And the US Dollar’s Status as Global Reserve Currency?

Renminbi gains, but in painfully slow micro-steps. Dollar & euro combined share slides.

How long can the US dollar maintain its status as the global reserve currency and as global hegemon?  That’s a question that comes up a lot, particularly among people who’d like to see it knocked off its perch. So here we go.

Total global foreign exchange reserves in all currencies ticked up to $11.4 trillion in the first quarter 2019, according to the IMF’s just released COFER data. USD-denominated exchange reserves rose to $6.74 trillion, with their share of global foreign exchange reserves ticking up to 61.8%. These are USD-denominated financial assets (US Treasury securities, corporate bonds, etc.) that central banks other than the Fed are holding in their foreign exchange reserves. The Fed’s own holdings of USD-denominated assets, such as its Treasury securities and Mortgage-Backed Securities acquired as part of QE, are not included in “foreign exchange reserves.”

The US dollar’s role as a global reserve currency declines when central banks other than the Fed shed their dollar-denominated holdings and replace it with assets denominated in other currencies.

There have been two potentially big changes over the last two decades: The creation of the euro at the turn of the century; and in 2016, the Chinese renminbi.

The euro, the first big change, replaced the national currencies of EU member states, starting with five currencies – including the Deutsche mark which had been one of the major reserve currencies, but way below the dollar. As this change was taking place in phases, the dollar’s share dropped from 71.5% in 2001 to 66.5% in 2002.

There are now 19 member states in the Eurozone. The effort to eventually consolidate all European currencies in one big currency was powered by the hope of knocking the dollar off its hegemonic perch. At the time, the talk was about how the euro would eventually achieve “parity” with the dollar. But the euro debt crisis interfered, and the euro’s share of foreign exchange reserves has gotten stuck at around 20%, putting the kibosh on any “parity” hopes. In Q1, it’s share fell to 20.2%.

The Chinese renminbi, the second big change – well, “potentially” big change – was included in the IMF’s currency basket, the Special Drawing Rights (SDR), in October 2016. This elevated the renminbi to an official global reserve currency. Expectations that the renminbi would quickly knock the dollar off its perch have also been disappointed: It’s moving only at a snail’s pace.

The dollar and the euro combined accounted for a share of 82.1% in Q1. This is down 4 percentage points from 2014 (86.2%):

The chart below shows the overall scheme of things concerning the share of the top reserve currencies. The dollar dominates. The euro is second. Both are quantum leaps ahead of the remaining top reserve currencies, the dense spaghetti at the bottom of the chart. The renminbi (RMB) is the red line near the very bottom:

As small as the renminbi’s share still is, it is gaining on some other currencies. In Q1 2019, with a share of 1.95%, it is in fifth place (in Q4, 2018, it had inched past the Canadian dollar for the first time):

  1. Dollar: 61.8%
  2. Euro: 20.2%
  3. Japanese yen: 5.2%, up from 3.6% in 2014.
  4. UK pound sterling, at 4.5%.
  5. Chinese renminbi: 1.95% (record)
  6. Canadian Dollar: 1.92%
  7. Australian dollar: 1.7%
  8. Swiss franc: 0.15%
  9. Other: 2.45%

The share of these currencies is based on “allocated” reserves, as the IMF explains. Not all central banks disclose to the IMF how their total foreign exchange reserves are “allocated” among specific currencies. Back in 2014, only 59% of the foreign exchange reserves had been “allocated.” Since then, more and more central banks have disclosed to the IMF the allocation of their reserves. In Q1 2019, allocated reserves reached 94%. But the IMF does not publish the central banks individual holdings.

The theory that refuses to do die is that the US, as the country with “the” global reserve currency, “must have a large trade deficit with the rest of the world. True, the US has a huge trade deficit with the rest of the world. But this must have” is disproven by the euro, the second largest reserve currency: The Eurozone has a massive trade surplus with the rest of the world, proving that a major reserve currency can be backed by a trade surplus. And the yen, the third largest reserve currency, is backed by Japan’s large trade surplus.

The relationship would be the other way around. The fact that the dollar is the largest reserve currency (and the largest international funding currency) permits the US to easily fund its trade deficits. Countries that benefit from their trade surpluses with the US encourage this. They fear that if the dollar were knocked off its perch, the US could no longer fund those trade deficits, and in turn, these exporting countries could no longer run these big surpluses with the US, thus harming their own economies. So knocking the dollar off its perch would get complicated for other countries in a hurry.

The inflation index that the Fed anointed as its yardstick booked two big jumps in a row: May near the top of the range since 2010; and April, third largest jump since 2010. Read...  Markets Might Hafta Grapple with “Patient”: Fed Rate Cut in July After This Inflation?

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  72 comments for “And the US Dollar’s Status as Global Reserve Currency?

  1. NARmageddon
    Jul 1, 2019 at 12:07 pm

    One point that deserves mention is that “foreign exchange reserves of central banks” are the property of the member banks, not of the central bank itself. That distinction rarely seems to get made.

    • NARmageddon
      Jul 1, 2019 at 12:16 pm

      In other words, each country X has a central bank Y with a set Z of member banks. What is colloquially known as the “the foreign exchange reserves of country X” is really the foreign exchange reserves of central bank Y, and these reserves is the sum of the individual foreign exchange reserves of each of the member banks in the set Z. Additionally I suppose there may also be some government-owned reserves in each central bank, and some of those reserves may also be backed by (denominated in) some foreign currency.

    • Jul 1, 2019 at 1:54 pm

      US held foreign reserves (Treasury Bonds) owned by China are actually held at the Fed and listed as assets held in foreign reserve. If China sells those bonds someone else buys them, the assets remain in the same place.This allows the Fed complete control of those assets. They are effectively sterilized. If those reserves were dollars it would be a completely different story, causing inflation, and putting pressure on the dollar. Fortunately the Chinese implement capital controls (sort of), the net net is that the dollars value is not based on the trade deficit but on interest rate policy, which puts Fed in a bad spot sometimes.

      • NARmageddon
        Jul 1, 2019 at 6:21 pm

        Some of those reserve balances owned by Chinese banks certainly got spent, and they created asset inflation in the US property market (both residential and commercial real estate) in the last 5-6 years or so. I will agree that the spent reserves did not create nearly as much consumer-level inflation, but asset inflation was rampant.

      • QQQBall
        Jul 1, 2019 at 10:18 pm

        HOw does china shifting dollar reserves to say Germany on account with Fed Reserve cause inflation?

        • NARmageddon
          Jul 2, 2019 at 2:17 am

          Who are you asking that question? I ask back because I don’t quite follow.

        • Jul 2, 2019 at 11:41 am

          In theory it doesn’t matter which country holds Treasury bonds on account, they are sterilized. It’s perhaps a small point, but it gives them control over the secondary market. According to Bob Prechter, the US exports inflation (to China) and they export deflation to the US. PBOC has to print an equivalent amount of it’s own currency to offset new reserves. If China were to sell 1T in the secondary market for US dollars, (not really possible) there would be a flood of dollars that would be inflationary, though as Prechter says that inflation would be slower than the outright printing of US dollars, it would have the same effect.

  2. Nicko2
    Jul 1, 2019 at 12:42 pm

    As I’m in Egypt, I always keep an eye on the USD. The local currency, Egypt pound was rated the world’s best carry trade by Bloomberg this year (current interest rates of 15.75%). Even with the generally stable USD, the dollar has depreciated against the Egypt pound by around 6% in the past six months, inflation in the country is around 14% (hey, it was pushing 25% a few years ago!). Anyway….small currencies can still bring big returns with king dollar.

    • c1ue
      Jul 1, 2019 at 4:16 pm

      Yes, but carry huge risks. Russian rubles were a great investment on paper – with top Russian bank interest rates in the order of what has been quoted for Egypt.
      That was great until the ruble was devaluated multiple times – going from 24 to mid-60s.

  3. Iamafan
    Jul 1, 2019 at 12:44 pm

    H.4.1 clearly states:
    1A. Memorandum Items
    Securities held in custody for foreign official and international accounts –
    and, therefore, they are NOT part of the Fed’s Balance Sheet.
    I believe the NY Fed HOLDS them for foreign CBs and banks and they are largely used for PAYMENT CLEARING purposes (since most trade are in USD). You can consider them as “deposits” at the NY Fed.

    • NARmageddon
      Jul 1, 2019 at 1:31 pm

      @Iamafan, I agree with your statement of interpretation. NY Fed holds (is the custodian of) the USD-denominated debt (or gold) that is the backing of the USD reserves held by all foreign central banks.

      All USD transaction will and must eventually be netted and cleared at the NY Fed, through the transfer of ownership of reserve balances between the participating owner banks.

      As an aside, but highly relevant: Much of the US so-called “economic sanctions” against a large number of countries and individual persons has the form of blocking foreign banks from settling USD payments at the NY Fed if the banks have done any trading with or transfers for the sanctioned entities. This is why large portions of the world, including Russia and China, and also Venezuela and Iran, are striving mightily to create alternatives to, and to get out from under the thumb of, the USD-based payment systems.

      Not only is there sanctions, but it has gotten so bad that the US Government is enabling outright confiscation of the funds of foreign companies and foreign governments. Venezuela and the theft of Citgo/PDVSA funds by the Washington-based puppet regime of Guaido/Vecchio is perhaps the most recent example.

      https://twitter.com/anyaparampil/status/1141761675705688064

      • yngso
        Jul 2, 2019 at 6:18 am

        The Venezuela sanctions are designed to keep the Narcocrats from stealing the nation’s assets abroad. Guaido is not a puppet. A US invasion is not wanted.

  4. Petunia
    Jul 1, 2019 at 12:52 pm

    I would rather hold USD than gold, RMB rather than Bitcoin, and Bitcoin rather than Rubles.

    • NARmageddon
      Jul 1, 2019 at 1:34 pm

      Sad LOL. Yeah, you may be right about that.

    • 2banana
      Jul 1, 2019 at 2:17 pm

      Rubles..

      Russia has the lowest government debt and some of the highest gold reserves (per capita) of any developed nation.

      • Jul 1, 2019 at 4:32 pm

        2banana,

        Much of Russia’s debt is held by Russia’s state-owned enterprises, such as Gazprom, which have a LOT of debt, and this debt is denominated in foreign currencies and cannot be deflated away by Russia.

        Borrowing in rubles is a chore because interest rates for ruble-debt are so high because the ruble loses value against the dollar and the euro at a dizzying rate. This ruble devaluation tends to come in big sudden waves that amount to something like 50% in six months. See 2014. No one wants to take the risks associated with the ruble unless they’re paid a lot of money to do so. It’s hard to borrow in an unstable currency.

        • Anon1970
          Jul 1, 2019 at 7:17 pm

          In June 1991, just before the Soviet Union collapsed, the going rate of exchange for tourists was 27 rubles to the US$. The US$ went a long way in Moscow in this days. A ride on the subway was about 4 cents US. Excellent seats at the Bolshoi Theater were about 40 cents (10 rubles) if you could get any. State stores had little to sell. The Kremlin Armories Museum charged 20 rubles for admission to locals and $20 US for tourists. I guess Weimar Germany was a bit like this in 1923, only worse. In 1998, the Russian ruble underwent a reverse split and three zeroes were knocked off the currency. The US$, which was worth about 9,000 old rubles at the time, got you 9 new rubles. These days, it gets you over 60 rubles.

        • Jul 1, 2019 at 11:20 pm

          Yes, when I went to Russia the first time (1996), the dollar was 5,000 rubles, and when I left a couple of month later, the dollar was 6,000 rubles. Everything was priced in dollars, and payable in rubles at the day’s exchange rate. Hard times for Russians.

        • Bologna
          Jul 2, 2019 at 8:28 am

          The Russians are doing a lot better than the US according to this Stat have a look
          https://data.oecd.org/hha/household-debt.htm

        • Jul 2, 2019 at 8:46 am

          Bologna,

          Your statement “The Russians are doing a lot better than the US,” as based on the chart you linked, is BS. Many Russians CANNOT borrow in rubles, because of sky-high interest rates. Bank of Russia interest rate is 7.5%. Consumers pay in the double-digits for mortgages and auto loans, so it takes a lot of income to pay that kind of interest, and they don’t have enough income to borrow at these rates. Russians households are impoverished by the ruble collapse. And Russia’s economy has now sunk in size substantially below the size of California’s economy, though Russia has nearly four TIMES as many people as California. Think about that for a moment.

        • Wes
          Jul 2, 2019 at 6:15 pm

          Maybe rubble instead of ruble?

      • MC01
        Jul 2, 2019 at 2:58 am

        Back in the 70’s the Soviet Union struck 6-7 millions of “chervonets”, replicas of gold coins originally issued by the Bolshevik government immediately after the end of the Civil War.
        The Soviet government aimed at selling them on international financial markets, especially in Asia, to generate sorely needed hard currency.
        They were not a success, as they had to compete against the mighty kruggerand and a host of other established gold coins.

        Immediately before the 1980 Olympics a further one million chervonets were struck to be sold as souvenirs to tourists and again generate hard currency. Again they were not a success, while the Misha stuffed bear proved to be a huge hit. Central planners being central planners, the stuffed bear was always in critical short supply while there was an oversupply of gold coins. ;-)
        I think the last chervonets was struck in 1982 or so and the State Bank was stuck with millions of them which outlived the Soviet Union. Soviet successor republics were still selling lots of brand new chervonets from their stocks in 2005 and you can easily find them on the coin market these days.

        So I would take those gold reserves with a large pinch of (Maldon) salt.

    • c1ue
      Jul 1, 2019 at 4:17 pm

      You can, however, hold gold bought using rubles in a Russian bank – with no taxes on sale (but taxed on purchase).

    • quck
      Jul 2, 2019 at 1:23 am

      My bank pays a huge 0.025% a year on savings and has the audacity to impose a limit on savings, other way they charge a monthly fee. F^%$rs. Rather have rubles

      • Anon1970
        Jul 2, 2019 at 7:39 am

        I suggest you shop around at the major online discount stock broker firms. You can do better on the interest rate. But a local bank account does provide convenience.

      • A Citizen
        Jul 3, 2019 at 7:54 am

        What would you consider to be a fair Risk Free rate of return?

    • RD Blakeslee
      Jul 2, 2019 at 7:54 am

      … and land that produces timber rather than any currency.

    • RagnarD
      Jul 2, 2019 at 12:10 pm

      @Petunia

      sarc on or off?

      USD over gold?
      ????

      You are aware, I am sure that in 1971 that $35 bought one ounce of gold. And that that same ounce now costs $1400.

      Are you simply prognosticating that he dollar is going to strengthen against gold in X amount of time? If so, pray tell, why.

      • Petunia
        Jul 2, 2019 at 1:16 pm

        Yes, I know about gold, it is totally manipulated by govts, not just ours. I won’t hold gold because there is no utilitarian demand for it that warrants the price. Women routinely pay US$5K for a handbag and don’t own any jewelry. Since women are the powerhouse spenders in any household, that should tell you something, no demand for gold. In the third world it may still be used as money, but they don’t matter in the big picture.

        Since I have an interest in the financial world, I listen to news about all asset classes. Gold’s only value right now lies in that govts outside the banking system can’t use their own currencies to transact. If you are a sanctioned country or want to transact with one, you need to own it. Otherwise, jewelry is the only other big usage, and it’s not that big anymore.

        • bungee
          Jul 2, 2019 at 10:44 pm

          Petunia,
          not a bad, unintelligent or thoughtless view. but it is incorrect. My comment here cannot do deep, gold-advocacy justice. But as a sample, to get a thoughtful person like yourself looking at gold anew, ask yourself – do Saudi royalty own gold? do Rockefellers and Rothschilds? What do you put your money into when you have $100 million piling up each and every day? and why is the price of gold not soaring while fiat spews? what IS spot price? what is the chart actually measuring?
          you know how Wolf drives it into our heads that individual banks dont create money, but as a system money is created? ask yourself, what is the LBMA? (spoiler: it is a bullion-banking SYSTEM with gold denominated credits).
          And lastly, in this brief tease of a clear view, jewelry is certainly a demand, but it is not consumption. it is hocked right alongside bullion when times get tough. Gold’s utility is store of value.

        • Cashboy
          Jul 2, 2019 at 11:22 pm

          “Gold’s only value right now lies in that govts outside the banking system can’t use their own currencies to transact. If you are a sanctioned country, you need to own it”

          That seems to be a good enough reason for a start.

          The Central Banks appear to be able to print money out of thin air.
          I have never understood why they don’t do that and then use that money to purchase gold.
          The SNB (Swiss National Bank) printed money and purchased USA shares (Apple etc.) that they received dividends on and then sold at a huge profit didn’t they?

        • gunther
          Jul 4, 2019 at 7:46 am

          If Russia, China, Malaysia and Iran want to transact outside the Dollar they might not like any fiat money that much but give each other so.e credit and settle at the end of the year in gold bullion.
          If trust is big enough just the ownership of some bars changes, if the trust is not that big the bars get moved.
          China and Russia are developing (using?) an electonic settlement system outside western bank control. If they link the respective papermoney to deliverable physical gold they have a system with trusted money outside the dollar.

    • d
      Jul 3, 2019 at 3:13 am

      Curiosity?

      why do you value chinese printed used toilet paper over the russian version.

      Both are equally worthless and toxic to hold for longer than the transaction period.

  5. Brudelphi
    Jul 1, 2019 at 1:05 pm

    Mr. Wolf,

    I’m stunned by Treasury rate yields and remain unsure as to how to view any type of correlation with other market valuations. Last year, housing seemed steady,slow and hesitant, ending the year down, with a micro equity crash in December — but bow, here we are, as if the economy is booming with index valuations being pumped higher, but isn’t it just a little destabilizing to have treasury rates in the twilight zone? IMHO, very confusing and I’d love to hear what anyone thinks about this latest blip!

    July 1, 2019

    U.S. Dollar Index YTD @ 0.70%
    PHLX Housing Index YTD @ +30.57%
    S&P 500 YTD @ +17.96%
    10-yr Treasury YTD @ -64.22

    • Iamafan
      Jul 2, 2019 at 5:05 am

      Treasury or interest rates down equals asset inflation because people would rather use their money to speculate (rather than save). Accordingly, borrowing is cheap and financial engineering is enhanced. I wonder what will happen when the situation reverses. I also wonder what will trigger or cause it to reverse.

      • A Citizen
        Jul 3, 2019 at 7:53 am

        Um. Not.

        In fact, your response would suggest the opposite of what the bond market has actually been doing.

        Treasury yields are dropping due to (high) demand for Treasuries driving the price of Treasuries. Demand for Treasuries is, more often than not driven by “flight-to-quality” by institutional investors during times of economic duress and uncertainty.

        Simple as that.

  6. David Hall
    Jul 1, 2019 at 1:33 pm

    US companies brought money back to the US offsetting the trade deficit. This was described in current account statements.

    Part of the Chinese economic expansion has been accomplished by taking on debt and increasing the money supply.

    • Iamafan
      Jul 2, 2019 at 5:15 am

      Suppose a US company with patents and intellectual rights pays itself let’s say in Ireland. So, it’s US bank will pay it’s Ireland bank USDs. Therefore you get a debit of the US bank and credit to the Irish bank at the NY Fed. (It just has to be domiciled in Ireland but ownership of the bank is not relevant in this discussion).

      The dollars didn’t leave the Fed. It just changed digital accounting. The US bank decreased and the Irish bank increased. I wonder what REPATRIATION of USD really means? I think they were invested in US securities most of the time. Probably used to buy back stock anyway.

  7. OutLookingIn
    Jul 1, 2019 at 1:35 pm

    Over the past 600 years there have been few globally recognized and used money, that may be recognized as being the “reserve” currency.
    The point being, the change from one form of world exchange to another moves at a glacial pace. It does not happen at all quickly. It takes decades, sometimes a century or more.
    The US dollar will be around for some time to come. Just that it’s common global importance, is and will slowly diminish, until the next world medium of exchange comes along.

    • bungee
      Jul 2, 2019 at 12:01 am

      Technology had something to do with that. Theres a big difference between melting down coins and printing numbers on paper. And a big difference between printing numbers and adding zeros on a screen. The devaluation (and therefore the abandonment of reserve) can happen so much faster than at any time in known history.
      Also, speaking to the article, the euro as a currency is unique among currencies. It doesnt have one nation it is attached to. Theres a lot of implications there and it might be that the euro was designed with the fall of the dollar reserve in mind. The euro did not just pop up out of nowhere. It was planned probably since before the dollar went off the gold standard, in anticipation of the dollar systems demise. It was and is a huge undertaking. So the glacial pace has been going on for a long time already. And in our time its quite possible a large sheet might break off.

      • d
        Jul 3, 2019 at 3:28 am

        The sequence for the Eu should be.

        political union, banking union, fiscal union, currency union. As currency union with out the other 3 prerequisites is an insanity.

        However.

        “The Waring tribes of Europe will never unite unless forced to.”

        Hence the Eur came about out of sequence as a weapon to force the banking fiscal and political union of Europe.

        However in the GFC the Eurocrats instead of soft pedaling and helping the people went hard on more Europe and more power to brussels now.

        Which the “People” of Europe would not accept in those constrained times. Which may have sown the seeds of the demise of the UE project.

        The Eur was never about displacing the $, apart from in a few arrogant egotistical mind’s in paris.

        But yes a large sheet may break off, if p 45 is reelected, The scary part of that is that the americans that were stupid enough to elect it, may do so again.

  8. FDR Liberal
    Jul 1, 2019 at 1:39 pm

    So, if 62% of world trade is the US$ and the US were ro to have a trade surplus, ipso facto there is a shortage of euro$ in an unregulated market. What could possibly go wrong!

  9. Jul 1, 2019 at 2:09 pm

    Always thought the argument that dollar reserve doesn’t matter had some merit. RMB would have more reserve status if it wasn’t for sanctions. How much oil moves between Iran and China (and anyone else) we cannot say, probably a lot more than the currency markets can measure. Forex is a giant fraud, which conceals the degree of global devaluation. Governments and their currencies are rated by sovereign credit agencies. If Moody’s downgrades RMB China will downgrade the dollar, but Moody’s will never downgrade US credit rating until after the fact. Assuming a sovereign currency and a nations credit rating are synonymous, which dollar hegemony casts doubt upon.

    • 2banana
      Jul 1, 2019 at 2:24 pm

      RMB would have more reserve status if:

      1. China didn’t have capital controls on if and how money can flow in/out of the country

      2. China allowed the currency to float freely

      3. China allowed for private property rights

      4. China hadn’t defaulted on at least six different currencies over the last 100 years

      All self inflicted issues.

      “RMB would have more reserve status if it wasn’t for sanctions.”

      • Jul 2, 2019 at 11:55 am

        Their SDR currency status is doing pretty well, in fact they may be the reserve currency by that metric (which also measures gold reserves). I don’t consider all those point to be self inflicted. There may be a lot of bluster on this, but China is going to be a mature economic power with a credible (or two?) currency.

      • gunther
        Jul 4, 2019 at 8:02 am

        Until the 1930’s or so China had circulating silver as money.
        In the west silver was de- monetized and devalued around WW1.That devalued Chinese money.
        The americans took advantage of the cheap silver and sucked plenty of it out of the country.
        I would not be too surprised if one day the chinese return the favour.
        They think longer term then americans.

    • FDR Liberal
      Jul 1, 2019 at 11:08 pm

      The RMB can’t be the reserve currency of the world or a meaningful participant because it has state capitalism. This is an antithesis to financial capitalism, which currently governs world markets. Why have the RMB that is the manufacturer powerhouse (output), when you can have a US$ or a euro determined by banksters that governs money changer trade.

      The US armed forces with the USN and its 800 bases stretched across the globe to project military power is the hammer to drive the dollar nail. Ask Turkey, Iran, etc., until it can’t. Once Rome couldn’t protect its financial borders it too fell and did very quickly.

    • d
      Jul 3, 2019 at 3:38 am

      “RMB would have more reserve status if it wasn’t for sanctions.”

      PAH.

      “Reserve ” status revolves more than anything around TRUST.

      You are willing to trust you financial future security to a piece of used chinese toilet paper, printed into CNY/RMB, and that when you wake up the PBOC will not have devalued it by 99% without warning.

      Go ahead, millions of people who live in ccp china and can not leave, dont.

      Which is why they buy, gold, US $, and houses, at very inflated prices, with their untrustworthy, printed used toilet paper.

      The central banks that hold CNY/RMB do so as they have regular trade or other settlements to make, that ccp china DEMANDS, they make, in CNY/RMB.

  10. Michael Engel
    Jul 1, 2019 at 2:22 pm

    Dx futures trading & debt are dominated by the US dollar.
    The invisible RMB dominate trading of Real Goods, globally.
    China is the largest importer of oil.
    Oil is shipped to Malacca straights is nominated by the Yuan.
    Real Goods are transferred in exchange for barrels of oil, copper, wheat, or steel.
    Electronic gears, clothing, hwy’s, hospitals & ports for commodities.
    Real Goods for Real Goods are nominated by the Yuan, but the Yuan is not traded.
    xxx xxx xxx
    In the next recession the value of the dollar will rise, US interest rates will decline and the global demand for oil
    will fall.
    A trade war with Venezuela and Iran accelerate oil decline.
    Iranian oil shipped to Malacca straight is absorbed by
    ASEAN traders for a juicy discount. From Malacca Iranian
    oil is sold for profit in the global market.

    • FDR Liberal
      Jul 1, 2019 at 7:57 pm

      Michael Engel,

      OPEC and WTI is priced and sold in US$. What percentage of US and OPEC production is part of world production?

      China can’t dictate squat on world markets regarding oil and energy regarding fx payments. How did that Venezuela barter treat them? How will that Russian filling station treat them?

      Expand your chessboard….. China is investing trillions in alternatives for a reason!!!

  11. Dan
    Jul 1, 2019 at 2:22 pm

    The old phrase ‘I went bankrupt slowly then all at once’ applies to countries too. I expect WW3 first though for the $ just like what England did with its empire. Wash rinse repeat.

  12. c1ue
    Jul 1, 2019 at 4:19 pm

    The theoretical economist reason for reserves is to balance out potential short term foreign currency availability as a backstop to trade.
    I’m sure that has some truth, but IMO the real reason for large foreign holdings of US dollars is to prevent bombs.
    Has a large foreign holder of USD ever been “peacekeeped” or “democratized” via weaponry?
    In this sense, maybe it is really a national defense cost.

  13. Jul 1, 2019 at 4:32 pm

    To quote Mark Twain….the change will come slowly at first… then suddenly.

    • FDR Liberal
      Jul 1, 2019 at 7:59 pm

      Great comment!!

  14. Michael Engel
    Jul 1, 2019 at 6:56 pm

    1) In the early hours of the morning the DOW futures were up + 250pts, the DAX gap up, but the German % rates sank, for a fear of a ME “event”.
    “Fire & fury” not today, on July 1st. The fear subside, and the German rate closed slightly up. All rates up to 15Y underwater.
    2) Today, the SPX gap up, to a new all time high, slightly below the 3,000 line. the trip from 2,900 SPX (2,872) to almost 3,000, took a year and a half.
    Next week, after the July 4th firework, the monthly SPX, on a hinge, possibly will turn down to become a big red bar.

  15. Paul
    Jul 1, 2019 at 7:52 pm

    How can the RMB become a global reserve currency if China doesn’t run a current account deficit?

    (It might soon, but has run huge surpluses in recent history, up to 10% of GDP.)

    Without a current account deficit, there isn’t enough of the currency off-shore to be used as reserves.

    • Jul 1, 2019 at 11:10 pm

      I have no idea how you make this connection. The Eurozone has an account surplus, and Japan has an account surplus, and their currencies float and are reserve currencies (#2 and #3 after the dollar).

  16. DR DOOM
    Jul 1, 2019 at 10:01 pm

    In French ,diplomatically and with style of course, King Dollar would mouth the words, Apres moi le deluge.

  17. Sinbad
    Jul 2, 2019 at 2:04 am

    The US dollar being the global reserve currency is a real millstone around the average Americans neck.

    Being the global reserve currency means high demand for the currency, and therefore high value.

    It means almost every other country on the planet can manufacture at a cheaper price than the US, but they will trade in US dollars.
    For the American financial sector it’s a cashflow goldmine.
    But it really puts manufacturing at a disadvantage, so factories close and unemployment rises.

    • Nicko2
      Jul 2, 2019 at 6:33 am

      It also means the US consumer is globally subsidized, guaranteed access to the cheapest food/fuel/goods/credit on the planet.

      • RD Blakeslee
        Jul 2, 2019 at 8:15 am

        … if “the US consumer” has money to buy with. Automation, export of jobs and the huge drag on consumption of the top tier “earners”, who are ever increasing their income percentage vs. the bottom tier, acts against overall consumption.

        Consumption is propped up to some extent by consumer debt and social welfare payments financed by government debt.

    • The Colorado Kid
      Jul 2, 2019 at 5:40 pm

      The average American benefits from a strong Dollar. Approximately 70% of our economy is domestic. A strong Dollar does however hurt the Large Multinationals.

    • Dave Chapman
      Jul 5, 2019 at 2:58 pm

      Correct.

      The overpriced dollar means that real employment is something like 65%, which is obviously bad for the average American in fly-over country. Why do you think they elected Trump?

      There are many ways for a globally dominant dollar to not cause these kind of social problems in the US. The problem is the the Fed acts like they have no idea what is going on, and the Executive branch has (ahem) other priorities.

      If Trump fails to be re-elected, it would be because he was not radical enough.

  18. CoCosAB
    Jul 2, 2019 at 3:45 am

    How long can the US dollar maintain its status as the global reserve currency and as global hegemon?

    Easy one!

    As long as the US has more than 20 military bases around the Planet.

  19. Iamafan
    Jul 2, 2019 at 6:32 am

    WTO: World merchandise exports totalled US$ 19.48 trillion, up 10% from the previous year.

    US: We will auction more than $12 trillion this year.

    If this isn’t world inflation (of debt), then what is?

    Why has world trade grown faster than world output? Between 1980 and 2002, world trade has more than tripled while world output has ‘only’ doubled? Good question. Because we don’t even have to PRINT money, it’s mostly digital zeros.

  20. Jack
    Jul 2, 2019 at 7:32 am

    See that graph there, yes there! Aha yup where the dip is 1991!

    Do you need more to explain what’s holding the dollar as a reserve currency still?

    I’ll leave the conclusion to you.
    Go back and study the history of how international trade and economic relations between nations play out.

    Still need more clues?

    • CoCosAB
      Jul 2, 2019 at 8:34 am

      Jan 17 1991 – Iraq fires 8 Scud missiles on Israel

      Jan 17 1991 – Operation Desert Storm begins, with US-led coalition forces bombing Iraq, during the Gulf War

      Again… paper monetary empires don’t last long without militar threat and war!

  21. John
    Jul 2, 2019 at 7:36 am

    Thanks Wolf,
    Just reading about Russia, China, and India. RIC. No Brazil. Your writings and smarts always keep things clearer.

  22. Laughing Eagle
    Jul 3, 2019 at 4:08 am

    Gold has gone from about $90/oz. to upper $1300/oz. Wall Street has to trash gold because without creating chaos with it, nobody would buy their worthless inflated paper. This paper goes ups and but eventually there is a crash.
    This gold price increase over decades is a reflection of increasing the money supply of the dollar. Today it is only worth 3 cents of purchasing power and if the other central banks collude to devalue their currency’s then that value looks larger. But its all an illusion. And if the Fed needs more QE watch the gold price go up. The price of gold is determined by USD printing and the price of oil because of the Petro Dollar. Nothing holds value more than gold over the decades. Don’t worry about the ups and downs just continue to see it’s steady increase over time.
    What we have to worry about is what Wolf said a few days ago about less foreigners buying our US Treasuries, meaning tax revenue will have to go up to replace what the foreigners do not buy.

  23. A Citizen
    Jul 3, 2019 at 7:56 am

    Fantastic work, Wolf.

  24. jaymo
    Jul 3, 2019 at 7:48 pm

    two often overlooked points: 1) monopolists always believe that their monopolies are impregnable. they are always wrong and utterly gobsmacked when a technological change or other event renders their monopolies yesterday’s news. 2) reports of the death of triffin’s dilemma are greatly exaggerated. the eu has a trade surplus because germany has a trade surplus and germany has a trade surplus because it plunders the european south.

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