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Still More Fairy Tales of US Dollar Demise That Didn’t Happen

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34 comments on Still More Fairy Tales of US Dollar Demise That Didn’t Happen

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“Strategists Joana Freire and Stephen Jen calculated that the greenback accounted for about two-thirds of total global reserves in 2003, then 55% by 2021, and 47% last year.”

Here’s another take.

Setser “The dollar’s share of reserves didn’t actually change at all in 2022.“

What About China?

Setser “And looking at reserves without also looking at the foreign assets of state banks and SWFs is so … 2012.“

China masks its reserves in SOEs, something I have commented on many times. 

And Look at Agencies (Mortgage Backed Securities)

What About Japan?

Japan sold US dollar reserves to prop up the Yen. That’s hardly a measure of dollar reserve weakness.

Deceleration in Global Reserve Growth 

What About Russia?

The US weaponized the dollar against Russia. 

Dollar Appreciation

Michael Pettis Chimes In

That’s a new thread with a spotlight on China. 

Brazil’s President Calls for End to US Dollar Trade Dominance

Despite the alleged success in ending the dollar’s dominance, please note Brazil’s President Calls for End to US Dollar Trade Dominance

Brazil’s president, Luiz Inácio Lula da Silva, wonders: “Every night I ask myself why all countries are forced to do their trade backed by the dollar. Why can’t we do trade based on our own currencies? Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”

This is more than a bit amusing. No one is forcing Brazil, Russia, India, and China (the BRICs) to do trade in dollars.

Trade Example

  • A Brazilian soybean producer sells soybeans to a merchant in China.
  • A Brazilian scooter manufacturer buys Lithium batteries from a Chinese merchant.
  • The soybean producer buys nothing from Chinese merchants.
  • The Chinese battery producer buys nothing from Brazilian merchants.

Why would the Brazilian soybean producer want to hold yuan, especially given that the yuan doesn’t even float?

Why would the Chinese battery producer want to hold the Brazilian Real?

Trade is not between nations, it is between individuals and corporations. No one is forcing the soybean producer or the battery producer to do anything. 

By choice they prefer to trade in dollars, instantly convertible to any currency the producers may wish to hedge in. In contrast, the yuan doesn’t even float.

This post originated at MishTalk.Com

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34 Comments
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Oldest Most Voted
Mike 2112
Mike 2112
3 years ago
The process by the rest of the world has just begun. Check back in 10 yrs and let me know how things are looking,
As an economist you should know that trends like this take time. Anyone who agrees with you is whistling past the graveyard,
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Mjs357
Mjs357
3 years ago
Reply to  Mike 2112
BRICS summit in Aug with 19 nations looking to join. Sure, all small bites of the global GDP elephant…but that’s how you consume it.
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prumbly
prumbly
3 years ago
Reply to  Mjs357
GDP, as a measure, is massively overrated. Russia’s GDP is (supposedly) similar to Italy’s, and yet Russia is whupping all Europe and the US in Ukraine. A dollar of GDP in manufacturing or mining something useful is entirely different to a dollar made by a lawyer or a real estate agent.
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Jack
Jack
3 years ago
Reply to  Mike 2112
It takes decades or centuries for “global reserve currencies” to be replaced.
Sometimes 2 or more competing currencies act as global reserve currencies at the same time.
Look at the Greek drachma to be replaced by the Roman denari, to be replaced by the Byzantine solidus, to be replaced by the Venetian ducat and the Florentine florin, to be replaced by the the Spanish silver dollar and the Dutch guilder, to be replaced by GBP, to be replaced by USD.
Any move away from USD could take decades – regardless what happens, USD will continue to be a reserve currency as long as remains a large and open economy.
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Mike 2112
Mike 2112
3 years ago
Reply to  Jack
Most of those were done by conquest. And gold and silver coins still retain their value to this day, That’s not the case with fiat currencies.
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Mjs357
Mjs357
3 years ago
Reply to  Mike 2112
Argentina Shuns U.S. Dollar: Will Pay for China Imports in Yuan.
USD as a reerve currency has been falling for 25 years.
Anyone study Sun Tzu? Obv not.
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Mjs357
Mjs357
3 years ago
“I’m not concerned about China” – FJB
That’s refreshing, neither are the experts on reserve currency. I feel so much better.
But, what about de-globalization? Ah, that’s right. De-dollarization and de-globalization are not symbiotic.
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GruesomeHarvest
GruesomeHarvest
3 years ago
Reminds me of the Hemingway line: “How did you go bankrupt?” “Two ways, gradually, and then suddenly.”
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Mjs357
Mjs357
3 years ago
Big BRICS summit in Aug, S.Africa with 19 nations applying for admission. We’ll see if the methodology for calc all this worthless paper changes, again.
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GruesomeHarvest
GruesomeHarvest
3 years ago
Hmm? Being a debtor nation that doesn’t produce anything has resulted in the dollar being our biggest export. Once people wake up and realize the king has no clothes (like a humiliating defeat in Ukraine and the crumbling of NATO) the dollar may become a hot potatoe no one wants. Remember Biden has another year to F thing up! And boy, is he good at it!
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Zardoz
Zardoz
3 years ago
Reply to  GruesomeHarvest
We produce plenty. We just consume a lot more, in exchange for numbers in a database that we may or may not let you redeem, depending on how you behave.
Money is a story we tell each other to get what we want.
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GruesomeHarvest
GruesomeHarvest
3 years ago
Reply to  Zardoz
Sure, 12% of the GDP is from manufacturing, or about $2.3 Trillion. But of that, 60% is from the military industry.
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Captain Ahab
Captain Ahab
3 years ago
Didn’t I just read that the House Eunuchs (aka Republicans) have put together a $4.8 trillion debt-limit package, which to me sounds like an increase in the debt limit NOW in return for similar savings over the ***LMAO:*** NEXT 10 years.
The new and improved Mr. Wimpy is officially Kevin McCarthy (R-CA). That is one f*(king-big hamburger.
Now, if you a the head of state with more than $hit for brains, would you hold $US as reserves?
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Captain Ahab
After looking at all the other dirty shirts, mine included, yup, dollars.
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Siliconguy
Siliconguy
3 years ago
Reply to  Captain Ahab
Of course it’s a big hamburger. It’s going to last 10 years. 😉
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Captain Ahab
Captain Ahab
3 years ago
Reply to  Siliconguy
How about instead of 10 year-savings that will NEVER happen, immediate and deep cuts to Federal departments over the next two years…
BALANCE THE BUDGET NOW and reduce the Federal deficit with deep cuts:
Dept of Education 50% budget cut
Dept of Energy 45%
All Admin Agencies 34%
DOT 40%
DOD 15%
HUD 100%
DHHS 40%
Need I go on?
If performance declines, add an additional 10% budget cut for the next year
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KidHorn
KidHorn
3 years ago
Reply to  Captain Ahab
The economy would collapse. In case you haven’t noticed, we don’t produce nearly enough goods to support our current lifestyle. Without non-productive jobs, the unemployment rate would be close to 30%.
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Jack
Jack
3 years ago
Reply to  KidHorn
However this could arguably set the economy up for a potentially better long term economy.
Unemployment would increase causing wages to decrease — which could create more real jobs that produce something – and boom the economy 10 years on. Fall in standard of living in meantime.
This would never happen as this short term pain is not compatible with 4 year political terms.
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Zardoz
Zardoz
3 years ago
Reply to  Captain Ahab
Kevin is Margie’s Gimp, nothing more.
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Eighthman
Eighthman
3 years ago
I understand that China’s cross border trade has shifted away from dollars into a slight majority of yuan. There also will be moves towards trade balance mercantilism, as India and Bangladesh are planning, so fewer dollars needed. Rubio’s nightmare of being unable to sanction nations will come true.
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Zardoz
Zardoz
3 years ago
Reply to  Eighthman
They saw Russia get it… and it looks like they’re not planning on behaving how we want them to.
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Maximus_Minimus
Maximus_Minimus
3 years ago
This is a chicken-and-egg problem not worth thrashing to death.
Why do I brush my teeth every morning? One day, I switched to electric toothbrush, and good by old toothbrush.
When China sets up a competitor to Lloyd’s and demands all insurance contracts be made in renminbi, things will change rapidly.
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Green_Squirrel
Green_Squirrel
3 years ago
The US Gov’t can no longer be trusted, with it’s releases of it’s statistical manipulation.
We all know inflation is way higher than the official numbers.
We all know unemployment is way higher than the official numbers.
The whole world is dumping US Treasuries, and buying Gold, that’s a fact.
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TexasTim65
TexasTim65
3 years ago
Reply to  Green_Squirrel
So then why is the price not skyrocketing?
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Zardoz
Zardoz
3 years ago
Reply to  TexasTim65
Suppression by the minions of The Dark Lord Soros!
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KidHorn
KidHorn
3 years ago
The counter argument is USD should have been growing because we’re paying higher interest rates. So increased demand for higher rates has offset general lack of interest in holding USD reserves. I guess we’ll see what happens when and if the FED starts cutting.
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Billy
Billy
3 years ago
I just got finished reading an article by the Balance called Historical Gold Prices: 30 BCE to Today.
I found the timing perfect for Mish’s article.
BTW, according to macrohive.com, inflation has averaged:
below .9% from 1200-1900
1.2% from 1800-2017
1944 the US dollar became the worlds reserve currency
1970 the US ended the gold standard
Over the past 50 years, M2 has been growing at 6%/year and the government has been changing the basket of goods ever since.
1999 Switzerland became the last country to break from the gold standard
2009 China and Russia called for a new global currency.
2010 BRICS formed
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Doug78
Doug78
3 years ago
Reply to  Billy
Read “The Great Wave; Price Revolutions and the Rhythm of History ” by David Hackett Fischer to get something more meaty than an article written by a goldbug.
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Billy
Billy
3 years ago
Reply to  Doug78
Thank you Doug.
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Doug78
Doug78
3 years ago
Reply to  Billy
You are welcome
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Doug78
Doug78
3 years ago
Whatever Lula says has no importance outside of Brazil. Equally, outside the country, he in not in a position to influencing anything in the wider world that matters.
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Captain Ahab
Captain Ahab
3 years ago
Reply to  Doug78
As always, change starts with small increments and gathers steam. There are definitely forces at work in the world to take down the USA a notch or two.
Regarding Lula, the same is increasingly true of President Dibum in Lala land and Woke-Joke America. Has there ever been a time when the world is so lacking in leadership?
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Zardoz
Zardoz
3 years ago
Reply to  Captain Ahab

America:Love it or Leave It

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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Zardoz
As we used to say: “My mother, drunk or sober.”
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