatility of the US dollar," said Tu.

In addition, US-led international financial sanctions on Russia since the start of the Russia-Ukraine conflict have triggered a crisis of confidence in the dollar system, Tian Yun, an independent analyst, told the Global Times. He predicted that more countries are expected to reduce their dollar assets and resort to other currencies including the Chinese yuan in cross-border investment and trade settlements.

Analysts noted that various countries are trying some local currency settlement experiments by developing digital currency solutions to weaken the position of US dollar in international trade.

Yuan gaining weight

More economies are willing to adopt the yuan in clearing and payments, which is a "significant step" toward the internationalization of the yuan and reflects the international community's growing trust in the currency, Zhu Min, vice-chairman of the China Center for International Economic Exchanges, said on the sidelines of the Boao Forum for Asia last week.

Backed up with China's still-expanding huge economy, the yuan has displayed vigorous vitality and secured more global visibility. It has become the world's fifth-largest payment currency, the third-largest currency in trade settlement, and the fifth-largest reserve currency, official data showed.

While the dollar's borrowing cost has risen to an unacceptable level for many developing countries that borrow in dollars to grow foreign trade and their economies, China should take advantage of the relatively low-cost yuan financing to further boost the yuan's internationalization in the world, Tian said.

Yuan's weight in IMF's Special Drawing Right (SDR) increased significantly after it joined the SDR basket in October 2016. In 2022, yuan accounted for 12.28 percent in SDR, according to statistics from IMF.

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  • India to settle trade in Indian rupees with certain countries instead of US dollars
  • yuan surpasses the euro to become Brazil's second-largest currency in foreign reserves.
  • Saudi Crown Prince MBS says he is no longer interested in pleasing the US.
  • Malaysia Prime Minister says there's no reason to continue to depend on the US dollar
  • China and Malaysia consider creating 'Asian Monetary Fund' to reduce dependence on US dollars.
USA's arrogant behavior is reason for Dedollarization.....My way or highway attitude does not go long....Most African, Arab and Asian countries are fed of USA....
USA's arrogant behavior is reason for Dedollarization.....My way or highway attitude does not go long....Most African, Arab and Asian countries are fed of USA....

100% agree. thu&¤#

ASEAN Finance Ministers and Central Banks Consider Dropping US Dollar, Euro and Yen, Indonesia Calls for Phasing Out Visa and Mastercard​

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"He argued that Indonesia needed to shield itself from geopolitical disruptions, citing the sanctions targeting Russia’s financial sector from the US, EU, and their allies over the conflict in Ukraine."

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This is what I did to my portfolio shortly after US sanctions as I know my island could be next US target. I have shielded it from geopolitical issues. I think every developing countries eyes have widened to events.

P.S You know things are bad when you got Tucker Carlson talking about it even :confused:.

so the fact that there is a massive debt all over the world that must be paid in dollars doesn't play (important enough) role?

Yes the USD denominated debt is huge. However if the dollar devalues significantly against domestic currencies the debt becomes easier to pay off. The US imports more than it exports you see. It then becomes a question of what currency the sellers wants to be paid in.

In long term US biggest import maybe inflation if the dollar is no longer dominant in international trade.
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US have plenty of problem but which country isn't in even deeper s**t? EU? China? Brasil? India?
who has the bigger space to maneuver out of it?

Depends in what sense you mean i.e economically or socially? But yes problems exists nearly everywhere sadly.
I meant economically in the first place - who could be even thinking about thinking about over taking the world order?

We are moving from a unipolar towards a multi polar world order based on trade and national currencies.

America Is Too Scared of the Multipolar World​

Two separate financial systems will occur. One dollar based and the other national currencies based and outside of SWIFT etc.

The U.S was irresponsible with its roll as world leader. It had great responsibility handed to it with the dollar used as a reserve currency and a safe store of value. But it chose to weaponize the dollar for its own foreign policy which opened peoples eyes. Even close allies of the U.S are hedging their bets. Everyone is saying kind words of reassurance to the U.S to stay onside with them as they slowly move to he exit door of U.S influence.

China with by far the worlds largest forex reserves of over $3 trillion is having to maneuver the landscape and walk a fine line. Time will tell how this all plays out. But I imagine the U.S will do everything it can to provoke China over Taiwan, drag it into a low level conflict and freeze its reserves (same play book as Russia). How else can they stop China's rise...lol.
We are moving from a unipolar towards a multi polar world order based on trade and national currencies.

The appetite for national currencies will grow exponentially, and so will the non-US/EU capital markets and trade.
In this context, the world will need a global currency that is agile, non-inflationary, transparent and safe, to facilitate the smooth functioning of the global economy.
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I've been reading around that BRICS is looking to create a new currency to facilitate trade between them.

Even if thats the main purpose, we'll see almost immediate use by 3rd parties to settle debt, buy assets, etc... to avoid USD turbo compliance.

Hell, I can even see crypto pairs in that new currency denomination after the SEC has made clear they're going after stablecoins.
Binance is desperately looking for a new solution since the BUSD drama.
I've been reading around that BRICS is looking to create a new currency to facilitate trade between them.

That's correct. Latest I heard is they are still discussing it and I guess it will be DLT based.....and sanction proof...lol.
I already use btc for 100% of my dealings with China and Taiwan.
unfortunately this luxury of transacting in BTC is available to those who benefit from no or lump sum capped taxation - for the rest payment in BTC is a taxable event which makes it less sexy and a blocker for adoption as means of settlement
unfortunately this luxury of transacting in BTC is available to those who benefit from no or lump sum capped taxation - for the rest payment in BTC is a taxable event which makes it less sexy and a blocker for adoption as means of settlement
In many places you can account btc transactions like fiat ones.
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"The best alternative to replace the dollar would be the Chinese RMB (yuan). China represents around 18% of the world economy, and about 15% of world exports, so countries have plenty of reason to use the yuan. China is also a high-tech country with well-developed systems for banking and payments, so it would have no trouble handling the technical aspects of making the yuan the global reserve currency.

There’s just one problem: Capital controls. China has a lot of rules that make it very very hard to sell yuan for foreign currencies. And it’s not just about the current rules — there’s also a general awareness that if capital ever tries to leave China in any significant amount, the government will impose a bunch of new rules in order to stop it. This was vividly demonstrated in 2015-16, when a stock market crash caused a massive capital flight from China, but the government stanched the outflows by tightening up capital controls significantly.

Why does China make it so hard to get money out of China? One big reason is that this is necessary in order for China to control the value of the RMB. When capital flows out of China, it puts downward pressure on the currency, which makes it harder for Chinese companies to afford inputs and for Chinese consumers to afford imports. But when capital flows into China, it raises the value of the yuan, which makes it harder for Chinese exporters to sell goods overseas — since China traditionally has a mercantilist economic policy, this is something it wants to avoid.

So by becoming the international reserve currency, China would give up its control over the value of its currency, exposing it to both unwanted appreciations and unwanted depreciations.

Now, it’s possible that China will change its attitude here, as the U.S. changed our attitude toward international finance around the time of the world wars. The country’s leaders could decide to be less mercantilist and less control-freaky about their finances, in exchange for global leadership. Would it then be possible that countries like India and other emerging markets might migrate into a yuan bloc?

Unlikely. Because now that the U.S. and Europe have shown the power of financial sanctions, there is precisely a 0% chance that China would avoid using this weapon if it could. Whatever the West is willing to do in order to punish its adversaries, China would definitely be willing to do. "

Full article here: Unpaywalled: Two posts about de-dollarization
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I guess someone here does not know the difference between CNY and CNH. i.e the domestic onshore Renminbi with restrictions and the offshore Renminbi without :rolleyes:. I was laughing my head off....lol

P.S Some people are not even aware which Renminbi they are talking about....lol. Education is key before people post something they read on substack ;).

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