WEAPONIZED DOLLAR RESERVE SPELLS EXTINCTION
When Obama weaponized the US Dollar Reserve for the first time Economist prayed it was a passing fad. When Trump placed sanctions on 40% of the Global population further weaponizing the Dollar Reserve, Economists projected the Dollar demise. What is wrong with a little weaponization if you get what you want? What a great weapon for a bully.
Well, for one thing, the US delegation to Bretton Woods in 1944, maintained the US Dollar reserve would always be politically neutral. They said this when the US delegation rejected the proposed use of a composite currency to be called the BENCOR. The BENCOR was to be a composite of the leading five global currencies. It was intended to be politically neutral. The fear of other nations at Bretton Woods was that the USA would weaponize the Dollar Reserve to leverage other nations over political issues and trade. The US delegation gave assurances that would never happen. It has happened. And the cheap assurances flew out the window with Obama and Trump.
The primary issue is that no country can now trust the United States. Their aggressive hegemony especially under Trump has 40% of the world population seeking exchanges in the Euros, Rubles, Oil, and the Yuan. But Obama clearly started it with Russia. Obama is the founding father of the demise of the US Dollar. Trump took it to the next level: US Dollar Reserve Suicide.
In fairness, Obama and Trump can now Biden can all share in the Nobel Prize for destroying the US Dollar Reserve Currency. Even if Biden were to reverse all the insane US Sanctions on the world, it would never restore the trust that has been lost. As long as there is even a remote chance of another Obama or Trump weaponizing the Dollar Reserve, it’s over.
What you have now is mere mop up. Instead of the Dollar dropping off the cliff, other currencies like the Euro and Yuan will join the Reserve Options. This will increase global liquidity. That is the way Capitalism will resolve the US Weaponized Dollar.
The US Dollar is losing ground but in a much bigger pond. Thus even though dollar claims have risen over the last ten years, other currencies have joined the club and are expanding at a faster rate. Competition will end the Dollar Stranglehold.
IMF reports Dollar claims have fallen from 71% in 1999 to 59% in 2020. Again, that is lesser claims in a much larger pond.
Liquidity is king. This is where both the EURO and Chinese Yuan come up short. By comparison, 75% of US Dollars float outside of the USA. Thus there will be no significant displacement. It is a rather gradual process. Trump, of course, accelerated it with reckless weaponization.
Will the Dollar demise be gradual or fast? That Depends.
It depends on the rate of decline of foreign investors buying US Treasuries. What we do know is there has been a steady decline of foreign investment in treasuries since 2003. This is a huge risk for the USA in that China holds over 1.3 T US Treasuries. If they were to sell that on the open market they could trigger a 25% decline in Treasuries almost instantly. That would be catastrophic to the US Economy.
A conflict over Taiwan could do it. The US should not be pushing these buttons. China could take Taiwan militarily in very short order. In doing so China could take Tiawan Semiconductor and paralize the USA. China is rife with economic weapons and could assert them hard if pushed.
China has repeated that is would prefer not to engage in hegemony but the US continues to press their luck in the South China Seas and by attempting to weaponize Taiwan.
Another situation could occur where a Digital Currency, which has instant liquidity, become ubiquitous with the Dollar.
Capitalism would prefer a currency unaffected by political intrigue or simply wretched governance. More simply a currency unaffected by debt. Since all currencies are in reckless pursuit of more debt, a cryptocurrency unaffected by debt would be a store house of solid equity. This is why many do not see the demise of Bitcoin unless Joe Biden puts out an executive order banning it as FDR banned Gold in 1933. Click here for more.
There are nations and societies that don’t want citizens to have privacy in their purchases. China is one, the USA is another. Undoubtedly the European Union would be included in the mix. However by their design, a crypto could be made impossible to trace.
AS AN ASIDE… The DOJ claims it has recovered Bitcoins deposited in a Wallet used by “Darkside” in the ransomware attack on Colonial Pipeline several weeks ago.
“The Department of Justice has found and recaptured the majority of the ransom Colonial paid to the DarkSide network in the wake of last month’s ransomware attack,” Lisa Monaco, U.S. deputy attorney general, said during a press conference.
This has got to take the shine off BITCOIN in that the Goverment broke into a Bitcoin Wallet.
The Digital Yuan could be a contender:
China is by far the largest trading nation in the world. If they request trading partners use the Digital Yuan instead of the dollar, the dollar could become a minor player. Of course my view is competition is good. It might even stop the USA from using the Dollar Reserve as a weapon. That may sound like wishful thinking but even the USA might have to act sensibly if pushed to desparation. Unfortunately I expect the USA to drift mindlessly into a quasi European styled Socialism and go the way of a more or less giant France.
China has been reluctant to show much in the way of Global leadership. They are very good at Trade and Commerse but have a tendency to not get involved in global matters. One golden opportunity it would seem, would be to bring North Korea into the global space. However this just has not happened. It may be that China regards South Korea as a business competitor of sorts so they are reluctant to make things better for South Korea.
I believe China regards itself as a technical economy with little interest in world politics. The US is the opposite. For a country screaming about decoupling, the USA is engaged in more global disputes than any other nation in the world. Following Drama Queen Trump, the world may find China’s more impersonal approach to be more satisfying and void entirely of American manic swings.
I do not think the Euro will be a contender:
For one thing, much of Europe is Socialist and everyone remembers the Greek catastrophe a few years ago. Nothing has really change other than Britain is gone. The next collapse will likely be Italy which has an economy much larger than Greece. This will be a major shock which may cause other countries to leave the EU.