Lots of discussion is going-on this Topic around the world. But I did not find any such thread on our wonderful platform ValuePickr. So, thought to start this thread here. This subject, if happen, is very powerful shift in world economy. Our whole thesis of investing might get changed/disrupted. I found some very good discussion on this subject. I am pasting some youtube video and articles to start with. I would love to read other members view and suggestion. Let us understand this powerful shift together and be prepared as an informed investor.
Excerpts from the Foreign affairs of PRC
After World War II, the United States led efforts to set up the Bretton Woods System, the International Monetary Fund and the World Bank, which, together with the Marshall Plan, formed the international monetary system centered around the U.S. dollar. In addition, the United States has also established institutional hegemony in the international economic and financial sector by manipulating the weighted voting systems, rules and arrangements of international organizations including “approval by 85 percent majority,” and its domestic trade laws and regulations. By taking advantage of the dollar’s status as the major international reserve currency, the United States is basically collecting “seigniorage” from around the world; and using its control over international organizations, it coerces other countries into serving America’s political and economic strategy.
"The United States exploits the world’s wealth with the help of "seigniorage." It costs only about 17 cents to produce a 100 dollar bill, but other countries had to pony up 100 dollar of actual goods in order to obtain one. It was pointed out more than half a century ago, that the United States enjoyed exorbitant privilege and deficit without tears created by its dollar, and used the worthless paper note to plunder the resources and factories of other nations."
◆ The hegemony of U.S. dollar is the main source of instability and uncertainty in the world economy.During the COVID-19 pandemic, the United States abused its global financial hegemony and injected trillions of dollars into the global market, leaving other countries, especially emerging economies, to pay the price. In 2022, the Fed ended its ultra-easy monetary policy and turned to aggressive interest rate hike, causing turmoil in the international financial market and substantial depreciation of other currencies such as the Euro, many of which dropped to a 20-year low. As a result, a large number of developing countries were challenged by high inflation, currency depreciation and capital outflows. This was exactly what Nixon’s secretary of the treasury John Connally once remarked, with self-satisfaction yet sharp precision, that “the dollar is our currency, but it is your problem.”
People are looking for alternatives of dollar but realty is that presently there is no alternative to dollar… Europe is in Crisis… No body trusts China… India & Russia are too small to have any impact…there is no stability in Bitcoin… So you are left with dollar only as the better of all alternatives…
The alternative is not swapping USD for another existing ‘fiat’ currency… Whatever replaces USD (and other fiat currencies) should address the shortcoming of USD and other fiat currencies.
it has to be a currency pegged to a commodity (or) basket of commodities.
There is a marked increase in articles which predict that the next currency would be pegged to a basket of commodities, with Gold being a prominent one.
it should not be ‘controllable’ by a small coterie of countries.
So, such a currency would have to be proposed by a sufficiently large grouping of countries which want a change from existing system. So, it would have to be a non-G7 grouping. BRICS+ is the one which seems most promising.
it should have critical mass so that it can gain traction.
BRICS has already surpassed G7 in GDP and has 3 times the population. Here too, a hypothetical currency floated by BRICS+ seems promising
While such a currency is not available, the de-dollarization process itself seems to be gathering pace and passing milestones De-Dollarization Just Got Real | ZeroHedge
At some point, a BRICS+ currency (or) some other candidate would arrive on time and further accelerate the process.
Many market experts are suggesting that Gold would get repriced higher once such a currency materializes. So, investment in Gold seems like a safe bet… (Not an advice, just an opinion)
The question of new brics currency is likely to be raised at the next brics meeting.
This is also speculated to be a key reason many countries like Saudi, Iran, argentina have applied for brics membership
China and hence yuan centric economics doesn’t work for India and the rest in BRICS do not have the weight. At the best they can promote to use BRICS individual currencies wherever possible. Mostly symbolic.
My armchair analysis is that world would be multi-polar in case of reserve currencies, just like rest of the geopolitics. It would take 3 decades where USD, Yuan, Euro and INR could be comparable to each others. Of course this is given today’s boundary conditions. USD it is deep rooted and isn’t going anywhere for foreseeable future. No country it in its right mind would want Yuan as their reserves, other than Russia for obvious reasons.
The idea really isn’t to replace USD with another country’s currency… It is to replace with a new supranational currency which is not beholden to any one country…
There are articles of BRICS trying to create a new currency which is a composite of multiple national currencies of BRICS countries. BRICS countries would use this composite currency to settle trades and hold reserves.
Argentina and Brazil wanted to create a supranational currency for south americas called Sur. The idea has not progressed much, due to economic issues.
The venerable John Maynard Keynes had proposed such a supranational currency called Bancor. This currency was the official UK proposal at Bretton Woods Conference 1944, but it was not accepted. Instead, a USD pegged to gold was accepted, making USD the currency for trade and thereby implicitly establishing USD as a reserve currency too.
Keynes’ Bancor was not meant to be a physical currency… It would not be held or traded by individuals. Instead, it is used in international trade for pricing and tracking assets/liabilities between countries.
His farsightedness is evident today. After Bretton Woods and many years of stability, US went on to unpeg the USD, run humongous deficits, print currency and thereby devalue it, sanction individuals/countries, freeze assets etc. As individuals/investors, we would still hold national currencies… But in international trade and country reserves, there is genuine effort to divorce from the dollar to some supranational currency.
How long USD remains relevant is anybody’s guess… People have been writing about this for many decades… For e.g., this is an article from 2013, making the case that USD decline is right around the corner Slowly at first, then all at once | Sovereign Man
