We use cookies (including third-party cookies such as Google) to remember your site preferences and to help us understand how visitors use our sites so we can improve them. To learn more, please see our privacy policy and our cookie policy.

To agree to our use of cookies, click 'Accept' or choose 'Options' to set your preferences by cookie type.

Options Accept
BullionVault

CHARTS

  • English
  • Deutsch
  • Español
  • Français
  • Italiano
  • Polski
  • 日本語
  • 简体中文
  • 繁體中文
  • Daily audit
  • Help
  • Contact
  • Deposit
  • Login
  • Open account
  • ABOUT US
    • About BullionVault
    • In the press
    • Reviews
    BUY/SELL BULLION
    • Vaulted gold & silver
    • -Live order board
    • -Daily Price
    • Coins for delivery (UK)
    INVESTMENT GUIDE
    • Guide to gold
    • -How to buy gold
    • -Gold investment
    • -Gold investment plan
    • -Investment insurance
    • -Compare asset performance
    • Guide to silver
    • -How to buy silver
    • Guide to platinum
    • -How to buy platinum
    GOLD NEWS
    • Gold news front page
    • -Gold price news
    • -Opinion & analysis
    • -Market fundamentals
    • -Gold/Silver Investor Index
    • -Infographics
    CHARTS
    • Gold price
    • Silver price
    • Platinum price
    • Price alerts
  • Login
  • Open account
  • BUY/SELL BULLION
  • Vaulted gold & silver
    • ⤷
    • Live order board
    • Daily Price
  • Coins for delivery (UK)
  • INVESTMENT GUIDE
  • Guide to gold
    • ⤷
    • How to buy gold
    • Gold investment
    • Gold investment plan
    • Investment insurance
    • Compare asset performance
  • Guide to silver
    • ⤷
    • How to buy silver
  • Guide to platinum
    • ⤷
    • How to buy platinum
  • GOLD NEWS
  • Gold news front page
    • ⤷
    • Gold price news
    • Opinion & analysis
    • Market fundamentals
    • Gold/Silver Investor Index
    • Infographics
  • CHARTS
  • Gold price
  • Silver price
  • Platinum price
  • Price alerts
  • ABOUT US
  • About BullionVault
  • In the press
  • Reviews
  • Help
  • Contact
  • Daily audit
    • English
    • Deutsch
    • Español
    • Français
    • Italiano
    • Polski
    • 日本語
    • 简体中文
    • 繁體中文

Gold News

Live support

NEED HELP? ASK US NOW

Search form

Gold News front page

Gold Price News

Gold 'Shall Rise in 2021' as Yellen Vows to 'Act Big' But 'Inflation Is Dead' as Covid Crisis Worsens

More...

Gold Investing In Depth

Learn about gold bullion bars

Learn about gold bullion coins (and costs)

Gold investment: Why & how?

Gold Investment Analysis

  • Latest Gold Investor Index
  • Diversification: Gold as investment insurance
  • 40-year Asset Performance Comparison Table

Gold Articles

Opinion & Analysis

Gold Price News

Investment News

Gold in History

Gold Books

Gold Investor Index

Gold Infographics

Archive

  • January 2021 (14)
  • December 2020 (24)
  • November 2020 (23)
  • October 2020 (25)
  • September 2020 (25)
More...

List of authors

Why Hasn't the US Dollar Collapsed?

Tuesday, 12/10/2019 10:11
Triffin's dilemma overcome. Perhaps...
 
TODAY we turn away from the bright, sunlit world of appearance...and seek our answer in the "shadows", writes Brian Maher, managing editor of The Daily Reckoning.
 
For "the eye is always caught by light," as author Gregory Maguire styles it – "but shadows have more to say."
 
To these shadows we shall listen.
 
Belgian economist Robert Triffin argued decades ago that:
"If a nation's currency is to put in double duty as a global reserve currency, the issuing nation must print drowning amounts – far beyond its national needs."
Why? To keep global trade going along.
 
A failure of its printing press would deprive the world of required funds. And the gears of global commerce would grind down.
 
That is, the issuing nation must issue heroic amounts of currency to hold global trade together.
 
An Argentina, for example, may wish to purchase oil from a Saudi Arabia. But Saudi Arabia – understandably – may not accept Argentine Pesos in exchange.
 
But if Argentina dangles out United States Dollars instead, these Saudi Arabia can use.
 
Multiply this example in countless directions and you have the flavor of it.
 
Why then the dilemma?
 
Because the nation ladling out the reserve currency must run chronic current account deficits.
 
Triffin argued these chronic deficits would eventually bring down tremendous weights upon the currency.
 
That is, the currency's vastly excessive supply would fatally undermine its value.
 
This currency would plunge toward nothingness. Interest rates would go skyshooting as the world emptied overboard the increasingly worthless paper.
 
Hence...Triffin's dilemma.
 
But come pull up to the facts.
 
The United States has piled up record current account deficits lo these many years – twinned with a $23 trillion national debt.
 
And trillion-Dollar annual budget deficits run out to the distant horizon.
 
Yet – yet – the Dollar has rarely been mightier. And interest rates have rarely sunk lower.
 
10-year Treasury yields scrape along under 2%. And 30-year Treasury yields?
 
They run scarcely higher...at 2.24%.
 
That is, debt has never scaled such dizzied and obscene heights. Yet the Dollar remains king, as deeply enthroned as ever.
 
And interest rates wallow near record lows.
 
Where then is the long-lamented death of the Dollar? Where is the mass exodus from the greenback?
 
Shrieks about its looming demise have gone out for decades.
 
Yet here it stands.
 
It is true, this central bank or that central bank may reduce its Dollar holdings. It may heave part of its Treasury holdings out the door.
 
But it makes no nevermind, argues Jeffrey Snider of Alhambra Partners...
 
That is because central banks are no longer central – as Mr.Snider has previously argued in The Daily Reckoning. The dins, clamors and carrying-ons of the central banks signify nothing:
"The thing people have the most trouble with is the idea that central banks are not central. It flies in the face of everything you have been taught and told your whole life. There is no money in monetary policy; it is entirely psychology...
 
"Monetary policy contains no money; it runs entirely on expectations. Therefore, according to this view, what ultimately matters is how you perceive monetary policy...
 
"Then you might act in anticipating all that 'money printing' was going to have stimulative and even sharp inflationary effects. You might then pull forward purchasing activity, or, if a business, hiring and production, before the expected higher costs arrived."
Just so. But it has clearly failed.
 
If central banks are no longer central...what then is central?
 
As Snider has also argued in these pages, here is the answer:
 
The "shadow banking system".
 
The shadow banking system is the deeply interconnected network of banking institutions that operate outside direct control of central banks.
 
They include the large Wall Street banks and their offshore units.
 
This shadow banking system extends its shade across Europe, the Caribbean and Asia – the world over.
 
It first took shape in the 1950s and '60s. That is, after Bretton Woods hoisted the Dollar up to global dominance.
 
It expanded through the 1980s, '90s...and beyond.
 
Entirely beneath notice, the shadow banking system shouldered the central banks out of the international monetary system.
"The Dollar did not replace gold in 1971. The [shadow banking system] did long before 1971...The global money system moved on without central banks bothering to notice." 
 
"Especially from the 1960s forward, and particularly in the 1990s forward, was that the [shadow banking system] replaced other forms of mediation in global trade. What actually happened was it became a parallel banking system unto itself...with no backing by gold or by physical cash issued by the US Treasury...
 
"That balance clearly shifted and changed throughout the '80s. When the UK Pound crisis hit in 1992, central bankers were astounded by the massive offshore liquidity that easily dwarfed what they could answer with. The balance of money had shifted, dramatically, yet economists and policymakers did not shift with it..."
And the shadows are so opaque, so impenetrable...they escaped regulation:
"So what we're describing here is almost an entire massive complete system...that existed offshore and wholesale, in the shadows, because there was no regulatory authority...no government authority over the conduct of this system. It was essentially a self-contained system that operated beyond the reach of everybody."
This shadow banking system runs on Dollars – as the respiration runs on oxygen, as autos run on gasoline – as politics runs on lies.
 
As much as 80% of international trade is invoiced in the Dollar. And this Dollar participates in nearly 90% of all foreign exchange trades.
 
Meantime, nearly 40% of the world's debt is issued in Dollars. And offshore banks sit upon perhaps $18 trillion in Dollar-denominated international liabilities.
 
Yes, the real action transpires in the shadows. Snider:
"The world needs Dollars for the purposes of a global reserve currency. It gets them from this [shadow banking] system...
 
"You want to swap Yen for US Treasuries? Credit-based 'Dollars'. You want to swap Yen for Singapore bonds? Credit-based 'Dollars'. A company in Brazil wants to ship China raw material? Credit-based 'Dollars'. A firm in Europe is trying to build capacity in Thailand? Credit-based 'Dollars'...
 
"The [shadow bank's] Dollar is the world's true reserve currency; therefore, problems in it are going to be problems shared by the whole interconnected global economy..."
Can we conclude the shadow banking system offers the way out of Triffin's dilemma?
 
After all, its thirst for Dollars is seemingly infinite. And the Dollar packs a wallop...despite record debts and infinitely mushroomed deficits.
 
So turn your focus away from the central banks, argues Snider.
 
Is the Russian central bank hoarding gold in conspiracy against the Dollar? Is the People's Bank of China shoveling Dollars overboard? Is the Bank of Japan losing its yen for Dollars?
 
Be not deceived.
 
As long as the shadow banking system runs on Dollars...so does the world:
"Unless and until the banking system moves away from Dollars, diversifying national reserve holdings means absolutely nothing. Nothing...despite a decade's worth of noise, fury and quite often heartache, there is simply no realistic alternative...We are stuck with this arrangement largely because the media, politicians, central bankers etc, don't know a thing about it."
But perhaps each American should fall upon both knees...and thank fortune for this shadow banking system.
 
It may be the central pillar holding the Dollar up high.
  • Reddit logo
  • Facebook logo
  • Twitter logo
  • Google logo
  • Yahoo logo
  • LinkedIn logo
  • Digg logo
  • StumbleUpon logo
  • Technorati logo

Formerly an independent researcher and writer, Brian Maher is managing editor of The Daily Reckoning, the contrarian investment email launched in 1999 and now read by over half-a-million people worldwide each day.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

Mobile apps

 - live trading 24/7

 - buy & sell instantly

 - up-to-the-second charts

 

 

 

Daily news email
Go to 'communications settings' 

Get the latest daily gold price news free by email

Latest gold news by email

 

 

 

Gold Investor Index
5 January 2020

Gold Investor Index

Gold investing +58% in NY21

 

 

 

LBMA webinar
21 January 2021

LBMA

London gold trading

 

 

 

International
Investment

16 December 2020

Gold 2021

Gold in 2021

 

 

 

LBMA Alchemist
1 December 2020

Newton

True Gold/Silver Ratio

 

 

 

  •  Email us

Market Fundamentals

  • 'Cut Bullion Duty to Cut Smuggling': India's Gold Industry
  • Platinum Price Hits 4-Year High Even as Electric Beats Diesel Cars in Europe
  • Record Investing Pushes 'Industrial' Silver and Platinum into Deep Deficits
More...
  • Cost calculator
  • Cookies
  • Terms & conditions

©BullionVault Ltd 2005-

  • Twitter
  • Facebook
  • LinkedIn
  • YouTube

Save your cookie preferences

We use cookies to remember your site preferences, record your referrer and improve the performance of our site. For more information, see our cookie policy.

Please select an option below and 'Save' your preferences.

Save

You can update your cookie preferences at any time from the 'Cookies' link in the footer.

Secure auto-logout warning

You have not been active for some time.

For your security you will be logged out in   minutes unless you take action.