Skip to main content

Deodollarisation -- is it even possible?

An often asked question is, could the US dollar's hegemony be at an end?  Could another method of exchange be used, and could commodities be priced in things other than dollars?  The short answer is YES, the long answer is IT COULD take a long while.

The problem is that the dollarisation of the planet for trading has been in place for nearly five decades.   The convergence of very specific factors (a) the American economy eclipsed the rest of the world in the 1950 and 1960s (gold was still an important benchmark then).   (b) A large percentage of trade was directed to the United States, and (c) many currencies were not freely exchangeable or very liquid.   The only real debt markets were the UK (the old standard of exchange) and the United States.  In short it became "convenient" to price things in US dollars.

The first American President to weaponise the US dollar was Bush after the World Trade Center attack.  People forget that once the American money to Ireland dried up peace was quickly achieved.  Barack Obama did the same with the Russian oligarchs.   The only joke is "You control their money".  The problem is simple, once you start weaponising the US dollar it's a slippery slope.   Trump I didn't do much about that but did not remove any of these limitations.  Trump II was so pissed with the international court of justice that he forced Amex, Visa and Mastercard to "cancel the credit cards of all the participants and of their families".   So far not a nail  in the coffin, but other forces are at play.

The most recent war with Iran is not a good look. Many oil producers have begun to price their goods in currencies other than the US dollar, but its complicated.  If Saudi Arabia sells oil in Chinese Yuan it needs the authorisation of the Chinese Government to sell these Yuan (Russia faced a similar problem a few years ago.    The Euro could help, but there is little likelihood that the Euro will become a serious reserve currency.  It's still too messy with individual nations.

What is true, is that whereas in the past, if you travelled with US dollars they were widely accepted everywhere in the world, this is no longer the case.   This is a real shift. 

CONCLUSION:  About 75% of a trade is concluded in US dollars.  It represents hundreds of billions annually.   The problem of replacing the US dollar, is replacing it with what? It cannot be the Yen, or the Yuan, there it would have to be the Euro…That's the real nature of the problem.  However, we could easily see a reduced dependence on the US dollar, but unless the US government imposes strict currency rules (unlikely because the US needs to borrow so much), the hegemony of the US dollar will remain.


Comments

Post a Comment

Popular posts from this blog

what people get wrong about tariffs

 The issue is simple. What percentage of the economy is dependent on tariff goods? The truth, is that the US economy is far more closed than people understand. People genuinely believe that all manufacturing has ceased to exist in the United States all given to China on the altar of woke policy the truth can be further from That statement. Only about 15% of US GDP is related to foreign trade. Of that amount, slightly more than half is from Canada in Mexico. And half of that is energy. What that means, is that about 7% of US GDP is tariff dependent. The proof in the pudding, is how little money tariff generates. People think that 30 or 50 billion is a lot it’s not in an economy that has $3 trillion. The impact on the US economy will be less visible but not absent. Inflation hasn’t occurred yet first because tests have hardly started to bite, but more importantly it’s such a small percent of the economy. Now certain things are critical. The rare earth metals from China were critical....
Post a Comment
Read more

Trump and Venezuela...

The US now owns Venezuela…and not in a good way.  America is not known for its nation building skills, and yet it now owns the disaster that is Venezuela.   Starvation and exodus are the natural progression.   In addition it will become a haven for narco-terrorists, more so than it already was. I am sure that Trump and his friends really thought that little attack very well…I guess that he will now attack Iran now.  
Post a Comment
Read more

Demographics

 I am preparing a kind of family tree for our children so that they know where they came from.  In my family I am the only survivor, although my brother and sister died recently they were both in their seventies (a story I told already).    It was a fun process, but it provided more than that.  First, I married relatively young I was 26 when I married and nearly 30 when our first child was born.   I was looking at my ancestors.  On my mother's side, she had 6 siblings, Four died before the age of 30, two in war, and two from illnesses.  Only she and a single sister survived.   The two boys had a child each but they died in WWII, and the other sister died as an infant.   what is interesting is that every one of my mother's siblings had children in their early 20s.   I know that my mom was hardly 20 when my brother was born.    What is remarkable is that among our friends, we are the only ones to have fou...
Post a Comment
Read more