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US Dollar’s Status as Dominant “Global Reserve Currency” Drops to 25-Year Low

US Dollar’s Status as Dominant “Global Reserve Currency” Drops to 25-Year Low

Central banks getting nervous about the Fed’s drunken Money Printing and the US Government’s gigantic debt? But still leery of the Chinese renminbi.

The global share of US-dollar-denominated exchange reserves dropped to 59.0% in the fourth quarter, according to the IMF’s COFER data released today. This matched the 25-year low of 1995. These foreign exchange reserves are Treasury securities, US corporate bonds, US mortgage-backed securities, US Commercial Mortgage Backed Securities, etc. held by foreign central banks.

Since 2014, the dollar’s share has dropped by 7 full percentage points, from 66% to 59%, on average 1 percentage point per year. At this rate, the dollar’s share would fall below 50% over the next decade:

Not included in global foreign exchange reserves are the Fed’s own holdings of dollar-denominated assets, its $4.9 trillion in Treasury securities and $2.2 trillion in mortgage-backed securities, that it amassed as part of its QE.

The US dollar’s status as the dominant global reserve currency is a crucial enabler for the US government to keep ballooning its public debt, and for Corporate America’s relentless efforts to create the vast trade deficits by offshoring production to cheap countries, most prominently China and Mexico. They’re all counting on the willingness of other central banks to hold large amounts of dollar-denominated debt.

But it seems, central banks have been getting just a tad nervous and want to diversify their holdings – but ever so slowly, and not all of a sudden, given the magnitude of this thing, which, if mishandled, could blow over everyone’s house of cards.

20 years of decline.

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

wolfstreet, wolf richter, us dollar, world reserve currency, central banks, money printing, fed, us federal reserve, money, us debt, debt, united states

The U.S. Dollar Could Be Nearing Its “End Game”

From foreign countries trying to dethrone the dollar’s hegemony as global reserve currency, all the way to rising inflation weakening it… the U.S. dollar is in trouble.

Pundits like Jim Rickards said (back in 2016): “The dollar won’t lose its reserve currency status overnight” — and he was right. But a new and disturbing signal could finally be revealing the end game.

You can see the dollar’s loss of about 10% value against other currencies and its persistent downward trend since March 2020 reflected in the dollar index chart below:

dollar index chart from March 2020-February 2021

To get an even better idea of that persistent downward trend, we need to look all the way back to 2002, when the dollar index (DXY) peaked around 117. Not only is today’s dollar worth 10% less than last year’s – it’s 25% weaker than in 2002.

In fact, one forecast reported on Bloomberg in June 2020 called for a 35% decline in value by the end of 2021, which would leave the dollar index at 65. If that plays out, the index would be reporting its lowest value in at least 35 years.

In addition, a new Bloomberg report gave three reasons why the “dollar is now trading at the lowest level against its peers since 2018”:

1) Sharp widening in the U.S. current-account [trade] deficit.
2) Rise of the euro.
3) A Federal Reserve that would do little in response to any weakness in the greenback.

There is no doubt the trade deficit is a problem. According to the Bureau of Economic Analysis, the gap between imports and exports is at its widest since 2006. That won’t help the dollar recover.

The Fed’s inflation policy isn’t likely to help the dollar much because it “printed” itself into a corner with its loose monetary policy. The same Bloomberg piece further clarifies the Fed’s inflation strategy:

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

 

The U.S. Dollar Collapse Is Greatly Exaggerated

The U.S. Dollar Collapse Is Greatly Exaggerated

The US Dollar Index has lost 10% from its March highs and many press comments have started to speculate about the likely collapse of the US Dollar as world reserve currency due to this weakness.

These wild speculations need to be debunked.

The US Dollar year-to-date (August 2020) has strengthened relative to 96 out of 146 currencies in the Bloomberg universe. In fact, the U.S. Fed Trade-Weighted Broad Dollar Index has strengthened by 2.3% in the same period, according to data compiled by Bloomberg.

The speculation about countries abandoning the U.S. Dollar as reserve currency is easily denied. The Bank Of International Settlements reports in its June 2020 report that global US-dollar denominated debt is at a decade-high. In fact, US-dollar denominated debt issuances year-to-date from emerging markets have reached a new record.

China’s dollar-denominated debt has risen as well in 2020. Since 2015, it has increased 35% while foreign exchange reserves fell 10%.

The US Dollar Index (DXY) shows that the United States currency has only really weakened relative to the yen and the euro, and this is based on optimistic expectations of European and Japanese economic recovery. The Federal Reserve’s dovish announcements may be seen as a cause of the dollar decline, but the evidence shows that the European Central Bank (BOJ) and the Bank Of Japan (BOJ) conduct much more aggressive policies than the U.S. while economic recovery stalls. Recent purchasing manager index (PMI) declines have shown that hopes of a rapid recovery in Europe and Japan are widely exaggerated, and the Daily Activity Index published by Bloomberg confirms it. Furthermore, the balance sheet of the ECB is at the end of August more than 54% of the eurozone GDP and the BOJ´s is 123% versus the Federal Reserve’s 33%.

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

Goldman Warns “Real Concerns Are Emerging” About The Dollar As Reserve Currency; Goes “All In” Gold

Goldman Warns “Real Concerns Are Emerging” About The Dollar As Reserve Currency; Goes “All In” Gold

In his morning critique of goldbugs’ resurgent optimism about the future of gold, which has exploded alongside the price of precious metals, which in turn have been tracking the real 10Y rate tick for tick…

… Rabobank’s Michael Every argued from the familiar position of one who views the modern monetary system as immutable, and bounded by the “Venn Diagram” confines of the dollar as a reserve currency and financial assets as a bedrock of modern household wealth, of which as Paul Tudor Jones recently calculated, there is just over $300 trillion worth, compared to just $10 trillion in total gold value.

Indeed, according to Every, the surge in gold is meaningless because “if you buy gold, technically that is going to make you money. And yet that money is still going to be priced in US DOLLARS – and that gives the whole game away.”

Like fans of the England football team, gold fans can dream of the distant past when gold was the centre of the global monetary system; but they can keep dreaming if they think those days are ever going to return. Gold may be an appreciating asset, but all the evidence suggests that it won’t be one that is of any direct relevance to day-to-day life, finance, and business. Your currency won’t be tied to it. You won’t get paid in it. You won’t spend in it or save in it (other than to the switch back to US Dollars). You won’t be doing deals in it or importing in it.”

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

Gold Is Security in a Dollar Crisis

Gold Is Security in a Dollar Crisis

Last week, we reported Yale economist Stephen Roach’s warning that “the era of the US dollar’s ‘exorbitant privilege’ as the world’s primary reserve currency is coming to an end.”

Roach isn’t the only person in the mainstream sounding the alarm about the dollar’s demise.  In a note published last week, Guggenheim Investments Chief Investment Officer Scott Minerd said that while “there are no signs the world is questioning the value of the US dollar” right now, it’s clear that the greenback is  “slowly losing market share as the world’s reserve currency.”

And he said buying gold is the key to offsetting the dollar’s decline.

With the Fed going all-in on financing the government deficit, the US dollar could be at risk to negative speculation of its status as the dominant global reserve currency. Investing in gold may help offset this trend.”

Even before the coronavirus pandemic, Peter Shiff was warning about a looming dollar crisis. During an interview on RT last September, he warned that America’s “fiscal profligacy” was going to sink the dollar.

What has enabled this over the years has been the world’s willingness to hold US dollars as the primary reserve currency and to continue to loan money to Americans and to the US government so we can continue to live beyond our means. We can have enormous government programs that we don’t pay for and we can consume all kinds of goods that we don’t manufacture, and we can live in an economy based on consumption and debt without having to save or produce. The world has done that for us. And I think this is what’s going to come to an end. I think we’re going to see a collapse in the value of the dollar, and when the dollar does collapse, America’s power is going to dissipate.

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

As Economies Reopen, the USD Faces this Triple Threat

As Economies Reopen, the USD Faces this Triple Threat

dollar attacked

The U.S. dollar’s status as the global reserve currency has been under attack for many years. But today, these attacks seem to be expanding and intensifying. Let’s look at three recent developments.

Big Bank Bets Against the Dollar

Now that most state economies have at least started to reopen, Goldman Sachs is betting against the dollar, according to a recent CNBC article:

In a note over the weekend, Goldman strategists said that while they had maintained that it was too early to look for “outright and sustained Dollar downside given the balance of cyclical risks,” shorts on the dollar now looked attractive in certain currency crosses.

The article continued by explaining precisely what “short selling” the dollar means:

Short selling a currency involves borrowing that currency, selling it at the current market price and then waiting for the price to fall in order to buy the currency back at a lower price and return the loan.

Specifically, Goldman is betting on the Norwegian krone to outperform the dollar, and thinks the krone is well positioned to do just that.

Recent performance of the dollar (DXY) could be revealing that Goldman Sachs is off to a good start with their bet:

U.S. Dollar Index and 50-Day Moving Average

As you can see at the far right of the chart, the dollar’s value is dropping close to levels not seen since early 2018. It’s also severely under the moving average.

Meanwhile, the krone is still above the moving average, and doesn’t appear nearly as “flat” as the dollar.

But the krone is not the only challenge to the dollar’s hegemony; changes to China’s currency represents another one.

4-Letter Potential “Nightmare” for the U.S. Dollar

Right now, the main currency in China is the yuan.

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

Vladimir Putin Sums Up The New World Order In 5 Words

Vladimir Putin Sums Up The New World Order In 5 Words

Russian President Vladimir Putin succinctly summarized the shifting tectonic plates of geopolitics.


Vladimir Putin: “The Dollar Enjoyed Great Trust Around The World. But For Some Reason It Is Being Used As A Political Weapon, Imposing Restrictions. Many Countries Are Now Turning Away From The Dollar As A Reserve Currency. US Dollar Will Collapse Soon.”


First he explained the status quo…

“The Dollar enjoyed great trust around the world. But, for some reason, it is now being used as a political weapon to  impose restrictions.”

Then Putin explained the consequences…

“Many countries are now turning away from the Dollar as a Reserve Currency.”

And ultimately what happens…

“US Dollar will collapse soon.”

And just like that, it was gone. Remember “nothing lasts forever”…

As Bloomberg reports, Russia’s central bank has been the largest buyer of gold in the past few years.

Source: Bloomberg

Of course, Putin is not the first (and won’t be the last) to suggest the end is nigh for the dollar…

The World Bank’s former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.

“The dominance of the greenback is the root cause of global financial and economic crises,” Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. “The solution to this is to replace the national currency with a global currency.”

Warren Buffett once explained that “for 240 years it’s been a terrible mistake to bet against America, and now is no time to start.”

We don’t mean to rain on his parade too much, but the following charts suggest time is ticking, as the world transitions from dollars to non-fiat reserves…

Source: Bloomberg

Is the Global Dollar in Jeopardy?

Is the Global Dollar in Jeopardy?

The US Federal Reserve is right to be concerned, if not worried, about the greenback’s dominance of international trade and finance. Fortunately for consumers, growing potential competitive pressure – call it the Libra effect – creates an incentive to make the existing system work better.

WASHINGTON, DC – Since the end of World War II, the United States dollar has been at the heart of international finance and trade. Over the decades, and despite the many ups and downs of the global economy, the dollar retained its role as the world’s favorite reserve asset. When times are tough or uncertainty reigns, investors flock to dollar-denominated assets, particularly US Treasury debt – ironically, even when there is a financial crisis in the US. As a result, the Federal Reserve – which sets US dollar interest rates – has enormous sway over economic conditions around the world.

For all the associated innovation evident since the launch of the decentralized blockchain-based currency Bitcoin in 2009, the arrival of modern cryptocurrencies has had essentially zero impact on the global taste for dollars. Promoters of these new forms of money still have their hopes, of course, that they can challenge the existing financial system, but the impact on global portfolios has proved minimal. The most powerful central banks (the Fed, the European Central Bank, and a few others) are still running the global money show.

Suddenly, however, there is a new, potentially serious player in town: Facebook’s Libra initiative. Facebook and a currently shifting coalition of firms are planning to launch their own private form of money that would, in some sense, be secured by holdings of major currencies.

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

Our Currency, Your Problem

Our Currency, Your Problem

“Major movers” such as China, Russia and the European Union have a strong “motivation to de-dollarize,” said Korin, co-director at the energy and security think tank, on Wednesday.

“We don’t know what’s going to come next, but what we do know is that the current situation is unsustainable.”

–  Anne Korin, Institute for the Analysis of Global Security.

Irrespective of where you reside in the world, chances are you feel some sense of unease, a nagging concern for the future and a deep instinctual understanding that an era you knew and navigated your entire life is slipping away and won’t be coming back.

We’ve been witnessing widespread protest and unrest across countries with distinct political and economic systems, such as Hong Kong, France, Chile, Spain, Ecuador, Lebanon and Venezuela just to name a few. Those with vested interests and an ideological solution to sell insist it’s all because of socialism, capitalism or some other ism, but the truth is this goes far deeper than that. What’s actually happening is the geopolitical and economic paradigm that’s dominated the planet for decades is failing, and rather than address the failure in any real sense, elites globally are have decided to loot everything they possibly can until the house of cards comes crashing down.


This chart is almost as disturbing as the charts of negative yielding debt.
The entire financial system is a farce and a fraud. It’s all smoke and mirrors, a coverup machine for elitist looting.

Despite people with vested interests reassuring you this is normal, it is not. https://twitter.com/zerohedge/status/1189919094331588608 …


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

Ask the Expert – Nomi Prins – October 2019

Ask the Expert – Nomi Prins – October 2019

Ask the Expert - Nomi Prins - October 2019

Bestselling author Nomi Prins is an American author, journalist, and public speaker. A former managing director at Goldman Sachs and senior managing director at Bear Stearns, her latest book is Collusion: How Central Bankers Rigged the World. Her previous book All the Presidents’ Bankers explored over a century of close relationships between 19 Presidents from Teddy Roosevelt through Barack Obama and the key bankers of their day, based on original archival documents. Prins also received recognition for her whistleblower book, It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street , for her views on the U.S. economy, for her published spending figures on federal programs and initiatives related to the 2008 bailout, and for her advocacy for the reinstatement of the Glass–Steagall Act and regulatory reform of the financial industry.

This month, Nomi answers seven of your listener-submitted questions, including:

• When will the U.S. dollar end its reign as global reserve currency?

•  Should you be concerned about gold confiscation?

  • Plus: If the financial system crashes, are you at risk?

The End Of Fiat In One Chart

The End Of Fiat In One Chart

For the first time in 21 years, Germany has openly bought gold into its reserve holdings.

Source: Bloomberg

German reserves climbed to 108.34m oz in September from 108.25m a month earlier.

Source: Bloomberg

With ECB mutiny and Deutsche Bank’s rapid demise, fears are rising of a looming financial crisis, and with that, Germany has shown a renewed interest in gold.

As a reminder, September’s outright purchase of the precious metal comes after Germany’s central bank, the Bundesbank, repatriated 583 tonnes, or $31 billion worth, of gold in 2017, years ahead of schedule.

Which came after Germany’s stunning announcement in January 2013 that the Bundesbank would repatriate 674 tons of gold from the NY Fed and the French Central Bank (which was initially abandoned in 2014).

Of course, while Germany is now the latest to turn to gold as a safe haven store of value in its reserves, it is not the first as the de-dollarization shift has been accelerating in recent months

Source: Bloomberg

Germany’s shift comes after China’s acceleration in gold-buying as Peter Schiff recently noted this a “global gold rush on the part of central banks” in preparation for a dollar crash.

“The days that the dollar is a reserve currency are numbered and the smart central banks are trying to buy as much gold as they can before the number is up,” Schiff said. 

Remember, nothing lasts forever

And now that the always conservative Germans are back in the market buying gold, one wonders if the end of fiat is drawing closer.

Rabobank: “The US Will Simply Not Allow A New Reserve Currency Without A Fight”

Rabobank: “The US Will Simply Not Allow A New Reserve Currency Without A Fight”

“Peace for our time”

Despite the fact that the German IFO survey was ‘I-ful’, with the official word being that the outlook is “increasingly dire”, and that US core durable goods were -0.4% vs. flat expected, both of which confirm that the real economy is perhaps in real trouble, markets seemed to sigh with relief yesterday. The reason? We have the promise of “peace for our time”. After all, according to the press, US President Trump held out an olive branch to China on trade; and to Iran; and was there perhaps the suggestion of another brunch being offered from Boris Johnson to the EU?

Let’s focus on the US issue first. Nothing we saw or heard yesterday–nothing at all–changes any of the dynamic that we have seen for a long time now. Trump praised Chairman Xi to the skies, and repeated that China wants to make a deal very badly, so much so that they had already called to kick-start talks. Meanwhile, China stated it knew nothing about any such call, and the editor of the Global Times tweeted “Based on what I know, Chinese and US top negotiators didn’t hold phone talks in recent days. The two sides have been keeping contact at technical level, it doesn’t have significance that President Trump suggested. China didn’t change its position. China won’t cave to US pressure.” So very little chance of trade peace for our time. Nonetheless, as usual, the equity market fell for this while the smarter bond market largely didn’t – and neither did CNH.

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

“Things Will Never Be The Same Again”: Here Are 20 Questions As Central Banks Admit Defeat

“Things Will Never Be The Same Again”: Here Are 20 Questions As Central Banks Admit Defeat

Unlike prior years, there was a distinct sense of dread and powerless foreboding in this year’s Jackson Hole meeting, starting with Jerome Powell’s “boring” speech in which he blamed Trump’s trade war for the Fed’s inability to stimulate the economy, and culminating with Mark Carney unprecedented capitulation, effectively admitting that the fiat system has failed and the dollar can no longer be the world’s reserve currency (instead punting that obligation to ‘global central banker’ Mark Zuckerberg and his Libracoin).

Indeed, as even the FT concludes, “there was a sense that things will never be the same again.”

In its summary of this week’s Wyoming outing, the FT also wrote that “the developed world had experienced a “regime shift” in economic conditions, James Bullard, president of the St Louis Federal Reserve, told the Financial Times.

“Something is going on, and that’s causing I think a total rethink of central banking and all our cherished notions about what we think we’re doing,” Bullard admitted. “We just have to stop thinking that next year things are going to be normal… They’ve priced in that there’s going to be uncertainty, there are going to be tweets, there are going to be threats and counter-threats,” said the St Louis Fed president. “And that’s the way it’s going to be.”

And as the FT further admits, “interest rates are not going back up anytime soon, the role of the dollar is under scrutiny both as a haven asset and as a medium of exchange, and trade uncertainty has become a permanent feature of policymaking.”

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

Why Mark Carney Thinks The Dollar Can No Longer Be The World’s Reserve Currency

Why Mark Carney Thinks The Dollar Can No Longer Be The World’s Reserve Currency

While Jerome Powell’s highly anticipated Jackson Hole speech was, in the words of Brean Capital’s Russ Certo “underwhelming and anti-climatic”, one couldn’t say the same for the shocking luncheon speech by Bank of England’s outgoing governor, Mark Carney, titled “The Growing Challenges for Monetary Policy in the current International Monetary and Financial System“, where he dedicated no less than 23 pages to a stunning – for a central banker – cause: to describe why the dollar’s  “destabilizing” reserve status role in the world economy has to end, and why central banks need to join together to create their own replacement reserve currency, one potentially tied to Facebook’s new “stablecoin” Libra, although in reality any “Synthetic Hegemonic Currency” as Carney defined it would do.

But first, a quick tangent: the reason we say Carney’s speech was shocking is not for what it proposes – after all, we have long argued that a world in which the dollar’s reserve currency status would be stripped away by the establishment and granted to some alternative – whether gold, or a basket of currencies like the IMF’s SDR, or a cryptocurrency like bitcoin – is coming in posts such as:

 The argument behind all these articles is simple and two-fold: i) in a fiat world, one can only devalue relative to some other currency, yet we have now reached a point where (as Pimco suggested two years ago when it said the Fed should buy gold to devalue the dollar against it) every currency needs to devalue relative to some hard index outside of the monetary system…

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

In Unprecedented, Shocking Proposal, BOE’s Mark Carney Urges Replacing Dollar With Libra-Like Reserve Currency

In Unprecedented, Shocking Proposal, BOE’s Mark Carney Urges Replacing Dollar With Libra-Like Reserve Currency

After Jerome Powell’s neutral-to-slightly-dovish-but-mostly-boring speech on Friday morning, investors could be forgiven for suspecting that this year’s Fed-sponsored gathering in Jackson Hole might be disappointingly dull (especially with all that’s going on in Trump’s twitter feed, the escalating trade war and escalating geopolitical unrest).

Then along came former Goldman banker and current (outgoing) BOE governor, Mark Carney, who in his lunchtime address laid out a shocking, radical proposal – perhaps the most stunning thing to ever be unveiled at Jackson Hole – urging to replace the US Dollar with a “Libra-like” reserve currency in a dramatic revamp of the global monetary, financial and economic order.

While it was unclear if Carney was focusing on Libra as the new reserve currency, or simply was hoping to find something against which the dollar could be devalued, the proposal was clearly shocking as it suggests that the central bank quiet acceptance of cryptocurrencies (especially in Japan) has been what many have speculated all along: a “currency” against which fiat money can be devalued in hopes of sparking fiat hyperinflation that inflates away record amounts of fiat debt.

Of course, such a new system would bring about the end of US hegemony, and effectively end the dollar-based global financial system, dramatically scaling back the US’s influence in the global economy, and making rising powers like China and Russia critical players an increasingly multipolar world…. especially if they propose a gold-backed dollar alternative to the world. That this would quickly emerge as the new reserve currency – together with whatever stablecoin/crypto central bankers deign to be the dollar’s replacement – goes without saying.

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

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