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US Dollar as “Global Reserve Currency” amid Fed’s QE and US Government Deficits: Dollar Hegemony in Decline

January 2, 2021

US Dollar as “Global Reserve Currency” amid Fed’s QE and US Government Deficits: Dollar Hegemony in Decline

Other options also shaky. Central banks leery of Chinese RMB, its share still irrelevant. Euro’s share is stuck. But the yen’s share has been rising.

The US dollar’s position as the dominant global reserve currency is an immensely important factor in supporting the ballooning US government debt, the Fed’s drunken money-printing, and Corporate America’s ambition to offshore production to cheap countries, thereby creating huge and ever-growing trade deficits. They all have become dependent on the willingness of other central banks to hold large amounts of dollar-denominated paper. But from the looks of things, those central banks might be getting a little nervous.

The global share of US-dollar-denominated exchange reserves – US Treasury securities, US corporate bonds, US mortgage-backed securities, etc. held by foreign central banks – fell to 60.5% in the third quarter, according to the IMF’s COFER data release. This is the lowest since 1995. Over the past six years, the dollar’s share has been dropping at a rate of about 1 percentage point per year:

The dollar’s 20-year decline.

Dollar-denominated global foreign exchange reserves do not include the Fed’s own holdings of dollar-denominated assets that it bought as part of its QE, such as its $4.6 trillion in US Treasury securities and $2.1 trillion in US mortgage-backed securities.

The decline in the dollar’s share began 20 years ago when the euro assumed the place of the predecessor currencies, including the Deutsche mark, that used to be in the basket of foreign exchange reserves. But that 20-year 10-percentage-point decline pales compared to the near 40-point plunge in the dollar’s share from 1977 (85%) to 1991 (46%), which was followed by the 25-point surge till 2000.

For now, the motto among these central banks, jointly, seems to be: easy does it. No one wants to trigger a sudden crisis (2020 = Q3):

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China Tries to Muscle in on Dollar as Dominant ‘Payments Currency,’ But It’s a Thankless Slog

April 28, 2019

China Tries to Muscle in on Dollar as Dominant ‘Payments Currency,’ But It’s a Thankless Slog

Dollar Hegemony is a tough nut to crack.

China is taking another baby step in promoting the internationalization of the renminbi and nibble on the hegemony of the US dollar: It’s pushing a proposal to add a pile of yuan to the $240 billion currency swap agreement between ASEAN plus China, Japan, and South Korea, in order reduce the system’s reliance on the US dollar and to enhance its own economic clout in the region, according to the Nikkei.

On May 2, the finance ministers and central bankers of ASEAN – Singapore, Brunei, Malaysia, Thailand, Philippines, Indonesia, Vietnam, Laos, Cambodia, and Myanmar – along with those from China, Japan, and Korea will meet in Fiji to discuss modifications to the swap agreement, the Chiang Mai Initiative.

China, which co-chairs the meeting with Thailand, has added language to the draft joint statement concerning use of Asian-currency contributions to the pool – which for now is still entirely in dollars – as “one option” to enhance the swap arrangement.

“Allowing participants to access Asian currencies in an emergency could encourage their use in other contexts, including foreign exchange reserves, the thinking goes,” the Nikkei said. “The idea also anticipates a long-term rise in demand for these currencies in regional investment and trade.”

“China in particular sees it as another step on the path to internationalizing the yuan and expanding its economic influence in the region. But the proposal is likely to be complicated by U.S. alarm at the prospect of Beijing expanding its currency’s role at the dollar’s expense.”

The Chiang Mai Initiative was a response to the 1997 Asian currency crisis. It consists of a pool of US dollars, contributed by members, that members can draw on when their currencies come under attack. Since its establishment in 2000, the dollar pool has been increased to $240 billion. China is now lobbying the other members to add yuan and yen to that pool.

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Trump’s Brilliant Strategy to Dismember U.S. Dollar Hegemony

February 1, 2019

Trump’s Brilliant Strategy to Dismember U.S. Dollar Hegemony

The end of America’s unchallenged global economic dominance has arrived sooner than expected, thanks to the very same Neocons who gave the world the Iraq, Syria and the dirty wars in Latin America. Just as the Vietnam War drove the United States off gold by 1971, its violent regime change warfare against Venezuela and Syria – and threatening other countries with sanctions if they do not join this crusade – is driving European and other nations to create their alternative financial institutions.

This break has been building for quite some time, and was bound to occur. But who would have thought that Donald Trump would become the catalytic agent? No left-wing party, no socialist, anarchist or foreign nationalist leader anywhere in the world could have achieved what he is doing to break up the American Empire.

The Deep State is reacting with shock at how this right-wing real estate grifter has been able to drive other countries to defend themselves by dismantling the U.S.-centered world order. To rub it in, he is using Bush and Reagan-era Neocon arsonists, John Bolton and now Elliott Abrams, to fan the flames in Venezuela. It is almost like a black political comedy. The world of international diplomacy is being turned inside-out. A world where there is no longer even a pretense that we might adhere to international norms, let alone laws or treaties.

The Neocons who Trump has appointed are accomplishing what seemed unthinkable not long ago: Driving China and Russia together – the great nightmare of Henry Kissinger and Zbigniew Brzezinski. They also are driving Germany and other European countries into the Eurasian orbit, the “Heartland” nightmare of Halford Mackinder a century ago.

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Venezuela Ditches US Dollar, Will Use Euros For International Trade

October 17, 2018

Venezuela Ditches US Dollar, Will Use Euros For International Trade

Venezuela has just taken the next step in its quest to “free” itself from the tyranny of US dollar hegemony. One year after the country said it would stop accepting US dollars as payment for its (ever shrinking) oil exports (saying the country’s state-run oil company would accept payment in yuan instead), Venezuelan Vice President for Economy Tareck El Aissami said Tuesday that Venezuela will officially purge the dollar from its exchange market in favor of euros.

While we’re sure that Venezuelan President Nicolas Maduro would love to frame this as his latest gesture of defiance against tyrannical imperialist overreach by Washington, which he has blamed for aggravating the country’s humanitarian crisis by waging an “economic war” against the oil-rich nation, remember that the US effectively blocked the Venezuelan government from transacting in dollars last year when it imposed restrictive sanctions on the Maduro regime and the country’s state-run oil company, PDVSA. Maduro started the process of moving the country’s DICOM system of official tiered exchange rates in September 2017 when he declared that Venezuela would use a “new system of international payments.”

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in an hours-long address to a new legislative superbody, without providing details of the new mechanism.

“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro declared.

The sanctions have largely excluded Venezuela from international capital markets and the US dollar-based financial system, forcing Maduro’s regime to rely on money-for-oil loans extended by China.

Maduro and many senior members of his government have been personally singled out for sanctions by the Treasury Department, a punishment that Maduro has called “an honor.”

…click on the above link to read the rest of the article…

Sanctions, Sanctions, Sanctions – the Final Demise of the Dollar Hegemony?

August 19, 2018

Sanctions, Sanctions, Sanctions – the Final Demise of the Dollar Hegemony?

Sanctions left and sanctions right. Financial mostly, taxes, tariffs, visas, travel bans – confiscation of foreign assets, import and export prohibitions and limitations; and also punishing those who do not respect sanctions dished out by Trump, alias the US of A, against friends of their enemies. The absurdity seems endless and escalating – exponentially, as if there was a deadline to collapse the world. Looks like a last-ditch effort to bring down international trade in favor of — what? – Make America Great Again? – Prepare for US mid-term elections? – Rally the people behind an illusion? – Or what?

All looks arbitrary and destructive. All is of course totally illegal by any international law or, forget law, which is not respected anyway by the empire and its vassals, but not even by human moral standards. Sanctions are destructive. They are interfering in other countries sovereignty. They are made to punish countries, nations, that refuse to bend to a world dictatorship.

Looks like everybody accepts this new economic warfare as the new normal. Nobody objects. And the United Nations, the body created to maintain Peace, to protect our globe from other wars, to uphold human rights – this very body is silent – out of fear? Out of fear that it might be ‘sanctioned’ into oblivion by the dying empire? – Why cannot the vast majority of countries – often it is a ratio of 191 to 2 (Israel and the US) – reign-in the criminals?

magine Turkey – sudden massive tariffs on aluminum (20%) and steel (50%) imposed by Trump, plus central bank currency interference had the Turkish Lira drop by 40%, and that ‘only’ because Erdogan is not freeing US pastor Andrew Brunson, who faces in Turkey a jail sentence of 35 years for “terror and espionage”.

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US Dollar Hegemony Tripped Up by Chinese Renminbi?

July 3, 2018

US Dollar Hegemony Tripped Up by Chinese Renminbi?

Um, no. Central banks not enthusiastic about the renminbi.

Global central banks are not dumping US-dollar-denominated assets from their foreign exchange reserves. They’re not dumping euro-denominated assets either. And they remain leery of the Chinese renminbi – despite China’s place as the second largest economy in the world and despite all the hoopla of turning the renminbi into a major global reserve currency.

This is clear from the IMF’s just released “Currency Composition of Official Foreign Exchange Reserves” (COFER) data for the first quarter 2018. The IMF is very stingy with what it discloses. The COFER data for each individual country – each country’s specific holdings of reserve currencies – is “strictly confidential.” But it does disclose the global allocation of each major currency.

In Q1 2018, total global foreign exchange reserves, including all currencies, rose 6.3% year-over-year, or by $878 billion, to $11.59 trillion, within the upper range of the past three years (from $10.7 trillion in Q4 2016 to $11.8 trillion in Q3, 2014). For reporting purposes, the IMF converts all currency balances into US dollars. This data was for Q1. The dollar bottomed out in the middle of the quarter and has since been rising.

US-dollar-denominated assets among foreign exchange reserves continued to dominate in Q1 at $6.5 trillion, or 62.5% of “allocated” reserves (more on this “allocated” in a moment).

Over the decades, there have been major efforts to undermine the dollar’s hegemony as a global reserve currency, which it has maintained since World War II. The creation of the euro was the most successful such effort. The plan was that the euro would eventually reach “parity” with the dollar on the hegemony scale. Before the euro, global exchange reserves included the individual currencies of today’s Eurozone members, particularly the Deutsche mark. After the euro came about, it replaced all those. And its share edged up for a while until the euro debt crisis spooked central banks and derailed those dreams.

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Dollar Hegemony – Real or Sophistry?

April 3, 2018

Dollar Hegemony – Real or Sophistry?

QUESTION: Mr. Armstrong; I really wish I found you sooner. A friend of mine has been telling me to listen. He bought the Dow at 17,000 and sold it 26,000 on your advice. He paid off his house and has told me – see, I told you so. I get these emails from the gold community who seem to never give up of every day will be the start of a new rally. This latest one is that also paint the United States as “dollar hegemony” and they claim that the US expanded greatly following the fall of the Soviet Union. They say China has woken up making money on trade with America. They now say the dollar will collapse and China will be the new world order so buy gold and sell the dollar.

These people seem to have no morals. They sleep perfectly fine raking in the money from people like me robbing us of our savings and preventing us from participating in the real economy as we should. Is there any real dollar hegemony or is this also just hot air?

ANSWER: No, it is total nonsense and you are correct – it is designed to rob people of their life savings. There is no “dollar hegemony” for that assumes that the USA is somehow imposing the dollar upon the entire world by sheer will. History shops that the USA has pursued a policy of lowering the value of the dollar for trade purposes. Even the Plaza Accord in 1985 was a deliberate attempt to lower the dollar and it was at that meeting when the USA argued that Europe needed to create a single currency to compete with the dollar.

…click on the above link to read the rest of the article…

Economic Collapse and Dollar Hegemony – How Did This Start?

January 26, 2018

Economic Collapse and Dollar Hegemony – How Did This Start?

In the previous article I explained why bitcoin should be considered a reaction to US dollar hegemony and how other nations and central banks are facing the crisis of the dollar brought on by de-dollarization. In this article I will go into how we came to this point and what mechanisms helped to bring about a debt-based society. In the third and last article we will examine the nature of the future geopolitical and geo-financial transition as well as the signals we need look out for in the immediate future.

From Gold to Paper

To understand what is happening today we must look back to simpler times, back when people bartered with each other. The utility and availability of commodities determined their value. Gold in particular represented a finite good that was difficult to find and was useful in various fields. For this reason gold has always been considered the highest example of a valuable good, together with diamonds, platinum, silver and other elements that are difficult to find but have a common or daily use. For example, the importance of utility transformed uranium, an otherwise worthless element, into a valuable commodity following the discovery of atomic energy. Returning to gold, one can understand how in the era of barter, gold was the reference element with which to price the value of everything. Little by little, gold was joined by silver and then bronze in simplifying the exchange of goods and increasing convenience of use.

Gold had its own intrinsic value and was valid in every empire around the world; the same with silver and bronze. Gold had become not only a means of exchange and a measure of value but also a reservoir of value to be bequeathed to heirs. Above all it was a means of payment.

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The history, meaning, and probable end of “dollar hegemony”

March 21, 2016

The history, meaning, and probable end of “dollar hegemony”

This thirty minute interview is part one of a two part series. Part two will be released next week.

In this interview I explain how the dollar became the world’s leading reserve currency, what it means to be a reserve currency, how the US has benefited financially from this arrangement, and how delinking the dollar to gold has allowed our military empire to expand in an irresponsible manner.

Pat Barron
http://www.wakeupcallpodcast.com/dollar-hegemony/

Will the Chinese Yuan Now Demolish the “Dollar Hegemony?”

November 14, 2015

Will the Chinese Yuan Now Demolish the “Dollar Hegemony?”

IMF boss Christine Lagarde is gung-ho about it. IMF staff is too. The Executive Board will consider it on November 30 and in all likelihood approve it. It will take effect in October 2016. Then it’s a done deal: the Chinese yuan will be added to the IMF’s currency basket, the Special Drawing Rights (SDR). A step toward becoming a major global reserve currency.

She said IMF staff had determined that the yuan meets the requirements of being a “freely usable” currency, “which is defined as being ‘widely used’ for international transactions and ‘widely traded’ in the principal foreign exchange markets.”

China also overcame other hurdles the IMF had put before it, after numerous reforms to liberalize its currency and credit markets and offer more transparency. The IMF’s Executive Board has the final say, but Lagarde will chair the meeting. And the rubber stamps are lined up on the conference room table.

Some countries, including France and Britain, have already expressed support for the change. Reuters reported that a Treasury spokesperson said that the US government has always backed the yuan’s inclusion if it met the IMF’s criteria, and would “review the IMF’s paper in that light.”

The yuan has arrived – at the elite club of big sinners and currency warriors: the dollar, the yen, the euro, and the pound.

China has long sought to give its currency more global weight, both as payments currency and ultimately as reserve currency, given the enormous size of its economy. By being included in the SDR, the yuan moves a big step closer, becoming more palatable for central banks to add to their foreign exchange reserves.

Currency analysts peg central-bank demand for the yuan at over $500 billion, according to Reuters. But global foreign exchange reserves have been shrinking since last year, as this chart by NBF Economics and Strategy shows:

…click on the above link to read the rest of the article…

Russia, China and the Battle Against Dollar Hegemony

June 11, 2015

Russia, China and the Battle Against Dollar Hegemony

The Internal Contradictions of US Foreign Policy

The Saker: We hear that the Ukraine will have to declare a default, but that it will probably be a “technical” default as opposed to an official one. Some say that the decision of the Rada to allow Iatseniuk to chose whom to pay is already such a “technical default”. Is there such thing as a “technical default” and, if yes, how would it be different in terms of consequences for the Ukraine for a “regular” default?

Michael Hudson: A default is a default. The attempted euphemism of “technical” default came up with regard to the Greek debt in 2012 at the G8 meetings. Geithner and Obama lobbied the IMF and ECB shamelessly to bail out Greece, simply so that it could pay bondholders, because U.S. banks had issued credit default insurance (CDS) against Greek bonds and were on the hook for a big loss if a default occurred. The ECB suggested euphemizing default as a “voluntary renegotiation,” asking banks and other bondholders to agree to write down the debt.

But according to the international bondholders’ organization – the International Swaps and Derivatives Association (ISDA) – credit defaults can be triggered if a debt restructuring is agreed between “a governmental authority and a sufficient number of holders of such obligation to bind all holders,” making it mandatory. According to the ISDA’s definitions: “The listed events are: reduction in the rate of interest or amount of principal payable (which would include a ‘haircut’); deferral of payment of interest or principal (which would include an extension of maturity of an outstanding obligation); subordination of the obligation; and change in the currency of payment to a currency that is not legal tender in a G7 country or a AAA-rated OECD country.”[1]

…click on the above link to read the rest of the article…

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