It was not a coincidence that the 2008 financial crisis birthed the Tea Party and The Occupy Wall Street activist movements – and coincided with the release of the Bitcoin: A Peer-to-Peer Electronic Cash System by Satoshi Nakamoto.
As a result, a percent of crypto purists have a vision of and are committed to the complete disintermediation of the global banking system – and the U.S. dollar as the “hegemonic”, as they see it, global fiat currency. Their long play is shorting the dollar strategically.
Recently, some argued that “Venture Catastrophists” caused the run on SVB bank in an act of craven self-interest:
“Any complex event has multiple causes. The direct cause here is obvious: Too many of the banks’ customers tried to withdraw too much cash at once. The proximate causes were numerous:
- SVB committed the same sins that bring down most financial firms: mismatched durations and poor risk management. It invested long in mortgage loans and Treasury bonds, and borrowed short from startups that needed cash to fund operations.
- SVB lobbied the Trump administration (successfully) to raise the asset limit for tighter regulation.
- Interest rates rose, at a historic rate, decreasing the value of its long-term investments.
- SVB bungled its communications and strategy of trying to plug the hole in its balance sheet by selling equity, triggering the run it was trying to prevent.
- SVB’s customer base of startups is uniquely twitchy: They have cash balances well over the FDIC insurance limit of $250,000, and they’re interconnected through a handful of VC firms, which increases the risk of a bank stampede.
By Friday morning it was over, and the feds had arrived to turn on the lights and close the bar. While they were working over the weekend to ring-fence the contagion and make SVB’s depositors whole, a new species of venture capitalist was born on Twitter: The Venture Catastrophist. The fear mongering’s stated intention was to drum up support for a federal bailout of SVB depositors — many of whom were the Catastrophists themselves.” (1)
An extension of this “Venture Catastrophists” activity is that SVB bank failure included investments in cryptocurrency startups – and that the federal bailout (induced by the Catastrophists contagion activity) also saved many VC portfolio positions in bitcoin and crypto entities.
Once again: a market position that bet against the long-term stability of a particular bank and the U.S. banking system in general – while using the bailout to save long term investments that, by their very nature, are hedges against the dollar as the predominant global fiat currency. A dizzying, nasty saga – and a dog chasing its own tail.
The Saudis and the Chinese have already piled on, but recently Brazil’s Lula and France’s Macron stated their countries intent to forge partnerships to move away from the continued centralization of the dollar in the global financial system. Industry leaders from various global industry sector have weighed in on this growing De-Dollarization movement. Various points of view on this issue have been compiled for your consideration, including:
- Has the U.S. Dollar Been Weaponized?
- Brazil’s Lula Calls for End to Dollar Trade Dominance
- Geopolitical Concerns as the Yuan Replaces the Dollar as the Most Traded Currency in Russia
- “Why De-dollarization is Inevitable” Evangelizes an Op-Ed columnist from the China Daily
- France’s Macron Endorses Reduced Dependence on U.S. Dollar During China Visit
- Nine Expert Voices on the Rise of a De-dollarization Trend
- Elon Musk, billionaire business magnate
- Ray Dalio, Bridgewater founder
- Chamath Palihapitiya, venture capitalist
- Stanley Druckenmiller, Duquesne Capital founder
- Jeremy Allaire, Circle CEO
- Goldman Sachs
- Joseph Sullivan, former White House economist
- Stephen Jen, Eurizon SLJ CEO and former Morgan Stanley currency guru
- Anwar Ibrahim, Malaysian prime minister
Has the U.S. Dollar Been Weaponized?
“I think it’s very important that we are free from the dominance of one single currency, because sometimes it is used politically.”
A number of people have warned that the U.S. dollar may lose its status as the world’s reserve currency due to the government weaponizing it. Economist Jim Rickards, for example, said the Treasury Department is the USD’s biggest threat because it has “weaponized the dollar” and “frozen the reserves of the Central Bank of Russia.” Investment manager Larry Lepard predicted that the USD could lose most of its value in five years. Economist Nouriel Roubini said the global reserve currency system is shifting from unipolar to bipolar with the Chinese yuan as an alternative to the U.S. dollar. (1)
Brazil’s Lula Calls for End to Dollar Trade Dominance
Dang! President Lula gives a revolutionary speech in Shanghai, openly challenging the dollar hegemony! 😱
At a speech at the “BRICS Bank” — whose new president is former Brazilian President Mrs. Rousseff — Lula said this:
“Every night I ask myself why all countries have to base… pic.twitter.com/XeU9X3I7jQ
— S.L. Kanthan (@Kanthan2030) April 13, 2023
Two weeks ago, “Brazil’s president Luiz Inácio Lula da Silva has called on developing countries to work towards replacing the US dollar with their own currencies in international trade, lending his voice to Beijing’s efforts to end the greenback’s dominance of global commerce, Financial Times reports. Kicking off his first state visit to China since taking office in January 2023, Lula called for the countries of the so-called BRICS group of nations — which in addition to Brazil and China includes Russia, India and South Africa — to come up with their own alternative currency for use in trade.
“Every night I ask myself why all countries have to base their trade on the dollar,” Lula said in an impassioned speech at the New Development Bank in Shanghai, known as the “BRICS bank”. “Why can’t we do trade based on our own currencies?” he added, drawing loud applause from the audience of Brazilian and Chinese dignitaries. “Who was it that decided that the dollar was the currency after the disappearance of the gold standard?” Lula’s call to shed dollar dependence dovetailed with Beijing’s increasing efforts to promote use of the renminbi in settlement of cross-border commodities trades, as Chinese policymakers seek to strengthen the role of the world’s second-largest economy in the global financial system.
Brazil’s leftist leader has sought to redirect the country’s foreign policy to a more multilateralist stance, with an emphasis not only on good relations with the US — he visited President Joe Biden in February — but also with China and the developing world. Bilateral trade has ballooned over the past decade to $150.4bn last year, with China buying Brazil’s agricultural commodities and minerals and investing in the Latin American country’s large consumer market and infrastructure sector. The growing economic relationship has encouraged both countries to promote greater use of their respective currencies in bilateral trade. This week, the Brazilian branch of the state-owned Industrial and Commercial Bank of China settled its first transaction directly in renminbi in the country, Chinese state media reported.” (2)
Brazil and China, “coming closer together.’
Brazilian President Luiz Inacio Lula da Silva’s senior foreign policy adviser, Celso Amorim, discussed de-dollarization on Friday in an interview with the Chinese government-owned Global Times. Amorim previously served as Brazil’s Minister of Foreign Affairs, Minister of Defence, and ambassador to the United Kingdom. He was appointed as Chief Advisor to the president of Brazil by Lula in January.
Amorim explained the importance of Lula’s visit to China where the Brazilian president met with Chinese President Xi Jinping. It was the first visit Lula made outside the American continent after assuming office on Jan. 1. The former Minister of Foreign Affairs said: Brazil and China are coming closer together.
China and Brazil have agreed to conduct trade in their respective currencies, rather than using the U.S. dollar. Additionally, both countries are part of the BRICS group that is reportedly working to create a new form of currency that will further shift them away from USD reliance. The BRICS countries consist of Brazil, Russia, India, China, and South Africa.
Regarding de-dollarization, Amorim opined: “I think it’s natural that we can do our own trade in our own currencies … It’s only natural because the dollar has become dominant after WWII; before it was the English pound … So now, if we can work with a basket of currencies and use our own currencies to a large extent, that’s the best thing.”
While admitting that it is “not yet totally clear” whether the BRICS nations will adopt a common currency or maintain their respective national currencies, the Brazilian president’s adviser stressed: “But I think it’s very important that we are free from the dominance of one single currency, because sometimes it is used politically.” (1)
Creating Multipolar World with Less Centralized Power, No Hegemony
The foreign policy adviser to Lula also told the Chinese news outlet that the Brazilian president’s visit to China is an expansion of an already existing strategic partnership between the two countries. “China is our most important trading partner by far. Brazil is becoming one of the places in which China invests more,” he said, emphasizing: “But not only that, I think the two countries can also have an important role in building a more multipolar world, in which power is less centralized and there is no hegemony. I think this is a very important aspect in which China and Brazil can play important roles.”
Amorim further stressed that Brazil is eager to enhance its strategic cooperation with China, noting that he believes Lula’s visit will elevate the relations between Brazil and China to a new level. The Brazilian president’s adviser also urged developing countries to cooperate more closely. President Lula recently called on developing nations to dump the U.S. dollar as the world’s reserve currency. (1)
Geopolitical Concerns as the Yuan Replaces the Dollar as the Most Traded Currency in Russia
Geopolitical risks have also accelerated the trend to move away from U.S. dollar.
“Political risk is really helping introduce a lot of uncertainty and variability around how much of a safe haven that U.S. dollar really is,” said Galvin Chia from NatWest Markets told “Street Signs Asia” earlier.
Tinker said what accelerated the calls for de-dollarization was the U.S. decision to freeze Russia’s foreign currency reserves after Moscow invaded Ukraine in February 2022.
The yuan has reportedly replaced the U.S. dollar as the most traded currency in Russia, according to Bloomberg.
So far, the U.S. and its western allies have frozen more than $300 billion of Russia’s foreign currency reserves and slapped multiple rounds of sanctions on Moscow and the country’s oligarchs. This forced Russia to switch trade to other currencies and increase gold in its reserves.
“Now you find that if you disagree with U.S. foreign policy, you risk having those confiscated or frozen. You’ve got to have alternative place to put those assets,” Tinker said. In the Middle East, major oil exporter Saudi Arabia has reportedly signaled it’s open to trade in other currencies other than the greenback.
Although analysts don’t anticipate a complete break away from dollar-denominated oil trade over the short-term, “I think what they’re saying more is, well, there’s another player in town, and we want to look at how we trade with them on a bilateral basis using yuan,” said Cedric Chehab from Fitch Solutions. (3)
“Russia and China have been collaborating to reduce their reliance on the U.S. dollar, with both countries testing alternatives to diminish the dollar’s hegemony. Moscow and Beijing have been working together to establish cooperation between their financial systems and reduce dependence on the dollar as economic sanctions imposed by Western nations against Russia in response to its invasion of Ukraine, continue to take effect.
Since the Ukraine invasion in 2022, the ruble-yuan trade has surged eighty-fold. Furthermore, Russia and Iran are working to launch a cryptocurrency backed by gold, it has been reported. As countries continue to move to diversify their reserves away from the dollar, central banks, particularly those of Russia and China, have been buying gold at the fastest pace since 1967.” (4)
“Why De-dollarization is Inevitable” Evangelizes an Op-Ed columnist from the China Daily
“…money will return to become what it was always intended to be: a means of exchange and a store of value, not an instrument of economic statecraft.”
Gal Luft is the co-director of the Institute for the Analysis of Global Security and co-author of Dedollarization: The Revolt against the Dollar and the Rise of a New Financial World Order (2019). The following is a boosters perspective, expressing a 100% confidence in the de-dollarization process over time and reinforcing the notion that the U.S. has overreached in the political use of global monetary policy.
“The dollar’s special status is one of the three enablers of the United States’ global pre-eminence, the other two being its military power and its alliance system. The US accounts for only one-tenth of global trade but about half of global trade is invoiced in dollars. Until recently, this disproportional reliance on the US currency was widely accepted by most countries in the world, but now more and more countries are saying they want to reduce their dependence on the greenback.
The rallying cry for “de-dollarization” which until recently had been raised by some “ostracized” leaders is now becoming mainstream. Driving these calls for de-dollarization are two mutually reinforcing trends.
- The first is the growing discomfort with the US’ international behavior, especially its overly aggressive use of economic coercion and long-arm jurisdiction. Today, one in 10 countries are under US sanctions, and tens of thousands of individuals and corporations are excluded from the global banking system because they violated so-called Washington’s rules. Companies are unable to conduct business with their counterparts in countries with which their governments have no dispute just because of the fear of being targeted by secondary US sanctions. The Russia-Ukraine conflict has set new precedents: freezing and seizing of private and government assets without due process, disconnecting the banks of certain countries from the Society for Worldwide Interbank Financial Telecommunication, and imposing wholesale sanctions on individuals, corporations and other entities, leading many countries at odds with the US to rethink the wisdom of the greenback’s continuous dominance of global trade and commerce.
- The second trend is one of a growing sense among countries that the dollar is no longer a safe store of value due to the US’ economic practices, especially its out-of-control spending and its ballooning national debt which is nearing $32 trillion and is projected to reach $44 trillion by 2027. The US’ federal debt-to-GDP ratio has grown over the past 20 years from 60 percent to 130 percent, and is projected to hit 150 percent by 2027. A quarter of the US debt is owned by foreign countries, many of them no longer willing to increase their holdings of US debt. Last year, Japan and China, the two largest holders of US Treasuries, jointly reduced their holdings by $400 billion — equivalent to half of the US’ defense budget. In the same year, US deficit reached $1.38 trillion. In other words, while the US’ borrowing needs are on a perpetual rise, many countries are increasingly reluctant to lend it money, especially when much of this money could be used against their interests, for example, by financing military expansion, and instigating foreign wars and color revolutions.
As the top trading partner of no fewer than 120 countries and as the world’s leading commodity importer, China is the only economy that can put a dent in the dollar’s reserve currency status. It can shift an increasing part of its trade from the dollar to other currencies and urge its suppliers of energy, food and minerals to not only accept non-dollar payments for their commodities but also to price them in alternative currencies.
China’s predominant role in the groupings of the Global South such as BRICS and the Shanghai Cooperation Organization, and its initiatives like the Belt and Road Initiative enable it to propel a change in the global monetary architecture in which the dollar is replaced not by a single national currency but by what can be defined as “currency multipolarity”, under which a number of currencies of major economies and groupings compete with each other over their share in global trade transactions.
In a 2019 interview from his prison cell, [Brazilian President] Lula said the rationale behind the formation of BRICS was to “create our own currency to become independent from the US dollar”. After returning to power in Brazil, Lula has made no secret of his plan to join China and other existing and prospective BRICS members in developing alternatives to the dollar based on a BRICS currency basket comprising the Five Rs — real, ruble, rupee, renminbi and rand.
In the thousand years since the Song Dynasty changed the history of money, no fewer than six reserve currencies, each belonging to a superpower of the time, have ruled the markets. Each dominated the global market for 80-100 years, and the tumbling of a currency accelerated the decline of the empire behind it. The dollar has been a global reserve currency for the past 80 years and if history is our guide, we are due for a rerun.
To be sure, both the US and its currency will continue to play a central role in world affairs for many years to come, but in the new order there will be no more room for hegemony, superpowers and winner-takes-all strategies. And, as Republican Senator Marco Rubio recently lamented, the US will increasingly lose its ability to sanction other countries. Under “currency multipolarity”, money will return to become what it was always intended to be: a means of exchange and a store of value, not an instrument of economic statecraft.” (5)
France’s Macron Endorses Reduced Dependence on U.S. Dollar During China Visit
De-Dollarization Gains Traction as Macron’s Call for Strategic Autonomy and De-Dollarization in China
French President Emmanuel Macron underscored the need for Europe to reduce its dependence on the “extraterritoriality of the U.S. dollar,” in his recent visit to China, a line which both Moscow and Beijing have been advocating. Macron also brought to light Europe’s growing concerns about the risks of being embroiled in crises that do not concern them and their need for strategic autonomy.
Macron’s vision of strategic autonomy was welcomed by Chinese President Xi Jinping and the Communist Party, who believe that the West is in decline while China rises, and weakening the transatlantic relationship will accelerate this trend. The Chinese government is convinced that the U.S. is trying to contain China’s growth, and reducing dependence on the dollar is essential to counter this. (6)
Nine Expert Voices on the Rise of a De-dollarization Trend
Elon Musk, billionaire business magnate
The Tesla and SpaceX CEO has warned against weaponizing currencies like the US has done with its economic sanctions, and suggested the de-dollarization trend may be linked to that.
In a tweet on Tuesday, he responded to a video post by economist Peter St Onge, in which the latter highlighted that “de-dollarization is real and is happening fast.”
“Dollar share went from 73% (2001) to 55% in (2020). Went from 55% to 47% since sanction launched on Russia, now de-dollarizing at 10x faster than the previous two decades,” Onge said.
Musk responded: “If you weaponize currency enough times, other countries will stop using it.”
Ray Dalio, Bridgewater founder
“Dollars are debt. In other words, when one holds a dollar — a central bank — they hold a debt asset,” the Bridgewater Associates founder recently said. “So the holders of that would say, ‘I’m already over-exposed to US dollar-denominated debt.’ And so there’s less of an eagerness to buy.”
Western sanctions against Russia have frozen $300 billion worth of its central bank’s assets, preventing Moscow from transacting in dollar- or euro-based assets. Those sanctions “increased the perceived risk that those debt assets can be frozen in the way that they’ve been frozen for Russia,” Dalio said.
“So for those reasons, there’s less desire to hold US dollar-denominated debt, which means yes, less US dollars,” he added. “So the supply-demand picture is worsening particularly as we continue to have to sell them internationally to fund the deficit.”
Chamath Palihapitiya, venture capitalist
While the China’s yuan in trade deals is increasing, Palihapitiya said it’s unlikely to erode the dollar’s dominance.
“This whole thing is a huge nothingburger,” he said in a recent episode of the All-In Podcast.
“Until [the yuan] is unpacked in a free-floating currency, we will never know what the real market clearing price is,” Palihapitiya said. “China has been very effectively able to manipulate this currency since they were brought into the WTO, in order to engender that trading partner status,” he continued, adding that the dollar will remain the “canonical” flight to safety.
Stanley Druckenmiller, Duquesne Capital founder
Billionaire investor Druckenmiller recently shared he is shorting the US dollar after missing out on last year’s rally. In an interview with the Financial Times, he said he felt confident taking a bearish position against the greenback due to the prospect of US interest-rate cuts, a rise in non-dollar trade agreements, and the dollar’s weaponization.
“One area I’m comfortable is I’m short the US dollar,” he told the outlet. “Currency trends tend to run for two or three years. We have had a long [run] higher.”
Jeremy Allaire, Circle CEO
If we want to make the dollar safer and more competitive, we need to do two things:
– unleash it's power as a native data type on the internet, that can be openly used and integrated
– remove the underlying bank lending IOU risk on electronic money, and separate payment tokens… https://t.co/DThvu8Dt25— Jeremy Allaire (@jerallaire) April 26, 2023
“If we want to make the dollar safer and more competitive, we need to do two things,” Allaire said in a tweet.
“Unleash it’s power as a native data type on the internet, that can be openly used and integrated” and “remove the underlying bank lending IOU risk on electronic money, and separate payment tokens from lending tokens,” he added.
Goldman Sachs
De-dollarization is “lots of talk (again), not a lot of action,” the bank’s strategists wrote in a note.
“[P]art of the Dollar’s declining share can likely be attributed to regular market forces as Treasuries fell and Asian central banks sold their Dollar holdings to counter the stronger Dollar last year,” strategists said.
“While that is a clear risk if the US abuses its ‘exorbitant privileges’, we see no evidence of that in the data so far (for example, even Brazil’s rising share of CNY reserves replaced CAD, not the Dollar), and our strong view is that there is currently no real contender,” they added.
Joseph Sullivan, former White House economist
According to Sullivan, the dollar’s dominance could be seriously threatened by a currency issued by Brazil, Russia, India, China and South Africa.
“The BRICS would also be poised to achieve a level of self-sufficiency in international trade that has eluded the world’s other currency unions,” he said. “Because a BRICS currency union—unlike any before it—would not be among countries united by shared territorial borders, its members would likely be able to produce a wider range of goods than any existing monetary union.”
“Either way, the dollar’s reign isn’t likely to end overnight—but a [BRICS currency] would begin the slow erosion of its dominance,” he said.
Stephen Jen, Eurizon SLJ CEO and former Morgan Stanley currency guru
“The prevailing view of ‘nothing-to-see-here’ on the US dollar as a reserve currency seems too innocuous and complacent,” Jen, who coined the “Dollar Smile” theory, wrote in a note, per Bloomberg.
“What needs to be appreciated by investors is that, while the Global South is unable to totally avoid using the dollar, much of it has already become unwilling to do so.”
Anwar Ibrahim, Malaysian prime minister
“There is no reason for Malaysia to continue depending on the dollar,” the country’s prime minister Anwar Ibrahim said earlier this month. He added that Malaysia and China are already in talks to utilize the ringgit and renminbi for trade deals. (7)
