Originally published Mar. 18, 2023 by TraderStef on CrushTheStreet (updated)
A theory backed by convincing evidence says the dollar is often called a “buck” due to merchants trading goods for deerskin in the 1740s, long before the first United States dollar was minted with the Coinage Act of 1792. The exchange rate for a cask of whiskey being traded to Native Americans was “5 bucks,” meaning 5 deerskins. The term “greenback” originated from paper “demand notes” that were printed with green ink on the backside at a time when Congress adhered to its limited taxing authority and the American Civil War was financed. It was a derogatory word because those paper notes were not fully backed by gold, lost value, and triggered inflation in the north, so banks and merchants were reluctant to exchange them for goods or services at full value. The greenback was superseded by the Legal Tender Act of 1862, and the dollar became the official U.S. currency.
“I was born for a storm, and a calm does not suit me.”
“The bank, Mr. Van Buren, is trying to kill me. But I will kill it.”
“You are a den of vipers. I intend to rout you out and by the Eternal God, I will rout you out.”
The rest is a history of defunct national banks, the creation of the private Federal Reserve system, gold confiscation, excessive currency printing, Keynesian economics, devaluation, and no intrinsic value following the removal of silver from U.S. coins in the Coinage Act of 1965 and demise of the dollar’s last vestige of exchangeability for gold after the “Nixon Shock” in 1971 that collapsed the post-WW2 Bretton Woods-era of a fixed currency exchange-rate system. A last term worth mentioning is “King Dollar,” devised by Larry Kudlow in the late ‘90s to describe the U.S. greenback’s role as the global reserve currency after the Soviet Union’s collapse.
The Rise And Fall And Rise And Fall Of King Dollar… “Gold, originally stationed in heaven with his consort silver, as Sun and Moon, having first doffed his sacred attributes and come to earth as an autocrat, may next descend to the sober status of a constitutional king with a cabinet of Banks.” – John Maynard Keynes, Forbes 2014
The dollar has remained the world’s reserve currency since the U.S. and its allies agreed at Bretton Woods in 1944. Its proportion as the world’s reserve currency printed a low of about 45% in 1992, and its high was around 85% in the 1970s. According to the International Monetary Fund’s (IMF’s) Currency Composition of Official Foreign Exchange Reserves (COFER) survey, the share of dollar reserves held by central banks hit a 25-year low at 59% in 4Q20. The chart below contains data that was updated on Dec. 23, 2022. Nearly 3 months ago, the share of dollar reserves plummeted to 55.5%.
The dollar’s fall on a percentage basis as a world reserve currency reflects its declining role in the global economy, increased competition with national currencies from foreign central banks to counter economic sanctions and weaponization of the dollar, a reduction in access to international dollar-based transactions through the SWIFT system, a multitude of additional factors having a detrimental effect on dollar hegemony, the dwindling liquidity in the Treasury bond market, and foreign nations accelerating the selling of U.S. Treasuries.
Economic sanctions imposed upon Russia by Western nations that are supportive of NATO’s proxy war in Ukraine (Twitter thread) included the removal of certain financial transactions via SWIFT, which is unprecedented (compilation of all sanctions as of Mar. 2023). Those policies are spearheaded by the Biden administration, and they launched an escalatory phase of de-dollarization by the BRICS+ nations and an increasing bloc of countries that view the sanction regime and military-industrial complex as an existential threat to their sovereignty. Not only have sanctions backfired on Western economies and geopolitical diplomacy but a new round of retaliatory sanctions is being implemented upon the collective West by Russia as cold-shoulder diplomacy towards the U.S. by nations friendly to Russia multiplies. To complicate matters, there’s a banking crisis (thread) bubbling in the U.S. with a contagion that’s worsening and has dominated financial headlines since late last week. The recent spike in accumulation of gold by foreign central banks makes total sense.
Ray Dalio: Dollar-dominated global order is ‘fading away’… “Dalio, who founded the $150 billion U.S. hedge fund Bridgewater Associates, said that the current world order is changing in ways more similar to the time leading up to and during World War II than the post-war period… And then there is the matter of the dollar’s declining clout. The era of a ‘dollar-dominated world order’ and a globalized economy is ‘fading away. We are now going to have the major powers and their allies form economic, currency, and military blocs.’ In addition to the U.S., Europe and Japan — both mature economies home to key currencies – ‘have run up very large debts and have developed a dependence on their central banks to print money to buy the government debts,’ he said. The increase in debt monetization ‘will mean that holders of debt assets will get bad inflation-adjusted returns.’” – Nikkei Asia, Jan. 17
Will Russia sanctions dethrone ‘King Dollar?’… A flood of nations are trying to cut dependence on the dollar, fearing ‘weaponization’ by the US… “The United States dollar has ruled the financial world for nearly eight decades since the end of World War II. Now, another war is setting the stage for many countries to explore a move away from the dollar for trade, raising questions over the currency’s future dominance… But it isn’t just Beijing and Moscow. From India to Argentina, Brazil to South Africa and the Middle East to Southeast Asia, nations and regions have accelerated efforts in recent months towards arrangements aimed at reducing their dependence on the dollar. At the heart of these de-dollarization initiatives is the fear in many capitals that the US could someday use the power of its currency to target them the way it has sanctioned Russia, according to political economists and sanctions experts.” – Al Jazeera, Mar. 7
Before discussing a recent development that may be viewed in hindsight as the diplomatic financial shift that implodes the dollar’s hegemony, take a few minutes to view the following presentation on the petrodollar that was published three years before Russia launched a military operation in Ukraine last year.
The big news is that Saudi Arabia will be settling trade in other currencies instead of the dollar for oil and other transactions, and China brokered a peace deal between Iran and Saudi Arabia to restore diplomatic and financial ties after years of tensions, the proxy war in Yemen, and beyond.
Iran-Saudi Rapprochement Will Deal A Deathblow To The Dollar… “There’s no doubt that upcoming Saudi moves in support of the petroyuan that are taken in coordination with Iran and Russia would catalyze the next natural phase of de-dollarization. Russian-GCC real-sector trade that’ll be carried out via Iran across the NSTC will be conducted in national currencies and thus prepare those three for the moment when they finally decide to deal a deathblow to the petrodollar. All in all, it’s not hyperbole to declare that the dollar’s prior dominance is done for as a result of the Iranian-Saudi deal. That Beijing-brokered deal makes this outcome an inevitability unless some subversive black swan event takes place.” – Automatic Earth, Mar. 16
David Morgan Analyzes the Dollar Collapse in Rollover (1981) Movie
Nerd shocks driving instructors with godly drifting skills – TopNotchIdiots
Plan Your Trade, Trade Your Plan
Headline Collage Art by TraderStef
None of the content produced by TraderStef, staff members, or any services associated with this website should be construed as financial or investment advice. Financial investment is a risky endeavor and may lead to substantial loss. Always perform due diligence before undertaking any financial decision. Not a Financial Advisor. Copyrighted Material – A “by TraderStef” credit linked back to this website is required when using any quotes, written material, technical analysis charts, or publishing a full version of an article.
5 thoughts on “King Dollar Drifting at the Edge of De-Dollarization Road”
Comments are closed.