The US dollar is crumbling
The bright-eyed, globe-trotting dollar has had its day. Now it’s limping home
How can we Americans move on into the future when the past was so felicitous? We still have the world’s reserve currency. We can “print” money at virtually no cost, and the rest of the world takes it at par value. You want to buy oil? Better have dollars. We can invade other countries, but they can’t invade us. We have military bases all over the world. Our stocks are worth $45trn; our real estate $36trn. The face value of US government bonds alone is $31trn. And our writ is law all over the world. Do the Russians wish to modify the borderlines with their former Soviet sisters – that they drew themselves? Better ask us first! Nice, huh?
Well, say goodbye, because that’s yesterday’s world. That era came to an end in the final days of July 2020. It was then that the 40-year trend towards lower and lower interest rates – without inflation – finally reached its bottom. Tomorrow’s world is going to be different.
Chinese and Brazilian leaders recently met in Beijing. “Every night I ask myself why all countries have to base their trade on the dollar,” said Brazil’s president, Luiz Inácio Lula da Silva. A lot of people are wondering the same thing. Members of the Brics group – Brazil, Russia, India, China, and South Africa – are expected to outpace the US-led G7 in terms of their contribution to the world’s economic growth from this year, says Bloomberg. The Brics will contribute 32.1% of the world’s growth, compared with the G7’s 29.9%. By 2028, the numbers are predicted to be 35% and 27.8% respectively.
The Brics have more people. And since 2020, they have a bigger economy, too. Why do they need dollars? Part of the reason the US was able to “print” so much new money without causing inflation was that the extra dollars were spent on foreign-made goods. They were sent to places such as China and Vietnam, and they never came home, taken up instead by foreign central banks as “reserves”.
But that is changing, and faster than predicted. The greenback’s share in global reserves slid last year at ten times the average speed of the past two decades as a number of countries looked for alternatives after Russia’s invasion of Ukraine triggered sanctions, says Stephen Jen on Bloomberg. Adjusting for exchange-rate movements, the dollar has lost about 11% of its market share since 2016 and double that amount since 2008.
Ahsan Iqbal, Pakistan’s minister of planning and development, has stated that Pakistan is a long-time supporter of China’s efforts to expand the use of the renminbi as a global currency, reports Silk Road Briefing. And in recent months, Brazil and Argentina have discussed the creation of a common currency for the two largest economies in South America, says ZeroHedge. Multiple former southeast Asian officials have spoken about the dedollarisation efforts that are underway. And the UAE and India are in talks to use rupees to trade non-oil commodities in a shift away from the dollar, according to Reuters. For the first time in 48 years, Saudi Arabia too has said it is open to trading in currencies besides the dollar. Even Europe is thinking twice about the dollar, with French president Emmanuel Macron recently warning against the continent’s dependence on the greenback The dollar is still king – but the guillotine is waiting.
Yesterday, the dollar was on top of the world. Today it is slipping. Tomorrow, we will find out what happens to all those trillions of dollars, now held overseas, when the greenback is no longer needed as a “reserve currency”.
When they left, bright eyed and bushy tailed, dollars were the business arm of the world’s rising power, going forth to build a glorious future. Now, the baby boomers of the currency world lie in their vaults dreaming of yesterday’s love affairs and commercial triumphs. Their hair gray. Their foreheads creased with worry. Their backs hunched over. Weak. Fragile. Get ready to welcome them home.
“The dollar is still king – but the guillotine is waiting”