The fate of the world's currencies in the wake of the demise of the dollar. - page 88
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The mechanism of this phenomenon is as follows: if a person in a country, say, in Russia, buys $1000, then this is just an exchange of some money for others. But on the economic level this means that material resources are transferred from Russia to the USA for this amount, for example 15 barrels of oil. That is, by buying dollars for rubles, he is lending the U.S. economy for free, transferring real material values from his country in exchange for cheap paper. The same happens when the dollar is used as an intermediary in world trade. The gigantic volumes of dollars frozen in the reserves of the world Central Bank, in the liquid assets of transnational funds and corporations, in trade transactions, in the stashes of ordinary citizens is
is a free loan of raw materials that has been stimulating the U.S. economy for decades, a kind of powerful economic doping. But that is not the only benefit to it from the use of the dollar everywhere. The dollar assets frozen around the world artificially lower the long-term average rate of inflation in the US, enabling the Fed to keep interest rates (on average over the long term) lower than they would be if the mass of dollars were in the country. Low interest rates are known to boost the economy. In other words, the US economy, for decades, has been stimulated by two powerful economic dopes associated with the status of the dollar.
But there are two sides to every coin - as soon as support for the dollar starts to weaken, the process will reverse. If the world starts exchanging the dollar in masses for the yuan, for example, material resources will flow from the U.S. to the Chinese economy, lending it free and stimulating it now, while the frozen yuan will allow to reduce inflation already in China and thus accelerate the reduction of rates, further accelerating the economy.
In the USA, on the other hand, the un-doped economy will stall and the supply of dollars
coming back to their home countries from all over the world will accelerate inflation, forcing the Fed to raise interest rates continuously, slowing down the already sluggish economy.
Unicornis mentioned the same thing. In passing, I answered this when I wrote about the bottomless domestic market in SEA, I can elaborate a bit more.
First, the market, the U.S. is not the entire planet, the U.S. GDP is just over 20% of world GDP, and the Chinese sell goods around the world. Of course if the US market begins to shrink for Chinese manufacturers this will be painful, but obviously not fatal. Especially since in any situation the cost of Chinese goods is lower, and in any scenario the Chinese manufacturers will have the advantage.
Secondly, about 80% of US GDP is generated by working for the domestic market.
That is, the U.S. economy, which was boosted by military orders and the post-war reconstruction of the world,
has become more and more oriented towards domestic demand. Something similar will now take place in China. Over the coming decades, the huge domestic market in Southeast Asia will become increasingly important to the Chinese. And perturbations in the outside world will not be so critical for them, although of course they will be very unpleasant.
In fact, the process has already begun, but it is still very subtle. Until about the year 25, it will gradually intensify, i.e. inflation will gradually rise and the economy will slow down, despite the Fed's best efforts. The US central bank will always be trying to solve the unsolvable problem of how to revive the economy and suppress inflation at the same time. Fiscal stimulus is the last straw. The current wildly-enthusiastic White House has already taken advantage of the lowering of tax pressure and the growing budget deficit is keeping it from being widely applied.
The U.S. will approach year 25 with a national debt approaching $30 trillion and an annual budget deficit of more than $1.5 trillion. The yield of triggers will fly into space, approaching unthinkable levels of 7-8%. It will become more and more difficult to service the national debt.
And then, what is usually called pulling the pillow out from under the dying man's head will happen. By about the year 25, there will be a real need for China's fast-growing economy to let the yuan float freely. Of course, the wise Chinese will do so slowly and very cautiously, gradually increasing the limits of the daily, weekly and monthly ranges. But one way or another, the renminbi will become hard currency. After that the smooth process of changing from dollar assets into yuan assets will non-linearly increase, the growth of profitability of the US securities will also non-linearly accelerate, that is the people willing to buy the US public debt will be less and less and the money will be needed to support their trousers. Common sense would suggest that the most sensible way out of this situation would be to default. It will most likely be declared sooner or later in 27-29, after heated battles.
Russians know what a default is from '98. A sudden drop in the value of the national currency, a spike in inflation, a collapse of the economy, high unemployment - basically the equivalent of the great depression of a hundred years ago. Against this backdrop, some states, such as Texas or California, may well start an exit movement from the USA.
And if one remembers the recent elections and their sensation - Alexandria Ocasio-Cortez, an ardent supporter of socialist ideas, who was supported by more than 78% of voters, and imagines that the number of such politicians will grow rapidly in proportion to the problem in the economy, then one can suppose that after a while a Union of Socialist States of America may well arise, which will traditionally start to antagonise Russia, now for its betrayal of socialist ideals. Just kidding of course. Although... as they say, every joke has its share of jokes.
Ladies and Gentlemen, can you not do without stupid irony? Keep your cool, if you have something to say, preferably with justification, and if you have nothing to say, just walk away.
Vanga predicted that from 2020 onwards everything will be fine... wait for it...
...Against this backdrop, some states, like Texas, or California, may well start exit movements from the US.
...
Mexico is more likely to join Texas.
Actually, the share of greenback in settlements is indeed gradually decreasing, but it is happening not as some anxious authors imagine, but much slower, and this process stretches not for years, but for decades, in the 70-80s the dollar share was under 80%, and now about 40% if judged by SWIFT statistics, Moreover, the proportion of the dollar has fallen as well as risen, in the '90s it was around 45-50%, rising to 70% in the 2000s, so the current decline in favor of the euro and yuan should not be considered the end of history, just people at any given time choose what is more profitable / convenient for them...
The need for a single universal indicator does exist, which would not be tied to a particular national economy or to a particular resource... But the capacity to create such an instrument does not exist yet and it is not visible in the foreseeable future, so "the market decides" - people choose the best of what is currently on the planet...
Why does greenback continue to be a favourite? - there are the most obvious reasons: nothing serious has happened to it since the 19th century (and there have been several defaults in Europe), treasuries remain the highest standard of risklessness (there has never been a case of default), the ACE of the former British colonies is pretty clear and predictable for market participants, and most importantly why the greenback is in demand is the consistently high interest in the states for investors (IPOs), well, if it is the No. 1 market on the planet, then of course there is automatic demand for the appropriate currency, there is no conspiracy or ill intentions, it's just the usual economics...
60% or more of the world's central bank reserves are in dead presidents for a reason... no one wants to get screwed if anything... why not 100% then? - but because of the portfolio principle...
will the situation change? - of course it will, it always changes every year, but not as it is seen by odious Anglo-Saxon haters who do not even bother to look at publicly available statistics...
About the yuan... yes, in 2016 it also became a reserve, but sorry, it is still about 2-3-4% of total trade turnover, it still needs to grow, the Celestial Empire has capital restrictions and its policies are not the most attractive to outside investors ... until capital restrictions are lifted, there will be no appreciable increase in the renminbi's share... it is good from the diversification point of view if there is more scope for choice...
Just a couple more words about government debt... it's kind of a wildly overblown myth... but that's understandable because people usually don't like to get into specifics, it's easier to accept a mythical viewpoint that warms their world... So, yes, in absolute terms it looks like a lot and for some people it's a lot of zeros ))))) but if you read it in a pathetic and emotional way with a tremor in your voice, then of course the average person gets the impression of a colossal titan (which is about to collapse)... The situation is similar to weightlifters who may look as if they are about to burst under pressure while looking at the ratio of debt to GDP... some countries have higher ratios, e.g. Japan... there is an expression "they do it because they can" - this is the case, why are they so indebted? - Because it doesn't prevent them from living ))))) and besides it doesn't hurt to look at historical retrospect - in 40-50s the ratio of public debt to GDP was higher... and at the very least, in 5-10 years they will just pay it off (if need be)... but of course I understand that with my post I will only dislike a certain group and will become an agent of the state department, which lies and falsifies constantly and generally blows the state economy and so on )))))
There you go... Wow, the banks are replacing the dollar with other currencies ))))) I wonder if the banks know about this?
I am talking about bank reserves. The proportion of the dollar in them will fall considerably. Instead there will be a build-up of reserves in Yuan and Euro.
Illiterate,
he writes things in there that make you think the states are about to collapse ))))))))))
And so far I don't see any decisive reduction of the thaler in the world's foreign exchange reserves,
in the 90's it was around 60% of the thaler then it went up a bit now it's down a bit but still somewhere in that area,
What's interesting is that in the EM segment, the thaler's share is even higher,
At this rate they will be "getting rid" of the Thaler for the next thousand years )))))))
If the question arises "what could be a substitute for the dollar as the world's main reserve currency?", since local currencies have to be counted in something for import/export transactions, then why not create some kind of value benchmark expressed in a portfolio of precious metals, oil, gas, and man-hours to create a unit of food? Then all the negative consequences of having an OMRV in the world economy are eliminated.
If you replace the dollar with the yuan, what would change? - Nothing in my opinion, except that the prerequisites for humanity to become Chinese will only increase (forgive me, Chinese, if anything).
Nothing will change... except for a very small thing... so trivial that I'm embarrassed to even write about it...like...
the yuan can only be exchanged for assets/goods/services/other goods in China and is not really needed anywhere else
There is a need for a standard of value! - the entire history of humanity revolves around it - but it has not yet been possible to create it...
so before replacing something that works well with something new, you better ask yourself - is it really better? )))))))))))))))