Dollar Doom Is a Slow Burn!

It will be a LONG time coming.

Photo by Jp Valery on Unsplash

One article highlighted below brings out a point that I made two years ago when everyone in the alternative press was writing (as many still are) about how the BRICS nations were determined to replace the US dollar as a global currency:

In early June, a rumour began to circulate — which was widely reported in the Indian press as true — that the government of Saudi Arabia had allowed its petro-dollar agreement with the United States to lapse.

This non-exclusive arrangement between the two countries never required the Saudis to limit their oil sales to dollars or to recycle their oil profits exclusively in U.S. Treasury securities (of which it holds a considerable $135.9 billion) and Western banks.

Indeed, the Saudis are free to sell oil in multiple currencies, such as the Euro, and participate in digital currency platforms such as mBridge, a trial initiative of the Bank of International Settlements and the central banks of China, Thailand, and the United Arab Emirates (UAE).

Nonetheless, the rumour that this decades-long petrodollar agreement had come to an end reflects the widespread expectation that a seismic shift in the financial system will overturn the rule of the Dollar-Wall Street regime. It was a false rumour, but it carried within it a truth about the possibilities of a post-dollar or de-dollarised world.

While I would disagree with the downtrend destination for the dollar in the last line, the rest confirms what I’ve said in the past two years about the dollar not being replaced with a BRICS currency (or any other currency) anytime soon, though many of my own readers may wish it would be. Collapse of the dollar is not imminent, though the collapse of anything is eventually inevitable.

Replacement of the dollar by the US working in consort with other nations is far more likely when nations do move to deal in something other than dollars. Too many nations have too much invested in dollars in many different forms to want to see the dollar implode. The next global currency will almost certainly be a digital currency, and it will probably come when the world lies in economic ruin as a motivator for major change, thanks in good part to world’s many central bankers, but particularly the dollar’s chief, the Federal Reserve. Western nations will seek a global answer to a global catastrophe when that day finally dawns.

In the meantime, the BRICS are not replacing the dollar, though the article quoted indicates that may come. No such action was begun this year nor last year, though some writers saw the invitation to other nations to join BRICS last year as having that objective in mind:

The invitation extended to six countries to join the BRICS bloc last August was a further indication that such a shift is underway. Among these countries are Iran, Saudi Arabia and the U.A.E., although Saudi Arabia has yet to finalise its membership.

With its expanded membership, BRICS would include the two countries with the largest and second-largest gas reserves in the world (Russia and Iran, respectively) and the two countries that accounted for nearly a quarter of global oil production (Russia and Saudi Arabia, all figures as of 2022).

The political opening between Iran and Saudi Arabia, brokered by Beijing in March 2023, as well as the signs that U.S. allies U.A.E. and Saudi Arabia seek to diversify their political linkages, demonstrate the possible end of the petrodollar system. That was at the heart of the rumour in early June.

I’m not that out of accord with this particular writer, because he goes on to say,

However, this possibility should not be exaggerated, as the Dollar-Wall Street regime remains intact and significantly powerful.

We saw a rush to such conclusions about dollar replacement happen last year around a BRICS meeting when many writers in the alternative press got all excited about how the BRICS would be announcing a move toward a new BRICS gold-backed or gold-pegged currency. I said, to the chagrin of dollar haters and gold lovers, that would not actually happen. They’d do nothing of the kind, and I laid out the reasons why. That kind of statement sometimes costs me readers and may even cost me publishers, but it was the right thing to say because it turned out to be what actually happened, which is to say “nothing of the kind happened.”

Demonstrating that nothing of the kind happened or would happen, India even stated publicly last year that it had zero willingness to even TALK about replacing the dollar at that meeting (because it definitely does not want Chinese dominance and a new currency would likely ride on the back of the Chinese renminbi). India and China may be working together in the BRICS economic consortium of nations on trade and development, but they are also longtime enemies that don’t trust each other, and holding fiat money takes a lot of trust; so does gold-backed money. Trust is everything in the money world. And gold-backed money is only as good as your word that you’ll actually back it 100% in the case of a run. Who is going to trust China would do that?

China said back at that time it had no desire to upset trade with the US and would not be pushing any kind of dollar-replacement agenda either. And nobody did. There was not even any official talk about developing a new currency at that meeting. It was off the agenda. So, what I said was true even if some people didn’t like it.

One can get scorned for telling the truth that people don’t like, but truth, not popularity, is all I am interested in. I don’t like the Fed either, but the dollar isn’t dying anytime soon. Instead of a dollar collapse, we are far more likely to see a dollar replacement in cooperation with the Fed if and when the world moves to a more international currency. The Fed has almost all the major central banks in the world as its banking colleagues, and they all work together.

When no effort to form a new currency came up at last year’s meeting, writers jumped to talking about how the few new members added to the consortium were anti-dollar, focusing on Russia, Iran, and Saudi Arabia. While that’s true for Russia and Iran, it is not so true of S.A., as even the article being quoted here indicates.

Being a global currency requires that you have massive amounts of currency in circulation, that you have a central bank that will support other central banks in using that currency, such as the Fed has done with many rescues, and that the nation(s) providing the currency issues a massive number of bonds in its government funding to use for trading that currency. The BRICS are very far from being able to step into that role.

While the new BRICS members mentioned in the article have some political interest in replacing the dollar and will do less trade in the dollar, it still has not been made a BRICS agenda, and such a currency would likely be far less stable than the euro, which was cobbled together by nations that are more aligned politically, geographically, and culturally (diverse as they are) than the BRICS nations. Even the euro has had a tougher time holding together than the dollar because of its diversity, so it remains far from outpacing the dollar as a global currency after decades of use.

Data from the International Monetary Fund shows that, as of the last quarter of 2023, the U.S. dollar accounted for 58.41 percent of allocated currency reserves, which is far more than the reserves held in euros (19.98 percent), Japanese yen (5.7 percent), British pound sterling (4.8 percent), and Chinese renminbi (short of 3 percent).

After all this time, there are still no close contenders for the dollar’s global status; the euro is large in European reserves because many nations in Europe use it as their own currency, but not so much elsewhere. The rest are distant wannabes at best. Europe has not sought to antagonize its relationship with US and the dollar either.

Meanwhile, the U.S, dollar remains the main invoicing currency in global trade, with 40 percent of international trade transactions in goods invoiced in dollars despite the fact that the U.S. share of global trade is just 10 percent.

While the dollar remains the key currency, it nonetheless faces challenges around the world, with the share of the U.S. dollar in allocated currency reserves declining gradually but steadily over the last 20 years.

Obviously, the more the US weaponizes its money through sanctions, the more it is going to diminish its use globally. So, the US should stop using its money as a minimally effective weapon; but it doesn’t seem likely that it will.

The BRICS are primarily about joint economic development, and to that end they have their New Development Bank; but it is dollar haters who keep advancing the idea that this is going to be the dollar’s mortal enemy and eventually rise to replace the dollar. The BRICS continue to advance no such moves. There is zero chance that one of the major players, India, would ever go along with joining China in creating a dollar replacement as India has stronger and more-important relations with the West than with China.

The creation of these BRICS institutions and the increased use of local currencies to pay for cross-border trade created an expectation of hastened de-dollarisation….

BRICS … is a diverse group of countries with very different political forces in charge of the different states. The political agendas of its members — even with the new mood in the Global South — are particularly diverse when it comes to economic theory

And that is why it is not going to happen. Ancient dollar haters, meaning those from back in my early career days, believed the euro was going to rise up to conquer the dollar, and it did not because its diversity made it a troubled currency at times. It doesn’t even appear to have any serious interest in doing that at this point. Still, worries were intense back then that it would do that. How much less, then, is a deeply fractured outfit like BRICS going to pull that off, especially when they barely even seem to be trying?

And that is without the US doing anything to fight back against the BRICS just like a big dog ignores a small nipper. Will those nations that are minimally banded together—many of which have major trading ties with the US that exceed all their trading ties with other BRICS nations—even risk an actual currency war with the US?

Russia and Iran certainly would due to the dollar sanctions brought against them. China would only if the trade war becomes worse or if it winds up in a physical war with the US. The rest of the nations, not so likely. They, like China currently, have far more to lose than to gain.

Meanwhile, China’s renminbi/yuan has looked far more likely to collapse over the past year than the US dollar or even than many other currencies. Not too many nations are going to want to saddle themselves to the China mess nor to a currency run ultimately for China’s good by a communist government that sometimes centrally controls the currency via very non-capitalist approaches based on government dictates.

It will be a long time before China is in place to from a global currency … if it ever is. It ignorantly ripped itself to shreds with its forced zero-Covid government policies that locked down the nation under central control, and it is struggling to recover from that mad-cap idea of lockdown more than other nations are because central planning empowered it to run a lot further with that idea, which was alien to Western nations, though they went that route, too.

The dollar is not without its troubles, political manipulation, and mismanagement, but everyone else’s currency is worse. So, the dollar remains the best horse at the glue factory … and is a whole lap around the glue factory ahead of all the other horses. So, what will far more likely happen is “growth” out of the dollar—a move to something digital and global in cooperation with other major central banks of this world.

A brief sweep of other news today

I’ve written a lot on inflation lately, so I’m just going to give a summary of economic headlines that I see today:

• There’s a good article that quantifies how much worse inflation really is than what is reported that comes at the subject from many angles not included the measuring of CPI. (In real terms of real people’s spending, it’s in the high double-digits.)

• Singapore’s port is swelling beyond my last mention with backed-up shipping traffic due the Houthi War in the Red Sea, “raising the risk of another spate of price increases for buyers like the post-pandemic inflation spike which central banks are still trying to tame.” Freight rates are soaring.

• Bullish sentiment in oil continues to build as demand concerns fade in the summer heat.

• Travel is booming in the cruise industry, “giving companies room to hike ticket prices to offset elevated operating costs” and demonstrating how the summer travel season will be impacting oil prices as Carnival, for example, has record bookings all the way through 2025.

Coming up in Doomer Humor

Tomorrow we can all watch mainstream humor almost live (like the candidates) on CNN to see Donald McRonald the Orange Clown debate Dementia Man #NoMoJo. The high bar for each candidate in the debate is to prove high-enough cognitive function to form coherent speech patterns and to see which candidate can remain awake the longest throughout this trial between the two of them. Each candidate will have an attached brain monitor for verification of consciousness. The event is expected to be a real sleeper….

To read the rest of that bi-party, bipolar humor in one of my other rare (and totally free) publications, please continue on to …

The Malarky Musket (for readers who generally prefer to see Biden bashed) or …

The Trumpette Gazette (for readers who generally prefer to see Trump trounced).

(The same article is in both publications this time—like an AP article that appears in many different newspapers. These pubs are where I go to write for those moments when I can’t stop myself from viciously lampooning one candidate or the other. Pick your preference so that my equal-opportunity criticism only tickles your funny bone and doesn’t bust your knee caps. I rarely write anything for these publications, so subscribe for free if you want to see an article when one occasionally pops up. Subscribe to both if you also are a bi-partisan critic, as each publication generally has its own anti-party target.)

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