Gold News

Death of the Dollar! Again!

Ah, but this time China! And Russia!
IF WE GOT a Dollar every time someone screamed that 'The Dollar's about to collapse!' we would now have a big pile of worthless Dollars, writes Adrian Ash at BullionVault.
But only if that forecast had come good.
Here we are instead in mid-2023, watching the 'Death of the Dollar!' bandwagon hurtling along yet again and careening into the headlines once more.
Chart of global central bank foreign currency reserves. Source: BullionVault via IMF's Cofer data
"World shifts away from using the Dollar," says Beijing mouthpiece the China Daily.
"Central banks are leading a revolt against the US Dollar," agrees privately-owned German site Business Insider.
"Trump warns Dollar to be displaced as number one world currency," chips in Russia's state news agency Tass.
"Unthinkable three years ago!" it quotes the former leader of the free world, neatly forgetting the toilet into which his first year in power flushed the Dollar back in 2017.
"If [the displacement of the Dollar by China's Yuan] happens," Trump goes on – "and under Biden’s leadership it probably will – this would be the biggest defeat for our country in its history. We will be reduced to second tier status."
Defeated how?
"In five years there will be so many countries transacting in currencies other than the Dollar that we won't have the ability to sanction them."
So says US senator Marco Rubio...
...once the " next president of the United States"...
...and now an instant quote on pretty much any opinion the media wants to put in a headline.
Rubio says the USA is at war. A cold war, yes. But a war all the same, thanks to Washington facing another global superpower for the first time since the Soviet Union collapsed 3 decades ago.
But again, why so upset about the Dollar?
"Every night I ask myself why all countries have to base their trade on the Dollar," Luiz Inácio Lula da Silva had said the day before, giving "an impassioned speech" at the New Development Bank in Shanghai.
"Why can't we do trade based on our own currencies?" Lula went on.
"Who was it that decided that the Dollar was the currency after the disappearance of the gold standard?"
Yeah Lula! What clowns did that?
Chart of Brazil's central banks reserves by currency. Source: BCB
Very briefly, the Second World War devastated Europe and Asia, and it ended with the USA holding pretty much all the money, then defined as gold bullion.
As king of the world, the US chose to back its Dollar with gold, and the rest of the world then treated the Dollar like it was the real stuff – using the Dollar to beg, borrow and rebuild from the catastrophe of WW2 – and piling up a stash of greenbacks at their central banks as the US took on the role of spewing out Dollars to fire up and grease the global economy.
Some people moaned and muttered about this. But with the USA storming ahead as the world's largest economy – and with the world's largest military might – everyone else still chose to trade and hold Dollars above all other things.
That dominance continued after the USA took itself (and the world) off the gold standard in 1971. The Dollar then continued to rule despite the US defeat in Vietnam, the runaway inflation of the 1970s, the savings & loans crisis and then Black Monday Crash of the mid-1980s, the DotCom Bubble and bust of 1997-2003, the disaster in Iraq, the subprime mortgage crash and banking crisis of 2006-2011, the election of Donald Trump and even (so far) the election of Joe Biden.
Long story short, and however you see the history today, the world still continues to choose the US Dollar as its No.1 currency here in 2023, including the central bank of Brazil as the chart shows above.
But might that change? Or will The Economist magazine jinx it again, announcing the 'death of the Dollar' like it did almost 2 decades ago...?
Front cover of The Economist magazine, December 2004
Here in April 2023, "China and Brazil have reached a deal to trade in their own currencies, ditching the US Dollar as an intermediary, the Brazilian government said Wednesday, Beijing's latest salvo against the almighty greenback."
So says Fox Business,, The Straits Times and many others...
...announcing that China and Brazil are "ditching the Dollar"...
...thanks to copying and pasting a report from once-proper newswire the AFP.
"The deal will enable China, the top rival to US economic hegemony, and Brazil, the biggest economy in Latin America, to conduct their massive trade and financial transactions directly, exchanging Yuan for Reais and vice versa instead of going through the Dollar."
The word "enable" is doing a lot of heavy lifting here. So is the word "massive".
Brazil and China shipped a record $150 billion of goods and services to each other in 2022. But 2-way trade between the USA and China also set a new record – rising to $690 billion – and "part of a surge in US trade" which gives the economic lie to the political panic about de-globalization, never mind de-Dollarisation.
Sure, the Chinese Yuan is growing its share of global trade. But people everywhere continue to choose the Dollar instead. Including in Brazil and China.
"The Yuan now accounts for just 2.19% of global payments, 3.5% of global foreign exchange transactions [and] 2.69% of reserves held by central banks," says the South China Morning Post in Hong Kong.
Indeed, the recent complaints and calls for regime change have come not because the world is rejecting the Dollar, but because it can't get enough of the stuff.
"The US Federal Reserve's drastic interest rate hikes have led to Dollar shortages in the market," the SCMP quotes Guan Tao, global chief economist at BOC International.
"[That] exposed the flaws of the current international monetary system. The Fed's monetary policy could not take account of the international economic environment while also dealing with domestic economic problems."
But what about the Opec oil cartel? Aren't they, like China, ditching the Dollar as a trading and reserve currency to throw off the shackles of US political power?
I mean, The Economist magazine just said as much yet again.
But "claims that Opec will de-Dollarise have been around since 1975," notes Ralph Schoellhammer, an economist at Webster Vienna Private University, "and while the Dollar has lost some ground, there is no alternative in sight."
Put another way, "The USD share of the world's official foreign exchange reserves is 60%; the Yuan's is 2.76%. The Dollar has been around the 60% mark since 1995 and, even more telling, a comparison of data from the Bank for International Settlements...shows that since 1989 the USD share in international transactions has been steadily around 90%."
Never say never, of course.
No doubt the Dollar will, one day, lose its No.1 role, fading as another currency rises and reflecting – no doubt – the historic shift of global political dominance from Washington to some other might-is-right capital, very likely Beijing. And maybe when that switch does take hold, it will start – like the 2023 bandwagon has – from the Dollar being worth more against the rest of the world's money than any time in the previous 2 decades.
But even if you believe that this process is underway today or soon, how would you bet or try to time exploiting this trend?
Beijing won't let you hoard or speculate in the Yuan (which pretty much makes the Yuan replacing the Dollar impossible, by the way, leaving the USA to bear the burden of relentless debt and economic losses at home to keep the world pumped with Dollars). Similarly, and thanks to the exchange-controlled Rupee, or the fixed exchange-rate Saudi Riyal, or the now banned Russian Ruble, any talk of a 'multi-polar' world – where the Dollar loses share to a basket of different currencies – faces the same problem while just worsening your exposure to Eurozone or UK or emerging-market risks if you try to bet on it.
So how to hedge against the end of US hegemony without having to back a replacement?
Chart of the Dollar Index against the rest of the world's major currencies. Source: BullionVault
Dollar up or Dollar down, gold prices have repeatedly risen every time the US currency has passed through its current level against the rest of the world's money.
No, there isn't enough gold in the world to 'replace' the Dollar. And no, gold shows zero sign of returning as a currency for international trade.
But alongside the 'Death of the Dollar!' bandwagon now crashing into reality once more, gold's return and now resurgence as a central-bank asset has gained lots of attention, and rightly so.
Demand has continued into 2023, reports the World Gold Council's latest data, extending last year's post-war record and showing that central banks as a group are keen to buy the dips, helping strengthen the floor beneath gold prices which consumer demand might now struggle to hold at $1950 if not $1900 per ounce. 
Why this big shift back towards holding gold in official reserves?
"Gold," says a paper out earlier this year from economic and monetary historian Barry Eichengreen, "appeals to central bank reserve managers as a safe haven in periods of economic, financial and geopolitical volatility."
That's nothing new. Even Western central-bank chiefs have said they love the shiny yellow metal for gold's security, liquidity and diversification.
But what's changed according to Eichengreen and his fellow researchers – and changed most of all for emerging-market nations looking to gain a little respect on the international stage – is exactly what Marco Rubio named at the top:
The USA's ability to use its dominant Dollar to put the screws on foreign governments and economies which Washington doesn't like. Or more particularly, the USA's lead role in getting the UK, EU and Japan to impose sanctions as well. Because while the Dollar's share in central-bank reserves has indeed slipping across the last few years, the central-bank world has at the same time chosen to build its holdings of Euros, Yen and UK Pounds. So even without guessing what's in the 'unallocated' chunk of central-bank FX reserves in the chart at the top of this story, currencies issued by the US-led bloc of capitalist democracies now accounts for more than 82% of the world's total FX reserves, up from 75% at the turn of the Millennium.
Looking ahead, in short, it's very much the West vs. the Rest. With gold as a clear winner to date.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver, platinum and palladium market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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