First. Here's my take.
The most interesting
outcome of the three day
summit between Vladimir Putin an
Jinping got limited media attent
Describing that talks, Putin sai
We are in favor of using the Chi
for settlements between Russia
and the countries of Asia, Afric
and Latin America.
So the world's second largest ec
and its largest energy exporter
are together actively
trying to dent the dollar's
dominance
as the
anchor of the international
financial system.
Will they succeed?
The dollar is America's
last surviving superpower.
It gives Washington unrivaled
economic and political muscle.
It can slap sanctions on
countries unilaterally,
which frees
that country
out of large parts of the world
And Washington can spend freely.
Certain that its debt will be bo
by the rest of the world.
The war against Ukraine,
combined with Washington's
increasingly confrontational app
to China,
have created a perfect storm
in which both Russia and China
are accelerating efforts
to diversify away from the dolla
The central banks are keeping
less of their reserves in dollar
and most trade
between them
is being settled in the yuan.
They are also making efforts
to get other countries to follow
The Biden administration has han
the economic war
against Russia extremely effecti
by building
a coalition
of almost all the world's advanc
economies.
That makes it hard to escape
from the dollar
into other highly valued,
stable currencies
like the euro or the pound
or the Canadian dollar,
because those countries
are also warring with Russia
What might have been
a sharper
turning point
for the dollar's
role was Donald Trump's decision
in May 2018
to pull out of the Iran nuclear
The European Union
was strenuously opposed to this
but it watched as the dollar's
dominance meant
that Iran was immediately
excluded from the world economy.
Jean-Claude Juncker,
then president of the European
Commission,
proposed enhancing the euro's
role internationally
to shield
the continent
from what he called
selfish unilateralism.
The Commission
outlined a path to achieve this.
It hasn't happened.
There remain
too many fundamental doubts
about the future of the euro its
Dollar dominance is firmly entre
for many good reasons.
A globalized
economy needs a single currency
for ease and efficiency.
The dollar is stable.
You can buy and sell at any time
and it's governed largely by the
and not the whims of a governmen
That's why
China's efforts to expand
the yuan's role internationally
have not worked.
Ironically, if Xi Jinping wanted
the greatest pain to America,
he would liberalize his financia
and make the yuan
a true competitor to the dollar.
But that would take him
in the direction of markets, an
that is the opposite of
his current domestic goals.
All that said,
Washington's
weaponising of the dollar over
the last decade
has led many important countries
to search for ways
to make sure
that they do not become the next
The numbers are revealing.
The share of dollars in global
central bank
reserves has dropped from roughl
20 years ago
to less than 60% today
and falling steadily.
The Europeans and the Chinese ar
to build
international payment systems
outside the dollar dominated swi
Saudi
Arabia has flirted
with the idea of pricing its oil
India is settling
most of its oil purchases
from Russia in non-dollar curren
Digital currencies
might be another alternative,
and in fact,
China's central bank has created
All of these alternatives add co
But the last few years
should have taught us
that increasingly nations
are willing to pay a price
when they want political goals
to trump economic ones.
We keep searching for
the single replacement for the d
and there will not be one
But could the currency suffer we
by a thousand cuts?
That seems a more likely scenari
The author and investor
Richard Sharma points out
right now,
for the first time in my memory,
we have an international financi
in which the dollar has been wea
rather than strengthening.
I wonder
if this is a sign of things to c
If it is, Americans should worry
I spoke last week about the bad
geopolitical habits
Washington has developed
because of its unrivaled unipola
It's even more true economically
America's politicians have gotte
very used
to spending seemingly
without any concern about defici
Public debt
in America has risen
almost five fold
from roughly six
and a half trillion dollars.
20 years ago,
to 31 and a half trillion dollar
The Fed has solved
a series of financial crises by
expanding its balance sheet
almost 12 fold
from around $730,000,000,000.20
to about $8.7 trillion today.
All of this only works
because of the dollar's unique s
If that were to wane,
America will face a reckoning
like none before.