Analysts and authors, myself included, have been warning about the collapse of the dollar as the global reserve currency for years. I described this prospect in my first book, Currency Wars (2011), and in several other books in the years since.
This process can take many years. For example, the decline of sterling as the leading global reserve currency played out over 30 years from 1914 (the beginning of World War I) to 1944 (the Bretton Woods conference).
Still, events today are playing out so quickly that the collapse is happening in front of our eyes.
It’s no longer a matter of a major event on the horizon; it’s occurring in real-time. Russia has just linked the ruble to gold at a rate of 5,000 rubles to one gram of gold. China is discussing with Saudi Arabia the prospect of paying for oil in yuan.
Israel is likewise considering taking yuan in exchange for its high-tech exports. China and Russia are creating new payments systems to avoid U.S. sanctions. You get the point.
Foreign Central Banks Aren’t Dumb
Central banks have been net buyers of physical gold since 2010. Countries all over the world are considering dumping dollars for fear that they will be next on the list to have their dollar assets frozen or seized the way the U.S. seized the dollar-denominated assets of the Central Bank of Russia.
That makes sense. What’s the point of holding dollars in your reserve positions if the U.S. can freeze those accounts on a whim? Americans tend to take dollar strength for granted, but that’s a mistake. It’s helpful at times like this to get a foreign perspective.
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WASHINGTON, DC – “Follow the money,” goes the saying. And, in fact, the money – that is, the changing roles of the renminbi and the US dollar – is perhaps the best way to understand the rise of China in a world dominated by the United States. Over the last ten years, the dominant economic story was about Chinese exports reshaping global trade. But the story of the next ten years could be about China’s emerging role at the heart of global finance.
Renminbi usage has clearly been growing in recent years, owing to the impressive growth of the Chinese economy and efforts by Chinese financial officials to expand the currency’s global footprint. China already settles a quarter of its own exports in renminbi, and has designated renminbi clearing banks and swap lines abroad, including in New York. South Korea, Poland, and Hungary have begun to issue renminbi-denominated sovereign debt. And even the tradition-bound Bundesbank has announced plans to include renminbi in its currency reserves.
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