Article

2022-03-25 Economy

DE-DOLLARISATION: IMF Top Economist Gita Gopinath says Sanctions will cause "fragmentation" in global payment systems, acceleration of shift away from the dollar

Archived material is restricted to Rantburg regulars and members. If you need access email fred.pruitt=at=gmail.com with your nick to be added to the members list. There is no charge to join Rantburg as a member.

Posted by Slineling Chusong5031 2022-03-25 07:47|| || Front Page|| [11133 views ] Top

#1 Unintended consequences as they say. Biden seems to keep shooting himself in the foot in everything he does. Movement away from the dollar will have dramatic impact in our dealings with the world. The new world order for Western civilizations only.

Posted by Dale 2022-03-25 11:51|| 2022-03-25 11:51|| Front Page Top

#2 ..well, they're doing away with Western Civilization here.

Posted by Procopius2k 2022-03-25 13:03|| 2022-03-25 13:03|| Front Page Top

#3 That's the thing about these deliberately caused disruptions. Frequently people discover that these institutions, once thought essential, are actually not needed and were never required in the first place.

Posted by Omomolet Phutch9064 2022-03-25 13:14|| 2022-03-25 13:14|| Front Page Top

#4 #1 Agree 100%. Biden got all emotional, or maybe stampeded by CNN, and abruptly took action without ever considering what the consequences might be.

Again, the dumbest businessman knows you don't encourage your competition, much less give them a monopoly in any area at all.

Posted by Tom 2022-03-25 14:27|| 2022-03-25 14:27|| Front Page Top

#5 Unintended consequences as they say. Biden seems to keep shooting himself in the foot in everything he does. Movement away from the dollar will have dramatic impact in our dealings with the world. The new world order for Western civilizations only.

A world in which the dollar isn't the primary reserve currency is one where its value goes down and US exports surge. That's not a bad thing at all.

It’s completely feasible to move to another reserve currency. All they need is a country willing to play the patsy - to absorb the cost of large and ongoing trade deficits. If China is willing to hollow out its industry in order to make the yuan a significant reserve currency, that should be entertaining to watch. Note that Germany, Japan and Switzerland, some of the candidates for reserve currency boltholes, have negative interest rates for this very reason - to discourage foreigners from parking their cash there. Reserve currency status artificially jacks up your currency and makes your exports less competitive.

The Chinese want the buying power of reserve currency status without taking the trade deficits that go with that buying power. Here’s a hint. It doesn’t work that way.

There’s another big issue - the country with the biggest economy naturally has the biggest currency exchange volumes. That makes its currency exchange trades the ones with the lowest bid-ask spreads. If you use a different currency, one party has to be willing to accept the additional costs from that arrangement. If the Saudis are willing to accept a lower price from the Chinese, or the Chinese are willing to pay a higher price, maybe this will work out to everyone’s satisfaction.

But someone in there is getting the short end of the stick vs working with the dollar. The real bottom line is that people use the dollar not because they like Americans. They use the dollar for the same reason they use iOS or Android phones - they offer the most bang for the buck. Whether operating system or currency, their association with the US has only the barest relationship to the reason people use them.

The dollar is the reserve currency of choice for two reasons - the size of the economy and the fact that unlike Japan, Germany and Switzerland, we don’t charge people interest to park their reserves in dollars to discourage them from doing so. The yuan will *never* be a reserve currency. They don’t want the trade deficits, and no one trusts them.

The Chinese king (Trump’s verbiage in frank conversation with Xi) wiped out $100b is American stockholder value by declaring Chinese for-profit education companies listed on US exchanges non-profits. I wouldn’t trust Xi with the loose change from a trip to the grocery store, never mind a nation’s forex reserves.

Posted by Zhang Fei 2022-03-25 19:43|| 2022-03-25 19:43|| Front Page Top

#6 This optimism is misplaced. Developing countries need a cheap currency to boost their exports, but the United States as the most advanced economy and the owner of the reserve currency needs a strong dollar. The US relies heavily on the dollar's reserve currency status to exert its influence over the global financial system and as a stick in its foreign policy.

The US uses the dollar as a weapon: when nations behave in ways the US disapproves of, the US seizes (i.e. steals) their dollar based assets, cuts them off from the US markets and/or banking system, imposes punitive sanctions to make their people's (though not their corrupt leaders') lives difficult.

One should not underestimate the amount of resentment and bitterness that US sanctions have caused many different nations around the world over the past several decades. (Indians are not alone in tasting this bitter fruit. US sanctions on India in 1998 set back US diplomatic efforts by more than a decade.)

When the dollar ceases to be the reserve currency at some point during the next 5-15 years, American power and influence will shrink considerably.

Posted by Slineling Chusong5031 2022-03-25 20:04|| 2022-03-25 20:04|| Front Page Top

#7 This optimism is misplaced. Developing countries need a cheap currency to boost their exports, but the United States as the most advanced economy and the owner of the reserve currency needs a strong dollar. The US relies heavily on the dollar's reserve currency status to exert its influence over the global financial system and as a stick in its foreign policy.

Indian thought about just everything suffers from the cargo cult fallacy. Real cart before the horse stuff. It's the equivalent of saying that people are rich because they drive luxury cars. The US doesn't *need* the dollar to be the major reserve currency.

It puts up with the costs imposed upon it for by that status out of habit because it has done so since the end of WWII. The US economy has been the largest in the world for literally 100 years. It allows the rest of the world to use the dollar as a reserve currency as a favor. If these other countries shift to another currency, the US economy will become even bigger, as the drag of an overvalued currency will no longer hamper its largest exporters.

In a sense, the dollar's reserve currency status is a lot like Pax Americana. We police the world because we've done so for a good long while. Some people have taken this to mean that we do so because it's essential to the nation's economic standing. Actually - the reverse is true. If we stopped policing the world, the nation's wealth would grow. The problem? The potential re-occurrence of another WWII - a knock-down drag-out war* that spends all the savings we accumulated over a century in a single digit number of years. And this time, with nuclear-armed adversaries.

* WWII used up 2 years of economic output. That's 2% of GDP for 100 years. Doesn't sound like much, and it isn't. The problem? We also lost 400,000 Americans in the prime of their lives - mostly 18-28 year olds.

Posted by Zhang Fei 2022-03-25 20:24|| 2022-03-25 20:24|| Front Page Top

#8 Re India and cargo cultism - that is pretty much why India remains one of the poorest countries on Earth despite a treasure trove of human talent. China, which shares that abundance, also underuses that talent, thanks to the classic problem of dictators having free rein to cater to their personal whims instead of the Western market of ideas informing all key political decisions. However, the fact that India remains so underdeveloped is truly amazing, given that it never went through the wrenching ideological and economic dislocations that China did.

Posted by Zhang Fei 2022-03-25 20:30|| 2022-03-25 20:30|| Front Page Top

#9 The US economy ~~has been~~was the largest in the world for literally 100 years.

I understand national pride. You have much to be proud of but the American Century is over. It ended with the Russian invasion of Ukraine and the Biden Administration's foolish and self-destructive sanctions on Russia.

The consequences are obvious to everyone: an end to US unipolar hegemony and the rise of a multipolar interstate system, and an end to the American-led globalized economy and a continuing increase in trade flows not denominated in dollars.

Perhaps the US and Western Europe will draw closer, but the rest of the world (aside from Japan) does not share in America's desire to make Russia into a "pariah state" and will defeat US sanctions in due course.

Posted by Slineling Chusong5031 2022-03-25 20:32|| 2022-03-25 20:32|| Front Page Top

#10 The US economy has beenwas the largest in the world for literally 100 years.

If wishes were horses, beggars would ride.

Posted by Zhang Fei 2022-03-25 20:34|| 2022-03-25 20:34|| Front Page Top

#11 a multipolar interstate system

In the opinion of this citizen, the interstate highway system is one of the more useful things the US Government ever did. A multi-polar interstate system would be totally cool. Imagine being able to drive to Siberia or Australia!

Posted by SteveS 2022-03-25 20:43|| 2022-03-25 20:43|| Front Page Top

#12 US-led globalization is over. Enjoy your nostalgic memories but America's investment banking leaders know it and have already moved on. This is just the beginning:

Wall Street Warns About the End of Globalization
Influential investors say that there could be a permanent shift in the world order.

Posted by Slineling Chusong5031 2022-03-25 20:47|| 2022-03-25 20:47|| Front Page Top

#13 the interstate highway system

Excellent! This is the kind of "think local, source locally" mentality that Americans would do well to adopt. Trade among your own states. Perhaps the UK and Israel can be added as the 51st and 52nd states.

Take care of your backyard, stop meddling and dictating to other nations, and let the rising nations of the world keep rising without the threat of heavy-handed US dollar diplomacy.

Posted by Slineling Chusong5031 2022-03-25 20:57|| 2022-03-25 20:57|| Front Page Top

#14 SteveS: "I'd like to solve the future..."

Containerships full to the gunwhales
With cash for the Chinese, [clean funnels!]
Whose bankers are dizzy
And coolies kept busy
With great-circle bridges and tunnels."

Posted by inconsequence grise 2022-03-25 21:15|| 2022-03-25 21:15|| Front Page Top

#15 ^ on which will travel billions of Indo-Russian tourists in their pickup-towing electric RVs!

Posted by inconsequence grise 2022-03-25 21:21|| 2022-03-25 21:21|| Front Page Top

#16 ^ on which will travel billions of Indo-Russian tourists in their pickup-towing electric RVs!

Another excellent contribution to the comments section. What this site needs is a "like" button.

Posted by Zhang Fei 2022-03-25 21:36|| 2022-03-25 21:36|| Front Page Top

#17 This site needs more logic, a greater variety of non-US perspectives and less groupthink.

Posted by Slineling Chusong5031 2022-03-25 22:36|| 2022-03-25 22:36|| Front Page Top

#18 All sites need those things.

Posted by trailing wife 2022-03-25 23:48|| 2022-03-25 23:48|| Front Page Top

#19 Also more cowbell.

Posted by SteveS 2022-03-25 23:49|| 2022-03-25 23:49|| Front Page Top

#20 ha

Posted by Vespasian Omereque5237 2022-03-25 23:56|| 2022-03-25 23:56|| Front Page Top

#21 #17 This site needs more [blah blah blah]

Which, if you weren't so modest, we could get from your site, _____.

Posted by inconsequence grise 2022-03-25 23:58|| 2022-03-25 23:58|| Front Page Top

#22 He has more fun tweaking les amerloques

Posted by Vespasian Omereque5237 2022-03-25 23:59|| 2022-03-25 23:59|| Front Page Top

23:59 Vespasian Omereque5237
23:58 inconsequence grise
23:56 Vespasian Omereque5237
23:52 Vespasian Omereque5237
23:49 SteveS
23:48 trailing wife
23:45 SteveS
22:48 trailing wife
22:40 trailing wife
22:36 Slineling Chusong5031
22:28 inconsequence grise
22:06 trailing wife
21:50 SteveS
21:50 inconsequence grise
21:41 Zhang Fei
21:36 Zhang Fei
21:27 NN2N1
21:21 inconsequence grise
21:15 inconsequence grise
21:13 DarthVader
21:12 Zenobia Black7630
21:00 Rob Crawford
20:57 Slineling Chusong5031
20:53 inconsequence grise