A first class video on the likelihood, causes and route to de-dollarization some of us believe is coming. It is an hour long but worth the watch.
Till the 1950s and the early 1960s the GBP continued to play an important role as junior partner to the US$ as a medium of world trade and store of national wealth by central banks. After the devaluation of the Pound in ~1966 and the $ going off the limited gold standard in 1971 the US$ the US$ was in search for a foothold to retain its primacy. This as we know came with Henry Kissinger’s master stroke of creating the petro-dollar by convincing Saudi Arabia, and thus OPEC, that all oil trade will be denominated and paid for in US$. Even their arch cold war enemy USSR jumped onto the bandwagon and the US was happy for it. This created a permanent and massive demand for the US$ by countries all over the globe and created a supply of US$ outside USA that way exceeded the supply of dollars within the US. And when your currency backed only by promises to pay is sought by the world over it leads to the temptation to print as much as you need and a lot of what you don’t need too. And that is the trap the US today has cheerfully walked into driven by endless wars and 700 military stations of all kinds the world over. $31 trillion is the cash debt owed. That is more than the economies of China, Japan, Germany, India combined.
This debt was barely sustainable due to the US$ being the primary store of wealth and the preferred instrument of trade exchange. The US$ is America’s most potent weapon by far. Much much more than its nuclear arsenal or aircraft carriers. Even through the fragile days of the cold war they did not mess with the $ against the USSR.
But stupidly, IMHO, Joe Biden weaponized it in February 2022, following the Ukraine war and provided the stimulus several nations were waiting for to unshackle at least a part of their trade/store of wealth away from the US$. China purchases oil from Iran in return for Yuan denominated gold bonds that can be traded on the Shanghai Gold Exchange or converted to real metal; India and Russia have started at least a part rouble trade; Saudia and China, Saudia & India, India & UAE, UAE & China are all now trading oil at least partly in Yuan, Dirhams, Rupee and other non-$ currencies. There are at least a dozen such pairs now.
Compared to the use of the $ in world trade all this is still minor but IMHO is the thin edge of the wedge that will now move in only one direction and at an increasingly rapid pace. By weaponizing the $ and associated settlements system America said to all of us, if I don’t like what you do I’ll create an existential threat for you. This is just the sort of all singing all dancing threat weakening powers indulge in.
Maybe in the 2030s some form of digital currency backed by real metal and commodities and not mere promissory notes and maintained by a verifiable block chain based ledger will emerge and at least partly replace the $. Can’t see the Remimbi doing that – lacks trust by the spadeful.
Right now the US of A is like the richest land lord in the village who daily borrows from every farmer, artisan and serf in that village to feed his inability to earn as much as he spends. When its ability to borrow freely {read print notes at will} diminishes that pile of debt will come calling with economic ramifications for the globe.
I am not at all advocating upending the SWIFT or the $ denominated world trade and replacing it by another. I'm just stating that the forces of geo-politics will ensure that one or two parallel systems will come up also and all 2 or 3 will co-exist together. It will be good for world commerce not to be dominated by one currency no matter which. The Chinese can get it done. Most banks will become members of both. The cry for an alternative to SWIFT and the US$ has surfaced time and again {whenever there is a crises} since the end of the cold war. By weaponizing what is meant to be a neutral multi-lateral instrument of trade into a weapon of war and political muscle USA has set in motion the dominoes for alternatives and for the eventual demise of its own currency printing press. The next decade promises to be eventful on this front.