Showing posts with label dollar. Show all posts
Showing posts with label dollar. Show all posts

Thursday, April 14, 2022

The Bitcoin Will Displace The Dollar (And Putin ... Putin First)

The dollar being the de facto global currency is not healthy for the world economy or even for America. But a de facto global currency has been needed. And the dollar has played that role since the end of World War II.

But the displacement will not come from the euro or the yuan. One dollar can not be replaced by another. The argument against the dollar is also the argument against the euro and the yuan.

This is like saying CNN should not be the only source of world news around the world. CNN was that when Bush Sr. started dropping bombs on Baghdad.

Look at CNN today. It is past tense. But it is still around and doing brisk business.

You can digitize the dollar, but it is still the dollar.

Crypto will displace the dollar. And there is nothing the US government can do about it. The march is unstoppable.

The dollar's place in the scheme of things is the reason the US economy has massive deficits. When your primary export is the dollar, you are going to end up with lots of goods and services in return if you are not giving out the dollar for free.

The US ends up with free money. It prints money for domestic consumption. And that money goes into global circulation. Free money for the US.

Looks like there is value in creating a stable, global currency. The crypto people realize that. They are busy creating money out of thin air.

The dollar is the print edition of the New York Times in 1993. There is no saving it. Although the Times is still around, and is my favorite newspaper today. I pay a dollar a week to read it. But I am so glad I have 100 other news sources. That is not counting the 1,000 sources on social media.

So if Putin is unhappy about the dollar and its status, he might as well root for the crypto crowd.

No, I am not saying he should pour his personal wealth estimated above $300 billion into Bitcoin. That would be even more outragenous than when Elon Musk put $3 billion into it.

World's Richest Man Elon Musk Thinks Putin Is Richer Than Him
Elon Musk claims Russian President the world's wealthiest
Putin Net Worth: Putin has 43 planes, 7000 cars and a gold toilet… Russian President is ahead of Elon Musk in wealth! Nemtsov says that Putin has a huge collection of watches worth Rs 5 crore. Putin’s superyacht, which was spotted earlier this month, is worth Rs 7 billion. According to reports, this superyacht is currently in the Baltic Sea. Alexey Navalny, Putin’s biggest critic, claimed that Putin owned a luxury palace worth 100 billion rupees and located near the Black Sea coast.

Thursday, January 16, 2020

The Dollar, Weaponized

America started using the dollar system as a geopolitical weapon in earnest after the attacks of September 11th 2001. President Donald Trump has taken this policy to a new level of intensity, using sanctions as his main foreign-policy tool and even targeting allies with “secondary” sanctions that punish anyone who trades with states in America’s bad books. America’s power ultimately stems from its ability to prohibit firms from using its financial system, in turn leaving them isolated and unable to interact with most counterparties. Often the effect is fatal....... Russia has substantially de-dollarised its trade flows, foreign debt and bank assets. ...... Russia, China, India and others are discussing—and signing—bilateral or wider deals to settle trade in national currencies. They are also exploring alternatives to swift, the dominant payments-messaging network, over which America holds sway. Europe, meanwhile, has built Instex, a clearing-house, that could allow its firms to trade with Iran while bypassing America’s financial cops. ...... Central bankers from Europe to China are stepping up work on public digital currencies. These could help bring down the cost of electronic cross-border payments, which is still relatively high. Some foresee the creation of cryptobaskets of reserve currencies. ....... an inflection point has been reached. Since Mr Trump began firing off financial ordnance, his targets have gone from merely musing about breaking free from the dollar to doing something about it ..... the dollar’s current pre-eminence is not an unalloyed good for America: it distorts the currency’s value (upwards) and market interest rates (downwards). ...... Some economists believe the Depression was partly caused by the absence of a hegemon to steady the world economy.

Friday, June 28, 2019

The Trump Base

The 2016 election saw a large swathe of working-class whites gravitate to Donald Trump. These people used to be reliable Democrats. And it is hard to argue the only source of support has been racism. There are serious economic anxieties.

The 2016 mandate was that the US was tired of playing the world's policeman. For one, it is too expensive. The US spends something like 700 billion dollars every year on defense. For a fraction of that amount, it could solve the housing crisis, the education crisis, and the health crisis. It could make a serious dent in its infrastructure woes.

Trump questioned NATO. And people were aghast. But he was only responding to his mandate. Perhaps NATO is indeed a Cold War relic. Whether that is the case or not, a lot of Americans seem to think it is too expensive.

Globalization worked. Trade has worked. A lower-middle-class American today can go to her local Walmart and purchase stuff that Queen Victoria of England could only have dreamed of at the height of British power. There have been immense rises in productivity.

I wholeheartedly supported the idea of Trump holding summit level talks with the North Korean leader. I support the same between Trump and the Supreme Leader of Iran. Why not? Trying to reason things out in person is the basic democratic impulse. It is the most human thing to do.

Or, hey, how about video conferencing?

It is important to take Trump out of the picture and see that something happened in 2016. The US as a country is trying to readjust. The US feels like its defense treaty with Germany and Japan are no longer sustainable. They cost too much money. And perhaps they do. New arrangements have to be sought.

Maybe we are looking at a scenario where Japan gets an army again.

Peace on the peninsula would help. North Korea wants a peace treaty. That peace treaty would guarantee that the US will not invade North Korea. That North Korea wants such an assurance speaks to the paranoia of the regime. But that peace treaty is a small price to pay for peace. Normalized relations between the two Koreas would have cascading influences. We will very likely see a Germany repeat. And Japan will have many fewer security concerns.

The 2016 mandate has to be seen as a call for a new world order where the US plays a less central, a less expensive role. Some of the things Trump wants on trade can only be achieved if the dollar is no longer the global currency. Perhaps it is time for something like Libra, a currency resting on the Bitcoin technology that is pegged to a basket of the five major currencies of the world.

Trump spotted the well of anger in 2016. I don't think he has the solutions. The solutions he offers are misguided at best.

Take intellectual property law as an example. It makes no sense for the US Congress to pass intellectual property law and then impose that on the rest of the world. The US Congress is not the Congress for the whole world. A global parliament needs to shape something like that.

There are a lot of people who are happy someone is finally standing up to China. There are a lot of people who are very happy someone is finally standing up to the US. Both powers should take note.

Thursday, May 23, 2019

The Mighty Dollar

The starting point is the dollar’s status as a global reserve currency and international monetary standard, and the US current account deficit is the only mechanism through which the global supply of dollars can be increased. This is why a global economic boom often coincides with a higher US current account deficit, while global recessions often see the US current account moving in the opposite direction............ the expected surge in Chinese imports would almost close up America’s entire current account deficit and this would lead to a global dollar shortage. As a result, market forces would likely drive up the dollar to such a level where US exports to other parts of the world would be reduced, thus “re-creating” a trade or current account deficit. ...... In the end, either higher short rates or a stronger US dollar or both would act to slow down the US economy and ensure that America’s trade balance is more or less unchanged. ...... a Sino-US trade deal could simply amount to a zero-sum game in the short term: a gain for the US, a loss for the rest of the world, and indifference for China ..... a net efficiency loss in the world supply chains. ........ To avert or minimise the adverse impact of a China-US trade deal on the rest of the world economy, the Sino-US trade deal should focus on Beijing’s protective trade and investment policies rather than bilateral trade imbalance. The China-US trade imbalance is the natural result of global supply-chain evolution, and eliminating this imbalance is too disruptive for every country involved. ....... making sure that Beijing plays by the rules and levels off the playing field for foreign businesses and suppliers would represent a net gain for the world economy, benefiting all.
A US-China trade deal won’t be a win for global markets if Beijing shifts its trade surplus to other countries

A little good news could go a long way. If the US and China are shrewd enough, between them they can clinch recovery with a trade compromise that convinces investors that the future remains bright.
The world is taking leave of its senses and falling down the rabbit hole of a deepening global trade war, economic shocks and political instability. The post-war world order is breaking down, multilateralism is giving way to national self-interest and the political forums for peaceful debate are failing.......It’s time for someone to step forward and show stronger leadership before the world sinks back to where the 2008 financial crisis left off. Right now, the world is in self-harm mode and deeply vulnerable.

Thursday, May 16, 2019

New Twist In The Trade War: China Devalues Its Currency

First, it was a little bit of tariff on a few exports, then a lot of tariff on a lot of exports, and now almost the entirety of exports. Then it was not enough to not buy from Huawei. Disrupt that company's supply chain in America. China could bring Apple's market value down by 500 billion dollars just like that if it wanted. They only design the iPhone in California. 100% of the manufacturing happens in China. America importing from China is not just consumer goods, although one can imagine Walmart very worried right now. A big chunk of imports from China goes into bits and pieces that result in goods produced and services rendered by American companies.

So the escalation was going to be painful all around.

But then the news is China has let its currency slide by just enough points that Trump's tariffs have been completely neutralized. The move is obvious. It could not have taken a lot of thinking.

One wonders what Trump and Xi will talk about when they meet in Japan next month.

5G And The Trade War
The US China Trade War Escalation Is Primarily Political
The US China Tension: Creative Or Destructive?
China US Trade War Escalation
US Health Care: A Perspective
Huawei Founder Ren Zhengfei
A Truly Global Universal Basic Income
New Political And Economic Paradigms For The Age Of Abundance
The Inequality, The Climate Change

Sunday, October 18, 2015

The Dollar

Dominant and dangerous
As America’s economic supremacy fades, the primacy of the dollar looks unsustainable
IF HEGEMONS are good for anything, it is for conferring stability on the systems they dominate. For 70 years the dollar has been the superpower of the financial and monetary system. Despite talk of the yuan’s rise, the primacy of the greenback is unchallenged. As a means of payment, a store of value and a reserve asset, nothing can touch it. Yet the dollar’s rule has brittle foundations, and the system it underpins is unstable. Worse, the alternative reserve currencies are flawed. A transition to a more secure order will be devilishly hard. ......... The United States accounts for 23% of global GDP and 12% of merchandise trade. Yet about 60% of the world’s output, and a similar share of the planet’s people, lie within a de facto dollar zone, in which currencies are pegged to the dollar or move in some sympathy with it. American firms’ share of the stock of international corporate investment has fallen from 39% in 1999 to 24% today. But Wall Street sets the rhythm of markets globally more than it ever did. American fund managers run 55% of the world’s assets under management, up from 44% a decade ago.......

the costs of dollar dominance are starting to outweigh the benefits.

..... In recent months the prospect of even a tiny rate rise in America has sucked capital from emerging markets, battering currencies and share prices. .... Decisions of the Federal Reserve affect offshore dollar debts and deposits worth about $9 trillion. Because some countries link their currencies to the dollar, their central banks must react to the Fed. Foreigners own 20-50% of local-currency government bonds in places like Indonesia, Malaysia, Mexico, South Africa and Turkey: they are more likely to abandon emerging markets when American rates rise. .......

America is the biggest export market for only 32 countries, down from 44 in 1994; the figure for China has risen from two to 43.

A system in which the Fed dispenses and the world convulses is unstable....... A second problem is the lack of a backstop for the offshore dollar system if it faces a crisis. In 2008-09 the Fed reluctantly came to the rescue, acting as a lender of last resort by offering $1 trillion of dollar liquidity to foreign banks and central banks. The sums involved in a future crisis would be far higher.

The offshore dollar world is almost twice as large as it was in 2007. By the 2020s it could be as big as America’s banking industry.

Since 2008-09, Congress has grown wary of the Fed’s emergency lending. Come the next crisis, the Fed’s plans to issue vast swaplines might meet regulatory or congressional resistance. For how long will countries be ready to tie their financial systems to America’s fractious and dysfunctional politics?........ America increasingly uses its financial clout as a political tool. Policymakers and prosecutors use the dollar payment system to assert control not just over wayward bankers and dodgy football officials, but also errant regimes like Russia and Iran. Rival powers bridle at this vulnerability to American foreign policy. ........ If the Fed fails to act as lender of last resort in a dollar liquidity crisis, the ensuing collapse abroad will rebound on America’s economy. ....... If foreigners continue to accumulate reserves, they will dominate the Treasury market by the 2030s. To satisfy growing foreign demand for safe dollar-denominated assets, America’s government could issue more Treasuries—adding to its debts. Or it could leave foreigners to buy up other securities—but that might lead to asset bubbles, just as in the mortgage boom of the 2000s. ........ The baton of financial superpower has been passed before, when America overtook Britain in 1920-45. But Britain and America were allies, which made the transfer orderly. And America came with ready-made attributes: a dynamic economy and, like Britain, political cohesiveness and the rule of law ........ The euro is a currency whose very existence cannot be taken for granted. ......

As for the yuan, China’s government has created the monetary equivalent of an eight-lane motorway—a vast network of currency swaps with foreign central banks—but there is no one on it.

Until China opens its financial markets, the yuan will be only a bit-player. And until it embraces the rule of law, no investor will see its currency as truly safe. ........ More likely is a splintering of the system, as other countries choose to insulate themselves from Fed decisions by embracing capital controls. The dollar has no peers. But the system that it anchors is cracking.
Banking and nothingness
Europe’s dithering banks are losing ground to their decisive American rivals
Seven years after the height of the financial crisis, Europe’s large banks still behave as if they are in the thick of the storm. Plans for radical restructurings are shelved before they are even implemented, often accompanied by management defenestrations—Barclays is one of four big European banks with new leaders. And they have dithered on the most basic questions, for example on how much capital they need or whether to scale back misfiring investment-banking arms. ..... Europe’s banking market is fragmented and includes politically controlled lenders, such as Landesbanken in Germany, which sap profits for everyone. ....... Few seem to mind tapping a Goldman Sachs or Merrill Lynch for operations that require global reach. That may annoy European bankers, but is hardly a reason to mollycoddle them. If their investment banks cannot pay their way under the current rules, it is the banks that must change, not the regulations.