The bigger story is the recent push to settle trade in Yuan instead of USD.
BRICS [1] , Saudi Arabia [2], many South American [3] and ASEAN countries [4], (and even France [5]!) have signed on to do Yuan-based settlement.
This is the strongest concerted effort to kill the petrodollar and Bretton Woods. It would have devasting impact to the US economy if this trend continues.
The US economy and our special ability to buy cheap goods have relied upon the world buying up US dollars. The sheer amount of investment in the US is a direct consequence of the dollar's elevated status.
This is pushback to US Swift-based sanctions and hegemony and an acceleration to multi-polar power. Several counties have wanted this for a long time, but the Ukraine war and tensions with China have accelerated this.
This is a big deal with titanic, earth shaking consequences for the US and the West. It could lead to incredible inflation and an economic depression if the world stops buying up dollars.
This is pretty horrifying to watch unfold so quickly.
It's hard not to see all of the chess pieces moving. There is a huge game being played right now -- in the open, for all to see -- that will determine the balance of power for the remainder of the century.
> This is the strongest concerted effort to kill the petrodollar and Bretton Woods. It would have devasting impact to the US economy if this trend continues.
It's a 100 year long trend that started with the 1933 gold ban in US, later Bretton Woods, decreasing US global bond portfolio recently, and the Russian central bank asset freezing.
Personally I think that defaulting on Russia was a bigger deal than the Yuan bond trade, as it created a precedent for not paying for countries that US not even officially in war.
What's important is neighter to overreact nor underreact: this is a long process in which USD is losing its reserve currency status.
Personally I believe Bitcoin will be taking its place, but I know that that is a controversial statement.
In a world without internet, your paper wallet will be worth ~as much as my D&D character's inventory sheet. And probably less, because at least the character sheet is big enough that I can make a paper airplane out of it.
Because without a working network, it becomes impossible to actually use it as currency. At least bars of gold, or gold-coated tungsten, or pirate treasure, or papiermarks or dollars or lottery scratchers or bottlecaps can physically change hands in exchange for goods.
I have doubts China is suddenly going to decide to stop its extreme currency manipulation. The question is how quickly it will bite the countries trading in it.
There’s nothing sudden about what China’s been doing with its trade surplus. In the aughts they were spending most of it on US treasuries. After the great financial crisis they began tapering their purchases and shifting to a basket of other currencies. In the mid 2010’s they started the belt and road initiative to turn trade surplus into loans and infrastructure in foreign countries. It’s been at least 15 years of them pulling away from the tight coupling they had with USD.
Let's not fool ourselves, the USD is a shitty reserve currency.
But: It's amazing that otherwise smart people don't understand that china manipulates their currency worse than the US. How do people think that the evergrande crisis just disappeared? Magical econ dust?
I don't doubt that corrupt regimes can be bought off to the yuan, but it's hard to imagine seeing that going well for them:. USD M2:GDP hovers around 1, RMB M2:GDP is currently around 2.
Even worse, RMB has extreme capital controls. It's difficult for individuals to get RMB out of PRC, because the regime is terrified of capital flight. It's hard to predict what effect this would have on a reserve currency.
They are putting forwards a proposal for bilateral trade (and have proposed a dynamic basket of currencies as a reserve previously). The alternative being explored is not a 1-1 replacement of the USD with the Yuan.
Additionally, from the perspective of much of the world, the US has been engaging in pretty sizeable currency manipulation in the past 3 years.
BRICS [1] , Saudi Arabia [2], many South American [3] and ASEAN countries [4], (and even France [5]!) have signed on to do Yuan-based settlement.
This is the strongest concerted effort to kill the petrodollar and Bretton Woods. It would have devasting impact to the US economy if this trend continues.
The US economy and our special ability to buy cheap goods have relied upon the world buying up US dollars. The sheer amount of investment in the US is a direct consequence of the dollar's elevated status.
This is pushback to US Swift-based sanctions and hegemony and an acceleration to multi-polar power. Several counties have wanted this for a long time, but the Ukraine war and tensions with China have accelerated this.
This is a big deal with titanic, earth shaking consequences for the US and the West. It could lead to incredible inflation and an economic depression if the world stops buying up dollars.
This is pretty horrifying to watch unfold so quickly.
It's hard not to see all of the chess pieces moving. There is a huge game being played right now -- in the open, for all to see -- that will determine the balance of power for the remainder of the century.
[1] https://www.bloomberg.com/news/articles/2023-03-28/o-neill-u...
[2] https://www.wsj.com/articles/saudi-arabia-considers-acceptin...
[3] https://www.scmp.com/economy/china-economy/article/3215857/c...
[4] https://www.manilatimes.net/2023/04/06/business/foreign-busi...
[5] https://www.rfi.fr/en/business/20230331-petrodollar-under-th...