Wolf Review (King Dollar. The Past and Future of The World’s Dominant Currency by Paul Blustein)
Paul Blustein, the author, starts the book with the overview of the dollar politics of recent years. The weaponising of the dollars to punish adversaries. Barring Russia and Iran out of the Society for Worldwide Interbank Financial Transactions or SWIFT in short, has undoubtedly undermined the status of the reserve currency of the world.
Many countries, including those traditional allies affected by the tariff, have woken up to the idea that the dollar supremacy with its exorbitant privilege will one day affect them due to the unsustainable debt obligations of the US.
There was a brief history of the status of the dollar as the dominant currency of the world. It started just after World War 2 when Britain was almost bankrupt due to debt owed to the Americans. On came the United States and the US dollars slowly replacing the British pound in the late 40s as the preferred currency of world trade. The faith of the dollar was sealed when then the U.S president, Franklin D. Roosevelt, met Saudi King Abdul Aziz Ibn Saud to set the stage for oil to be traded in USD in exchange for U.S military protection. This ensures demand for the dollar will continue to be high.
Over the last few decades, there have been many pretenders to the king dollar throne. The forced internationalisation of the Yen in the 80s and the subsequent signing of the Plaza Accord brought great economic disasters to Japan. The introduction of the Euro in the year 2000 looked promising, until the GFC and debt crisis in PIIGS brought the optimism back to earth. The Eurozone as a collective grouping is not very efficient. The Renminbi was recognised as the most likely currency to replace the dollar as the major reserve currency of the world. The financial reforms were slow, and the reimposed of capital controls made it a less likely alternative to the dollar in the immediate future.
The ecosystem of the dollar makes it a formidable tool against adversaries. In recent decades, Washington has been putting out more economic sanctions against countries and companies that don’t fit the geopolitical agenda of the US government. Countries, companies and individuals using SWIFT and CHIPS are subjected to US laws. The weaponised of the dollar has many consequences. Adversaries and allies have undertaken a series of diversification out of the dollar system. One of the beneficiaries is gold, which is on a fast ascension as an alternative to the US dollars. The US grip on the global financial payment system has spurred innovation from the Chinese, with its own Cross-Border Interbank Payments System or CIPS, is proving to be worthy alternative to SWIFT. The imposing of secondary sanctions against countries doing business with rogue states are more effective than direct sanctions. Unfortunately, it has caused the diminishing status of the US dollars. The dollars are supported by global trade and, to some degree, by those illicit trade too.
The next frontier to be the next reserve currency of the world is in the digital space. China is leading the world in issuing digital currency. Although the e-CNY is mostly used for transactions in China. There is a general acceptance of the Chinese digital currency having a good chance of going global. The adoption of the digital currency will increase the influence of China on world commerce. In this area, the US government is playing catch up by launching the digital dollar (CBDC)issued by the Federal Reserve. There is also innovation in the area of stable coins in private space. The aim of increasing demand for stable coins is to spread the reach of the US dollar far and wide. It acts as a way to maintain and to increase the dominance of the USD.
In my opinion, the status of the dollar is under threat from politicians in the US. The attack on the Fed’s independence and the market interventions by the Department of Treasury will have widespread implications on the dollar. If there is a bond crisis in the US, will other unconventional interventions by white-mailing the creditor nations to accept a poison pill of a hair cut to principle or a coupon rate cut be forced upon creditors? Will spell the end of the dollar supremacy? Will the greenback turn Red Army red in the future? The answers to all above depend on the path the US government takes. Financial engineering deployed by the US government will only go so far. The US government needs to consider some painful measures like raising taxes and reducing spending to keep their fiscal sound. There is no other way to maintain the status.
The ability of the US government to borrow cheaply will be an advantage to the economy. The next frontier to get that cheap financing is in the area of US treasury-backed stable coins. Stable coins are well sought after in failed states like Argentina and Venezuela, where their local currency is suffering from massive devaluation. Stable coins like tether, even if it is not paying any interest is a great alternative to the massively depreciating local currency. The coins are subjected to confiscation under the purview of the US government, which makes them a great alternative to the physical dollar.
The book goes onto Lone Wolf Investor’s highly recommended list. The title provides a history of the King dollar(USD) and its evolution as the world reserve currency. Given the recent bond and currency volatility. The book is an excellent read on what the future holds for the King dollar and its role as the world reserve currency. God Bless. 🙏
Please consider following us on telegram for the latest update on Lone Wolf investor by clicking on the link below. No form filling, no payment required, no collection of data, no data mining, no hard selling, no obligation.
Telegram Channel
https://t.me/joinchat/oCgkD3sQFRMzMWM1
Disclaimers
All investments is highly speculative in nature and involves substantial risk of loss. We encourage our reader to invest very carefully. We also encourage reader to get personal advice from your professional investment advisor and to make independent investigations before acting on information that we publish. Much of our information is derived directly from information published by companies or submitted to governmental agencies on which we believe are reliable but are without our independent verification. Therefore, we cannot assure you that the information is accurate or complete. We do not in any way whatsoever warrant or guarantee the success of any action you take in reliance on our statements. All information provided are for education only. Buyer beware,do you own due diligence.
Comments
Post a Comment