Update on US Dollar as Global Reserve Currency and the Impact of USD Exchange Rates & Inflation

Dollar drops to lowest share in 26 years. Slowly but surely?

By Wolf Richter for WOLF STREET.

With inflation raging in the US following the Fed’s $5-trillion money-printing orgy and interest-rate repression, the question constantly arises: When will the rest of the world throw in the towel on the dollar as the dominant global reserve currency? If this were to happen all of a sudden, it would spell chaos. But it is happening little by little.

The global share of US-dollar-denominated foreign exchange reserves fell by 40 basis points from Q3 to 58.8% in Q4, setting a new 26-year low, edging out the low in Q4 2020, according to the IMF’s COFER data released at the end of March. Dollar-denominated foreign exchange reserves consist of Treasury securities, US corporate bonds, US mortgage-backed securities, and other USD-denominated assets that are held by foreign central banks and other foreign official institutions.

Over the past 20 years, since 2001 – just before the official arrival of euro banknotes and coins – the dollar’s share has dropped by 12.7 percentage points, from 71.5% then to 58.8% now.

Global foreign exchange reserves do not include the assets held by a central bank in its own currency, such as the Fed’s own holdings of Treasury securities and MBS, the ECB’s holdings of euro-denominated assets, or the Bank of Japan’s holdings of Japanese Government Bonds and other yen-denominated assets.

Back in 1977, the prior period when inflation was raging, the dollar’s share was still 85%. But on fears that the Fed would let inflation rage out of control, dollar assets got dumped by central banks, the dollar’s share of global reserve currencies collapsed, hitting bottom a decade after Fed chairman Volcker had started the successful inflation crackdown.

These relationships are slow moving. It took years of inflation before the dollar assets got dumped, and then it took years after inflation was essentially being brought back under control, before dollar-denominated assets were being picked up again.

When the dollar’s share of global reserve currencies drops, the share of other currencies increases, and the dollar becomes less dominant, as other central banks are gradually diversifying away from US dollar holdings (year-end data):

The dollar’s exchange rate v. foreign exchange reserves.

The values of foreign exchange reserves denominated in currencies other than dollars are translated into dollar figures. For example, the value of Japan’s holdings of euro-denominated assets is expressed in dollars at the current EUR-USD exchange rate to make them comparable to other holdings.

But the exchange rate between the USD and other currencies impacts the magnitude of the non-USD assets. In other words, the magnitude of euro-denominated assets held by the Bank of Japan moves with both: a change in euro-assets that the BoJ holds, and the exchange rate of the euro to the dollar.

But the exchange rates of the major currency pairs, while volatile from month to month, have been stable over the past 23 years, very well managed, as shown by the Dollar Index (DXY), which tracks the dollar against the euro, yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.

Today, the DXY closed at 98.57, roughly unchanged from its level in 1999 and 2000, despite the dizzying swings in between. Folks who are waiting for the collapse of the dollar, or for the collapse of the euro or the yen for that matter, will have to be very patient.

So over the two decades, on net, the USD exchange rates have had relatively little impact on the US dollar’s share of global reserve currencies. Most of the long-term decline of the dollars share is due to central banks diversifying away from dollar-denominated holdings and into non-dollar holdings, but very slowly and methodically to avoid blowing down this house of cards. But short-term, as we’ll see with the yen in a moment, exchange rates do jostle things around.

Inflation is a different matter.

Inflation tears up the purchasing power of the currency in its own country. And short-term, there is no direct link between inflation and exchange rates. For example, currently the dollar is trading way up against the yen (the yen is dropping against the USD), but the US CPI inflation is the worst among the currencies in the DXY basket, while the inflation rate in Japan, though rising, is still mild.

The euro got stuck.

The Eurozone encompasses 19 countries with a population of 340 million people. When politicians talked up the euro over 20 years ago, they jabbered about “parity” with the dollar as global reserve currency, as trading currency, and as financing currency. And this was progressing until the Euro Debt Crisis put an end to the dream of the euro reaching parity with the dollar as reserve currency.

The euro has gotten stuck in distant second place with a share of around 20% (in Q4, 20.6%). The remaining global reserve currencies have small to minuscule shares:

The minor reserve currencies:

To get a close look at the colorful spaghetti at the bottom of the chart, where the remaining reserve currencies battle for share, I limited the left-hand scale to a range of 0% to 6%. This pushes the dollar and the euro out of the picture.

The share of the yen, the third largest reserve currency, after rising for five years to a share of 6.0% in Q4 2020, started to decline in Q1 2021. By the end of 2021, the yen’s share had fallen by nearly 7%, driven by the exchange rate of the yen against the USD which plunged 10% over the same period. In other words, all of the decline in the yen’s share is explained by the drop in the exchange rate of the yen against the dollar.

The fourth largest reserve currency, the British pound, has held largely level over the past few years, but with a slight upward trend in recent quarters. In Q4, its share of 4.8% was just a tad above its share of Q4 2015.

The Chinese renminbi has been growing fairly consistently in minuscule increments and in Q4 reached a share of a whopping 2.8%, having gained 90 basis points in two years. At this pace, it will take the RMB another 18 years to breach the 10% mark.

The RMB, as the currency of the second-largest economy in the world, should have a larger share. But there are still problems with convertibility. While it’s freely convertible for trade purposes, there are still capital controls in effect.

The importance for the US dollar as top reserve currency.

The US dollar’s role as the dominant global reserve currency has enabled the US to run its gigantic twin-deficits without getting its feathers ruffled: The US government’s incredibly spiking public debt, now over $30 trillion; and the ballooning trade deficit, engineered by Corporate America’s 30-year search of cheap.

Both of these deficits will be harder and more expensive to fund if the dollar gets knocked off its perch.

Of note: The fact that the Eurozone has had a large trade surplus with the rest of the world in recent years – particularly with the US – demonstrates that an economy with a trade surplus can also have one of the top reserve currencies, thereby debunking the outdated theories that the country with a large reserve currency must have a large trade deficit.

But having the dominant reserve currency enables and encourages the US to run up its twin deficits, without much of a price to pay.

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  199 comments for “Update on US Dollar as Global Reserve Currency and the Impact of USD Exchange Rates & Inflation

  1. YuShan says:

    Generally these things move slowly, but in the first chart, that drop from 85% to below 60% in a couple of years shows that it can change really fast too. The recent freeze of central bank reserves could be the catalyst for a similar move. Time will tell…

    It would be interesting to add gold in this picture too, since it really is a type of international money. It went out of fashion, but with the recent freezes/ confiscations in mind, gold held safely on home soil seems to me the obvious alternative reserve currency going forward. It can also be pledged as collateral to obtain loans in foreign currency if needed.

    • YuShan says:

      Edit: for the 85% –> 60% drop I was referring to the 2nd chart, not the 1st.

      • Sanjiv Brahmbhatt says:

        This will be zero % in 10 years time. This is result of over printing money and making it over inflated fake economy.

        • Wolf Richter says:

          Sanjiv Brahmbhatt,

          Except… the central banks of all major currencies did the same thing. So what’s the cleanest dirty shirt?

        • Augustus Frost says:

          As long as the US is running trade deficits anywhere near current levels, it’s a practical impossibility for the USD share to get to zero.

          Exporters have no need for all the USD they receive in payment, so they convert it into their own local currency. Most exporters aren’t in the business of speculation, so they won’t buy USD assets with hardly any of it.

          Other foreign entities also hold USD in portfolios, but it’s ultimately mostly owned by individuals and where it isn’t, for the benefit of individuals. These people hold most of the USD currency notes, but that’s a small fraction of the total. They have no need to endlessly accumulate USD assets because they can’t usually spend it in their home country where they live.

          This means the central bank will end up with much or most of it. One central bank can unload it, but some non-US based entity has to hold every single USD from accumulated US current account deficits until it’s used to buy US assets or exports.

          It’s basic math.

        • Suat says:

          They were arguing the same thing even 80 years ago, ;).

    • Peanut Gallery says:

      I agree that gold and other hard(er) assets will become more on trend in the short term.

      As I’ve mentioned before, I think Putin knew their USD reserves would be confiscated – all part of the plan to get other countries to de-dollarize.

      • Augustus Frost says:

        I don’t read it that way. I agree with those who believe he trusted the Russian central bank.

        It doesn’t make sense that they would have played 3-D chess using about half of their reserves as a honeypot.

        That’s just nuts. I go with Occam’s Razor. They screwed up or the Bank of Russia committed the equivalent of treason.

        • AK says:

          Agreed – Russian government obviously didn’t anticipate the confiscation of their USD and euro reserves, otherwise they would have reduced them as much as they could.

          But given that these reserves did get confiscated, would it not be a positive factor for gold ? IMHO there are countries (Turkey, for example) that would like to move part of their reserves from USD to gold.

        • Brian says:

          Clearly the Russians didn’t think that we would shoot ourselves in the foot and degrade the strongest property rights in the world, yet here we are. We did it and only a fool would think it was an accident on our part. So the question is, what are we trying to accomplish? I don’t think it’s going to be good for Americans when we can no longer export our inflation.

        • Shawn says:

          Occam Razor, they knew exactly what was going to happen, because it happened to them in 2014. Hence their current gold reserves of 2400 tonnes. Now, the only way to buy Russian oil, gas, wheat, barley or potash is with Roubles or gold.

      • Nathan Dumbrowski says:

        Agree. Many people call the FED and other world leaders idiots. I believe they are looing at the long term plan and actioning in small nudges. Russia absolutely knew they would be sanctioned. On 19 December 2014, US president Obama imposed sanctions on Russian-occupied Crimea by executive order prohibiting exports of US goods and services to the region.

        So invading the entire country would draw the biggest sanctions. My theory is that China is/will back Russia both financially and militarily. The canary in the mine was how massive the response would be and then to gauge and re-evaluate how to further erode the USD reserve status

      • MarkinSF says:

        “Putin knew their USD reserves would be confiscated”.

        Absolutely. The playbook is pretty obvious. Venezuela, Afghanistan, now Russia (just recent examples). Who can trust placing their assets in Western banks? Only those willing to play along. I’ve read that even Germany is returning their gold from New York vaults back to Germany.
        While the historical chart reveals a pattern that pretty much sticks to a tight range, the radical movement within the current system may very well lead to chaos. I think it’s described as entropy within the second law of thermodynamics which states that as energy diminishes (assets pulled from the system) chaos increases, tending towards irreversible disorder.
        Recent events have illuminated the bipolar divide between East and West. The game has changed. Significantly.

        • joe2 says:

          Kudos for the thermoeconomics reference. Money differentials do seem a lot like energy differentials don’t they? With parasites syphoning off at the highest flow points which appear to be engineered.

        • intosh says:

          Great comment.

          “Who can trust placing their assets in Western banks?”

          It seems most mainstream media/observers do not see or want to talk about the huge implication of such confiscation. It’s not just assets in banks but foreign-owned assets in general. The trust towards the global system has been broken, permanently.

      • Marcus Aurelius says:

        With the new month of April here, I am back doing my smurf routine of taking a few thousand out of the bank.. (It’s still legal).

        So, here is the latest on OLD vs NEW $100 bills.

        The bank I go to has a staff members that has known me for years. (Imagine having a job in America for more than a few years?)

        Anyway, she drops hints about more and more people withdrawing cash.

        She says: “I was expecting you”.

        I laugh.

        She then says: “I have my regulars, like you, who come in a few times each month just like you. I am getting more and more of them.”

        So, I withdraw $2,000, in hundreds. 9 of them are NEW and 11 are OLD. BUT, what was fascinating, as I was sitting out in my car smelling them, I noticed the OLD ones were in pristine new condition. !?!? The issue “date” was 2003. Huh? The NEW ones began in circulation in 2013. Ten year gap there.

        WTF? Where did the OLD ones comes from? In Storage? Was somebody planning ahead? Why did they have them in storage and why are they even in circulation? Is the government having to use up their emergency stash? If so, is the emergency here, now?

        These OLD bills were never in circulation. Their condition was as good if nor better than the 9 NEW ones. It is not like a freak one in good condition.

        All I can say is, things are getting more and more strange. Also, nny amount over $2,000 requires a “manager’s” approval. That started a few months ago, and I mentioned it here.

        • Marcus Aurelius says:

          I wish there was an “edit” button.

        • wakarimasen says:

          Why you take money out of the Bank. The US banks are in much better shape than EU banks f.e.. The US goverment guarantees for the money in case of bank bankruptcy.

        • Wisdom Seeker says:

          The old ones might have been parked in someone else’s emergency-cash stash for a while, not circulating. I have a few myself.

          There are a lot of good reasons to have a month or two worth of expenses parked in a cash stash at home.

          Most young people won’t understand until their electronic money is unexpectedly unusable, or undesirable to use, just when they need it. Disasters happen – that Texas power freeze was a good one – or maybe you want to buy an anniversary gift without your spouse knowing in advance. So many reasons!

          Financial privacy is a fundamental human right, one that people should fight more to retain.

        • KennyGee says:

          I have been doing the same thing. Except I recently moved to my current state and my two credit unions are each in different states I used to live in. So I can only go to an ATM nearby that doesn’t charge a fee. I withdraw $400-$800 at a time and get all twenties. I guess they’re easier to spend. I would have opened a local bank account here, but the 2 local banks I checked have no hours on Saturday. Wakarimasen, some people are taking out some cash in case they get caught with having the wrong political beliefs and having their bank accounts closed. Also, if there’s a “cyber attack” or some other crisis real or manufactured, you can still shop at mom and pop stores with cash. I’ve experienced this in new england during the ice storm of 09. Small stores were open but cash only.

        • khowdung Flunghi says:

          “WTF? Where did the OLD ones comes from?”

          Maybe from those pallet-boards full of bills that went to Afghanistan?

        • Bobby says:

          12 billion USD in pallets of $100 flown to Iraq between 2003-2007 is famously unaccounted for. The news stories are easy to find. Overthrowing foreign governments require grease and graft. Eventually some of the money is repatriated.

        • Old school says:

          I wonder if a lot of money doesn’t leave banks as you can click a few buttons and open up a treasury direct account and get 1.7% on 1 year money and 2.4% on 2 year money while the banks are stuck at close to zero.

          Banks are going to have a tough time with flat yield curve.

        • Zark Muckerberg says:

          You may have stumble upon a They Live moment when you noticed something doesn’t make sense 😝

          “This is your God” on the dollar bill is a classic

        • Maximus Minimus says:

          I think, if there are massive withdrawals going on, it’s more likely because of some misguided fear of cyber war rather than general prudence.
          Few know that banking institutions generally run the oldest computer systems alive. Not logically connected to the internet.

    • SoCalBeachDude says:

      Gold is of NO FINANCIAL RELEVANCE whatsoever and the total value of all of the gold ever mined which is only around 180,000 metric tonnes is LESS THAN 1% OF GLOBAL ASSETS and 70% of that gold is in the form of jewelry.

      • Implicit says:

        That’s why it’s called precious!

      • Marcus Aurelius says:

        You give great arguments for why GOLD is the perfect monetary unit.

        If GOLD has no financial relevance, whey are the world’s wealthiest families buying it up and putting it in that amazing Vault inside that Mountain in Switzerland?

        Why are ALL Central Banks holding Gold and buying Gold? Some buying it. Why has China stopped all GOLD sales from their mines?

        Why is JP Morgan & Friends doing all they can to suppress the price of GOLD?

        Why is the L.M.E., and I believe COMEX, basically “refusing” delivery of GOLD (and Silver) contracts and you can only trade, basically, paper Gold & Silver?

        Speaking of “GOLD”, and John Pierpont Morgan, back during the Governments Money Trust investigation, he was asked the question:

        “What is Money?”

        J. P. Morgan responded: “Gold is money. Everything else is credit”

        You can take a 1 ounce Gold Mark, with A.H.’s face on it from 1935,, to Jerusalem and buy things. Take a 1934 Reichmark, with A.H.’s face on it, to Jerusalem and see what happens.

        Would anyone here prefer a used Confederate $10,000 “note”, or 10,000, 1864, $1 dollar, Gold Confederate Coins, with President Davis’s face on it?

        Antony Sutton wrote an excellent book: “The War On Gold”. It is interesting that those who tell you GOLD is a relic are the very ones buying and hoarding it.

        • Khowdung Flunghi says:

          “Why is the L.M.E., and I believe COMEX, basically “refusing” delivery of GOLD (and Silver) contracts and you can only trade, basically, paper Gold & Silver?”

          Modern day “run on the bank”…

        • SoCalBeachDude says:

          Obviously not, when there wouldn’t even be a half of an ounce for each person in the world’s population. Do you not get it that the total value of all gold that exists is worth less than 1% of the world’s assets? How would anything be transacted even theoretically in such a situation? Gold is nothing but a fungible niche collectible commodity on which a 28% federal capital gains tax is due every time it is sold. It has absolutely no financial or currency relevance whatsoever.

        • KWHPete says:

          ” It has absolutely no financial or currency relevance whatsoever.”

          Ask people in Turkey, Venezuela, Russia, Zimbabwe, or even recently in Japan and see what they say about that.

        • SnakeEater says:

          Socal dude,

          Currency and money and two different objects in the monetary system. Gold isn’t, and will probably never be a currency unless WW3 happens. But it will always be money.

      • GrassRange says:

        “Gold is of NO FINANCIAL RELEVANCE whatsoever…”
        So I wonder why the USGovt still holds on the 8000 tons at Ft. Knox or the IMF keeps it 90 million ounces or the Fed retains its stashes??

        • Khowdung Flunghi says:

          Thank you – was about to pose the same question.

          Folks might want to read about the “London Gold Pool of 1968.”

        • Flea says:

          There’s no audit on these assets,could be like Casper the ghost =invisible

        • Marcus Aurelius says:

          Those who say there is not enough GOLD in existence to be useful in a monetary system, just don’t understand GOLD.

          GOLD can easily be valued at $2,000 per ounce. You take an ounce to the reliable Depository, and they issuea $2.000 Dollar bill that can be redeemed for One Ounce of Gold, or fractions thereof that youcan be taken right back, for you to get your 1 ounce of GOLD for that $2,000 note. Good for 1 Ounce of Gold.

          These are Gold Dollars. They are redeemable back into GOLD on demand.

          Society needs more currency? The Government can announce, that in 60 days, all GOLD 1 oz coin will be redeemed at NEW $2,500 dollars. Since you still have old “title” to the one ounce of gold, due to your earlier issued Gold Backed Dollars, redeemable for 1 OZ Gold, you simply take it back, exchange it for your one ounce, or fractions thereof.

          Now you can redeposit the 1 oz GOLD and be issued in a $2,500 Gold Redeemable Note.

          This works far better if the Paper Note is expressed in Grams. But the idea is the same and the idea is perfect, EXCEPT, the rich want to take the increase, which is what they did in 1933.

          A total rip off scam on the people.

          Any increase in the price of gold is immediately issued to the owner of the GOLD. The GOLD in the Depository is always owned by you, and thus the Treasury prints the additional paper note currency, again, as a GOLD BACK NOTE and you go an pick them up at the Depository.

      • Wisdom Seeker says:

        LOL. Gold was the definition of “financial relevance” for nearly all of human history until 1971: it was the basis for everyone’s money.

        In 1971 the Nixon administration disconnected the dollar from gold, but that didn’t disconnect the gold from financial relevance.

        Since 1971 Gold has shown repeatedly that it’s still money, better than the dollar. Gold also diversifies a portfolio and reduces risk, since it zigs and zags differently from stocks and bonds. Gold was especially beneficial to portfolios from 1971-1980 and 2000-2011. (From 1981-2000 gold had a protracted bear market, but that was when both stocks and bonds had a great run, so a diversified portfolio still did fine.)

        Gold today is up about 50x (in dollars) since 1971, outperforming Treasury bonds entirely over those 50 years. (This is a really interesting comparison, worth a good deal of thought…) With interest rates still low today, it won’t be hard for gold to continue to outperform bonds until the monetary inflation is reined in.

        BTW, saying “gold is up 50x since 1971” is the same as saying “Today’s dollar has only 1/50th of its 1971 purchasing power.”, or “The dollar has lost 98% of its value since 1971. (It doesn’t matter what item you pick from 1971, the dollar has lost 90-99% of its value against all of them. I checked about 10 standard items last year… and the dollar has lost another 7% since I did…)

        Disclosure: I own some gold.

      • Maximus Minimus says:

        You just provided a case for gold backed currency.

      • joe2 says:

        BitCoin is of no financial relevance whatsoever and the total number of BitCoins ever to be mined is only 21 million. That is only .0025 BitCoins available per person which is too few. Total BitCoin market value is is less than 1% of total global assets and over 40% is in whale and dust accounts.

    • georgist says:

      It seems to me that the $$ hegemony relies on a “network effect” similar to social networks. When you first start the network nobody wants to join because their other friends are not on it. Then one other friend joins. Again in a group of 40 nobody cares, it’s 2 out of 40. But then another 5 join.

      A critical mass is reached where users flood from one network to the other.

    • RH says:

      IF the gold is real, sure. Read “How Kingold Jewelry’s fake gold bars slipped through scrutiny in one of China’s biggest loan scams” in yahoo finance. The USD is mainly supported by the lack of reasonable alternatives.

      The Russian and Chinese currencies are both crazy to hold, because as with Russia, if China invades Taiwan, most of the world will refuse to even look at Chinese currency. As experts pointed out, also, the corrupt, CCP central bank created far more debt-currency (including currency with the same serial numbers to hide the volume of printing!) than even the corrupt “Federal” Reserve. Read “The diabolical ploy in China to print currency notes with duplicate serial numbers I Elmer Yuen” in corruption buzz; read “Did China’s Central Bank Official Print $314 Billion Worth of Notes in Massive Forgery? People’s Bank Denies Report” in international business times.

      Others joined in on the easy Chinese currency printing. LOL See “Chinese counterfeiters’ banknotes prove so good they fool detection machines” in SCMP. See “North Korea printing massive amounts of fake Chinese currency, defectors say” in upi.

      It makes the digital yuan appear the safest, Chinese currency to hold; and it is not. Europe is in worse financial trouble than the US and will print more currency than the US. The Yen is not internationally accepted.

  2. SocalJimObjects says:

    We all know Bitcoin will replace all of the above. USD, EUR, Yen, GBP, etc, they will all fall under the might of Bitcoin. You have been warned.

    Sarcasm Off.

    • Yaun says:

      The main task of the future central banker will be to define optimal baskets of meme coins to use as the countries FX reserves. And once in a while we may hear about dissenting votes, like Kashkari asking to pick more Baby Musk vs Powell’s Shiba Inu Moon.

      • SocalJimObjects says:

        We have the BIS for that. They also agree that Bitcoin Is the Sh**.

        Everything is about ready to go.

    • SoCalBeachDude says:

      Al of the CRAPTOCURRENCIES will end up in a barnyard poop pile.

      • roddy6667 says:

        Tainting the poop.

      • Old Ghost says:

        SoCalBeachDude wrote: “All of the CRAPTOCURRENCIES will end up in a barnyard poop pile.”

        Yup. Right next to those fantasies M.A. was having about a 1 ounce Gold Mark, with A.H.’s face on it from 1935, and $1 dollar Gold Confederate Coins with President Davis’s face on them…

    • Flea says:

      This Bitcoin is not stable ,can be hacked look up Silk Road anything digital is not safe

    • Bobber says:

      What’s to stop Yakito Okidahomakatamo from releasing a second Bitcoin2, exactly like the first? Then a third, and a fourth.

      Better sell Bitcoin before it drops to zero. Don’t be a fool.

      • intosh says:

        It’s already been done. There are tons of different crypto coins out there. There are also “forks” of existing coins (bitcoin cash, bitcoin classic, bitcoin whatever).

        Anyone who believes in “scarcity” of crypto coins are total idiots. (But being an idiot doesn’t mean you can’t win a gamble.)

    • Marcus Aurelius says:

      I prefer the TULIP coins.

      I would recommend you buy the Semper Augustus or the Viceroy while you still can.

      Some guy in Holland just traded his farm for a Semper Augustus Coin. Lucky guy. He is going to be rich, rich, rich, I tell you !!!!

      As long as the electricity stays on……………………..

      • Anthony A. says:

        You mean we need electricity and the internet for crypto?

        • Wisdom Seeker says:

          “Bitcoin” is just a long, special number. You can theoretically store it on a notepad, using a decent pen.

          You only need an electric internet if you want to trade your special number for something else.

          Reminder: Bitcoins aren’t coins, and they aren’t mined, they’re calculated at great expense … using energy that could be used more productively.

  3. CRV says:

    The USD, or any reserve currency, used as a weapon, loses is usefulness in trade. Back to gold i guess.

    • SoCalBeachDude says:

      Gold for what? It is just a tiny little nice fungible collectible commodity worth less than 1% of global assets. Its primary use (70%) is jewelry.

      • 2banana says:

        Or a basket of commodities.

        Or a basket of different currencies.

        Or a combo.

        The real point, which you just shrugged off, is the world changed per CRV comments.

        Being the world’s single reserve currency means you can run massive deficits without any real consequences.

        That is gonna change very soon.

      • EcuadorExpat says:

        Gold overcomes that 1% problem if it is allowed trueprice discovery.

        Problem is $10,000 gold means a lot of little guys become very rich, something that happened with bitcoin, but is not going to be allowed to happen again.

        • Augustus Frost says:

          The “gold bug” will only become rich if this $10,000 theoretical price is close to current value.

          Gold is already historically overpriced measured by the number of ounces it takes to buy most other goods.

          At $10K gold, the median priced US home would be worth about 35 oz. For the average new car, only four oz. Gold has never been anywhere close to that valuable relative to either and this type of market price would make it even more overpriced versus other commodities, unless these increase even more which essentially means crashing living standards for practically everyone.

          This may happen temporarily in a global monetary panic but it’s not something that’s going to last meaning whoever owns it will need to know when to trade out of it.

          The price of crypto has nothing to do with the price of gold. Crypto is nothing and not much different than the price of any number of stocks which have also increased by huge but lower multiples.

      • sunny129 says:

        GOLD shouldn’t be a RELIGION. It is a tradeble COMMODITY like oil! Will keep on going up and down. It can be traded via OPTIONS both long and short.
        Gold miners are different zone They also can be traded with options

        GLD has gone up 6% YTD – NO DIVIDEND!

        GDX ———- 23% with a div of 0.6%
        GDXJ ———– 15% with a div of 1.84%
        NEM (New mining Corp) at record level of almost $83 with div of 2.66%

        AT this point more upside are in Energy especially gas, LNG-shippers, fertilizers, grains and EV -metals.

        • Saltcreep says:

          Sunny, I would propose that its volatility suggests gold is not a commodity. I would contend that oil behaves very differently from gold.

        • sunny129 says:

          Saltcreep

          Volatility in gold is NOT new factor or event b/c of fluctuation in demand, supply and perception (astore of Value!?) and repeated arteficial suppresion by vested interests including Central Bankers.

          70% of gold mined is in jewellary (perception of long time security in East and south Asia. gifted during marriages and passed on to next generation! I was here when GOLD started trading after Nixon drooped the gold standard for US$! then it was $35/ounce but didn’t have money to take advantage. Later I started buying until hit $800 and stopped.

          Now I trade only in ‘paper gold’ Gold but mining stocks appear to be better option, now!
          To each his own!

      • Marcus Aurelius says:

        Actually, All the assets of the world are worth all the GOLD of the world.

        Only GOLD can make that transaction whereas the value will be retained after the contracts are signed.

        It is not the value of GOLD, ever. It is the empty value of what is used as our medium of exchange (pieces of paper) that has no value what-so-ever.

        As illogically as it can be, GOLD is the most valuable “material” thing on Earth. You can take a piece, regardless of appearance, anywhere in the world and buy anything in the world of material composition.

        Food, water, coconuts, hookers, tires, hamburgers, shawarmas, tacos, Fanta, Gauloises, Sex Wax, Russian Natural Gas, ANYTHING with a piece of GOLD.

        You can trade it into ANY currency in the world, at any time, in any country.

        It is the most valuable material commodity on Earth. (Please don’t berate me with “Oxygen” (which you can buy with GOLD) or “Water” (which you can buy with GOLD), of “Freedom” (which you can buy with GOLD) etc.

        If it can not be bought with GOLD, then it is an item that can not be bought.

      • PocoPete says:

        Gold has been a store of value for over 5,000 years. The average life span of fiat money is 300 years.

    • georgist says:

      > I’ve got a great business idea that will make 10% ROI and add value to society

      banker:
      > I want to fund this, but we have to dig up more gold first, hang on

      Or don’t dig up the gold and the deflation enriches gold holders, who did nothing.

      • joe2 says:

        Hey good buddy, I hope you enjoyed that dinner on my yacht. BTW I could use a few extra million

        banker
        Sure pal, here’s a low interest loan of money I just created from thin air. Enjoy. It’s peanuts compared to the money I created for the government’s new war.

  4. Wisoot says:

    Assumption – IMF figs are trusted source. Goodwill / badwill not seen in figs is additional trend understood by researchers and analytical bots. AI has limited and skewed undrstanding which drives the globalists media messaging. It is never as good as a human connecting dots as humans draw from a central human soul family source with built in temperature check.

    From that source then are the trending words Big Brother.

    A brother to lend infinite amounts of money on tap secretly.

    A.brother to surveillance humanity to a slavery total submission control. Unless you hire ex black ops to protect your privacy afforded by few.

    A big brother that is an agreed reserve currency to level up and simplify interoperability of transaction activity. As Socialjimobjects highlights other methods of leveling up exist and these models still need to drop transaction fee as we move forward. Nonsense for Fed to give free money to bank that charges fee to everyday Joe Bloggs to transact. Besides control of what transactions take place was never the intended purpose of the world bank yet we have the head Mexican declaring the plan so.

  5. phleep says:

    Best explanation I have ever seen of this! Best use of graphics!

    Gold has been a poor medium of exchange, awkward. But tech could change this, making it, along lines YuShan observed, practical as everyday collateral. Blockchains or not.

    The cohesion here in the USA seems already fraying. Currency problems could knock another pillar out of this. Hello Babylon.

    • Michael Gorback says:

      Not enough gold for a gold-backed currency.

      • Michael Gorback says:

        Addendum: EVER.

        A gold-backed currency would to be convertible to gold. If the SHTF do want dollars backed by gold or gold itself?

        • AK says:

          IF SHTF situation I would like to have weapons, medicine, water, food, and other things that are conductive to the survival of myself and family. After SHTF I would definitely prefer physical gold.

          Also, the argument “there is not enough gold for international trade and reserves” could be responded to by saying that revaluation of gold would solve this problem.

        • Anthony A. says:

          If the SHTF, what currency/standard/etc would you revalue gold to? Once ounce of gold for 50 9MM bullets? Case of canned tuna?

        • VintageVNvet says:

          AA gets it,,, the gold will be worth LESS THAN it’s weight in bullets, beans, bacon, etc.
          Old guys who have persisted see reality???
          Maybe for us,,, maybe not for others.
          IMHO, only, repeat ONLY thing that will count for survival if the poop really hits the paddle, say per a CME AKA Carrington Event is COMMUNITY, period.

      • John H. says:

        That there’s not enough gold is an evergreen argument.

        Any amount of above-ground gold would suffice to mark the beginning valuation point. New discoveries and market price fluctuations would take over from there.

        A new serious gold standard currency would curtail the ability of governments “to run up its twin deficits, without much of a price to pay.”

        • OutsideTheBox says:

          The gold backed currency argument always has one laughable flaw.

          Tie the money supply to gold then tie the money supply to the random geological finds of random miners.

          Random geology would dictate the money supply ?

          Really ?

        • doug says:

          I think constrained supply is the take away from gold. Small quantities still being discovered, but at grams per ton rates.
          Yes, minors get some more out, but most is above ground now, I think.
          It has worked in the past, and no one laughed. So not sure why it is ‘laughable’.

        • OutsideTheBox says:

          The gold argument of constrained gold supply dictating money supply is flawed because the gold supply keeps growing and at irregular and unpredictable intervals. So “adjustments” to the money supply must be made. These “adjustments” are the same issue currently governments make and the Fed make about the “fiat” money supply and are so roundly resented by some. Gold is not capable of solving that problem.

          NOBODY knows how much gold is left in the ground. So we let Mother Nature determine the money supply ?

          Also history is often a poor guide to present day decisions. After all we had witch burnings and slavery in the past so maybe the past doesn’t apply to the present.

          You know, the present with billions of people, not millions as in the past.

        • Michael Gorback says:

          Does anyone remember why Nixon closed the gold window?

          Come on guys try to think back to before you were born.

        • COWG says:

          Because gold doesn’t float in oil?

        • georgist says:

          The issue isn’t the amount of gold.

          If we had gold backed the value of gold would be determined by:

          value = all the stuff in existence / amount of gold

          The problem comes in when you create more stuff, either the amount of gold stays static (deflationary) and current holders get the gain or the amount of gold increases (due to mining, which has a cost).

          How can there not be enough gold as a starting condition?

      • SoCalBeachDude says:

        Indeed. And most all of the 180,000 metric tonnes of it that exists is in the form of jewelry which is privately owned and widely disbursed all around the world. If all of the gold were piled up it would fill at most 2 swimming pools and if that was divided up among the nearly 8 billion people of the world everyone would get about half an ounce!

        • WhoopThereItIs says:

          Good lord, nobody knows how much Gold any of the governments have in reserves. That is, until the cards are shown. I have been watching China and Russia grow their piles for at leat ten-years. Before the vacuum of wealth transfer to China > India > ~Russia. We are due for a change in reserve currency. Check the timeline 1910>1940. Add some compression of time for today’s technology and speed of information. Pandemics, War, crisis upon crisis.

        • Brant Lee says:

          Silver, even less per person divided up.

          So, your argument is: there is not enough gold for it to be worth much?

          All I know is, at 8%+ inflation, a person needs to find some way fast to hold on to what he already has because in five years whatever he does have will be inflated away, especially dollars.

        • VintageVNvet says:

          Right, so per above, let’s (someone ) do the math:
          let’s say 999 TRILLION dollars divided by 180 THOUSAND tons of gold:::
          OK, I”’ let you do the math
          $10,000, 000, 000 per oz???
          somebody with a calculator with more zeros than mine???
          anybody??

        • Wisdom Seeker says:

          If there’s 180,000 metric tons that’s 180 billion grams, or 0.18 trillion grams. Call it 0.2 trillion as a round number.

          Global money supply, converted to US$, totals maybe around $50 trillion?

          Take $50 trillion / 0.2 trillion grams: that’s $250/gram as a starting point, around $7500 per troy ounce, about 4x today’s price.

          Personally I don’t think with computers that we need dollars or even money at all. Choosing one specific thing as a “medium of exchange” was just a pre-Internet convenience. There are thousands of liquid assets that could be traded, such as shares of the S&P500 or any other ETF, stock or bond holding. Walk into a store and tell your phone to talk to their computer and find something you’re both happy to exchange with… And if you don’t want to be tracked, bring a few gold or silver coins…

      • Augustus Frost says:

        The problem isn’t a shortage of gold, it’s too much fiat currency debt.

        The actual problem with the current fiat monetary system is that, for it to keep from imploding, debt and therefore the monetary units in which it is denominated must increase, forever.

        This isn’t sustainable, as the current world order centered on the US and the USD isn’t going to last indefinitely. The US is destined to lose its leading geopolitical role and the USD will concurrently lose its status as global (or any) reserve currency with it.

        Look at the GFC. The volume of outstanding USD debt barely decreased and the global financial system appeared to on the verge of collapse.

      • Austrian School says:

        Wrong! It is not about the amount of gold on earth. It is ALL about repricing gold value upward in currencies.

      • Flea says:

        If price of gold raised to 25 k it’s possible seems like a past president wanted a 1 trillion dollar platinum coin ,everything’s possible when fraud is used

        • Augustus Frost says:

          Not in anything close to current purchasing power.

          What’s the median price of a US home now? $350K?

          No way 14 oz of gold (or anything close to it) should be able to buy the median priced US home.

          Not singling you out but I have read this sentiment countless times. Gold is already historically overpriced versus most goods and somewhat versus services, especially those most needed for survival.

          This is the ultimate limitation on the gold price, except temporarily due to a mania. The ultimate purpose of money isn’t to acquire other forms of money, but the goods and services people need and want.

        • KWHPete says:

          “The ultimate purpose of money isn’t to acquire other forms of money, but the goods and services people need and want.”

          No the ultimate purpose of money over time is have a store of value that is stable that allows people to buy goods and services.

          If your income and assets are fixed inflation reduces the ability of you to buy acquire those needed goods and services. Money decreases in value in terms of goods and services.

          Inflation is soaring in the USA and increasing in many other countries around the world and people are not able to use a stable value money to buy those goods and services.

          Peoples’ incomes are not increasing at the same rate as their costs are going up so unless they some assets they can sell to fund their wants and needs, they have to find some way to do that or decrease their spending.

        • Augustus Frost says:

          To the above post. Gold selling at a ridiculous price like $25,000 in anything close to current value won’t accomplish what you
          imply.

          I’m aware fiat currency isn’t a good long-term store of value. My point is that paying an outlier price for gold will still result in a substantial loss of the person’s purchasing power, even if it is less or somewhat less.

          If there is anyone who bought gold in late 1979/early 1980 and still holds it until today, they have lost purchasing power.

          That’s what happens when buying at the top of a historic mania. The current overvaluation in stocks and bonds is even worse, the difference being that both usually provide an annual yield, historically low as it is now.

        • KWHPete says:

          “If there is anyone who bought gold in late 1979/early 1980 and still holds it until today, they have lost purchasing power.”

          Again, ask the people in Venezuela, Turkey, Russia, Zimbabwe, Argentina, Mexico, or a dozen other similar countries that question and you’ll find that holding gold provided a substantial hedge in local currency terms and maintained value against the US$.

          That is what a stable currency/money is supposed to do.

          Just because that high inflation or hyperinflation hasn’t happened in the USA doesn’t mean it can’t or won’t.

          IMO things are going to get really, really bad for the people in the USA and other developed economies because the markets (real and financial) still haven’t factored in the consequences of the Russian sanctions.

          Sure, they’ll hurt Russia, but they’ll hurt the rest of world even more. Just wait until factories and businesses start closing down in Europe because of lack of energy and raw materials. Germany is going to get hurt really bad and in part it is their own fault for their current energy mix and sources.

          Lots of businesses closed here in Australia when the price of natural gas shot up as a result of our exports to other countries driving up the Australian price of natural gas.

          The purchasing power of the US$ has fallen by what 90% or was it 99% since the Fed was established. It can lose another 99% of that remaining purchasing power too.

      • Implicit says:

        Digital fractions of currency can go towards nfiniti before they get to o.

      • Marcus Aurelius says:

        At the right Price, GOLD can back all of it.

        Just a matter of the pricing of GOLD.

    • kam says:

      ” (a) country with a large reserve currency must have a large trade deficit.”
      A large trade deficit is a Political choice, not an Economic imperative.
      The ONLY reason the U.S. dollar is the reserve currency is because the U.S. once was a mighty nation founded on a mighty manufacturing engine.
      That engine is nearly totally gone and the consequences will be a long term disaster as the U.S. dollar is inflated away into oblivion.
      Rome in it’s waning years did many foolish things, the USA is like a fly to flypaper, the more Politicians jabber and wriggle, the stucker they get.

      • phleep says:

        It is more complex than that. USA’s rule of law and military power are factors. It isn’t just manufacturing. If it was, China would already be prime-time globally, and it is not. Plus the network effect once created has its own momentum. Just on recognition people all over the world trade greenbacks.

  6. phleep says:

    Network effects die hard.

    The fact of such widespread adoption is itself of enormous value. The dollar is the apple, facebook, google and microsoft of currencies.

    • 2banana says:

      Myspace and AOL enter the chat.

    • kam says:

      When the Fed can increase dollars at will, lend at zero cost to it’s friends, and those friends can buy whole foreign industries with the conjured money, you can be certain some will figure out the con game.
      It won’t last, it cannot last.

      • VintageVNvet says:

        thank you kam for expressing today EXACTLY why I got OUT of the stock market game back in the mid 1980s…
        SO much of what is now called, ”crony capitalism” but in those days just labeled as corruption, etc.
        Have NOT seen any improvement since, and, in fact, certainly seems to be even worse:
        How can WE the PEONs who WANT to ”invest” in stocks be able to do so with any,,, repeat ANY assurance that WE have reliable data???
        WE cannot,,, and until WE can,,, IMHO, any ”investment” in stocks or even commodities are just a gamble at best, and a total swindle at worst.
        Rather go to a ”Casino”,,, especially in Nevada where casinos are regulated very carefully,,, and many such casinos in LV, etc., have many placards, etc., describing how closely they are regulated. Many also have very clear descriptions of their rules and regulations posted, for those of us who care to read, of the exact odds/probabilities of their ”games of chance”…
        IF any questions about ”odds/probabilities” suggest reading, “Carne on Dice.”
        That book contains all there is to know about probabilities, and is relatively easy to understand.

  7. Michael Gorback says:

    The requireBuehler? a reserve currency are hard to meet.

    1. Vast scale

    2. Free float, backed by interest bearing bonds whose price is discovered by markets

    3. Liquid markets for the the currency and bonds

    4. The processes that affect valuation are transparent to all holders.

    5. The currency is issued by a transparent system reliant on markets discovering the price of the currency, bonds and risk. No government pegs.

    So . . . euros, yuan, yen? Anyone? Bueller?

    • Michael Gorback says:

      Bah. I hate my tablet. First sentence should be:

      The requirements for a reserve currency are hard to meet.

      I have to get this cracked Spider-Man screen fixed.

    • John H. says:

      So, are the contenders for Reserve Currency Status:
      US
      EU*
      Japan
      UK
      China

      Who (what) else should be on this list?

      *If/when EU dis-assembles, is Germany a contender?

      • 2banana says:

        Russia.

        As one of the many world reserve currencies that is going to emerge.

        It looks like the Ruble is actually going to be backed by something as opposed to all other other fiats.

        • Michael Gorback says:

          With Russian GDP less than California do you think there might be a problem with sufficient scale and liquidity?

        • Wolf Richter says:

          2banana,

          The ruble is among the worst currencies in the world. Look at a long-term chart. Russia defaulted in 1998 on its debts, and inflation has been gigantic over the past 3 decades.

          The ruble collapsed from 3 rubles to the USD in 1996 to 83 rubles to the USD today.

          That’s why no one wants to hold ruble-denominated assets. Good luck promoting ruble-denominated assets to central banks.

        • phleep says:

          Russia is such a vast planetary pile of resources, if the governance was even mediocre, wealth would be widespread. The governance is horrid. The rule of law doesn’t exist. the predation is so bad, it is brutally hard to open an ice bream parlor.

        • 2banana says:

          The world changed with the weaponizing of the USD debt backed financial system.

          All modern fiats are backed by nothing. Thus the worldwide unlimited printing and destruction.

          The modern first currency actually backed by something is going to make a splash. Even a bigger splash if backed by a decent modern military.

          Tiny nothing Switzerland currency did this for decades after Bretton Woods as was prized and kept for that way above its economic or military levels.

          Central banks? The central banks have seen what one person did on a whim to a system that never should have been weaponized. They will diversify. Already happening. And will continue to pick up speed.

          Good luck in believing in the old system that has been wrecked.

          “That’s why no one wants to hold ruble-denominated assets. Good luck promoting ruble-denominated assets to central banks.”

      • Flea says:

        No they have to be energy independent

  8. Yaun says:

    The Brasilian central bank just released its report on reserves:

    USD 86.03 to 80.34 (% of reserves 2020 to 2021)
    EUR 7.85 to 5.04
    CNY: 1.21 to 4.99

    The Ukraine crisis will most like accelerate this trend further this year.

    • AK says:

      Agreed. The change in composition of Brasilian foreign reserved only reflects the shift in their trade, it doesn’t reflect the two novel factors that negatively affect USD (high inflation and weaponization of USD). Question is, what type of reserves Brasilian central bank will be moving to to replace USD.

  9. R2D2 says:

    China RMB has tripled to 3% global reserve share in 5 years…

    Triple again in 5, and it will be approaching 10% share…

    If current trends continue… China RMB (or Chinacoin) will be the world’s no.1 reserve currency by 2035…

    • Michael Gorback says:

      Sure, count me in for a reserve currency where

      1. The government can revalue it at any time
      2. Peg it to another currency
      3. There’s a centrally controlled economy.

      • Michael Gorback says:

        Almost forgot your comment about Chinacoin. That’s exactly NOT who I’d want managing crypto.

      • RM says:

        All economies are centrally planned. The Chinese are just honest about it.

        • Maddox Throckmorton III says:

          Yes, “honesty” is exactly the word that comes to mind when referencing the Chinese government.

        • David W. Young says:

          RM, I think a better phrase would be that all economies are centrally manipulated, don’t see any long-term planning in the U.S., it is just what will buy the most votes for the next election cycle.

          The U.S. Fed has gone way over the top in its post-2008 manipulation of just about every financial assets (and well outside of its legal authority IMHO), and I think the quagmire we are in as Americans today will put a sell-by date on the Fed. Certainly, the Fed’s operations since the Financial Reset in 2008.

          Power corrupts, and Absolute Power corrupts absolutely. The Fed has so much egg on its face right now, no wonder egg prices have shot to the moon.

      • Flea says:

        You already have that it’s called America

    • SoCalBeachDude says:

      The renmimbi is the most OVERPRINTED currency in the world and the money supply of the People’s Republic of China has increased from $3 trillion to nearly $40 trillion over the past 15 years and its value is PEGGED TO THE VALUE OF THE US DOLLAR with very minimal float. Are you not aware of those very straightforward facts as the economy of the PRC now comes disastrously unglued?

      • roddy6667 says:

        Really? Disastrously unglued? Turn off the Fox News and Newsmax with all their wishful thinking. Between China, Russia, and the US, China will emerge from this chapter in world history ahead of the others.

        • Harvey Mushman says:

          I don’t watch Fox news, and I don’t think that China’s future is a bright as you think it is.

      • Sams says:

        Still the peg to US dollars work. How come if the monetary inflation has been much larger than in the USA can China make this work? Could it be that monetary inflation in USA and China actually is close?

    • John H. says:

      Could it be that the Yen and Yuan lock horns in a competitive currency war?

      That would portend margin declines for US manufacturer, no?

    • Wolf Richter says:

      R2D2,

      Your math says that the rate of growth is exponential, tripling every five years: so 3%, then in 5 years 9%, then 10 years from now 27%, then 15 years from now 81%, then 20 years from now 243%…

      The actual rate of growth has been 45 basis points per year, fairly steady, meaning it’s additive, adding 45 basis points every year, not exponential.

    • phleep says:

      R2D2, and trees if the trend is extrapolated in a simple line will grow to the sky. And Japan was going to rule the world. Etc., etc.

  10. Winston says:

    “Of note: The fact that the Eurozone has had a large trade surplus with the rest of the world in recent years – particularly with the US – demonstrates that an economy with a trade surplus can also have one of the top reserve currencies, thereby debunking the outdated theories that the country with a large reserve currency must have a large trade deficit.”

    Great point I hadn’t considered. There went the excuses.

    • Michael Gorback says:

      Don’t forget the explicit negative rates.

    • SpencerG says:

      Actually that was the point that I most disagreed with. It is rather hard to consider the Euro a “reserve currency” when it is only 1/3 of the holdings that Central Banks keep of the Dollar.

      I think whether you can run a trade deficit rather largely depends on what kind of economy you have. One simple example is Tourism. Tourism is almost twice the GDP of the EU compared to the US… which causes Central banks the world over to hold an excess amount of Euros.

      Likewise petroleum… the US trade deficit should be shrinking based on our improved net trade in petroleum… but because most trades worldwide are done in dollars there will continue to be an excess of dollars in the world economy. Those dollars will get used in global trade whether we like it or not.

  11. Peanut Gallery says:

    So then what happens if yields on UST explode higher? Won’t that incentivize other countries to increase their dollar reserves?

    I agree that the longer term trend is downward for the dollar, but in the short term if yields increase by a meaningful amount, I wouldn’t count out the scenario that USD reserves increase.

    So what exactly are the implications of USD reserves as world share decreasing yet fx rates staying approximately about the same over 20 years?

    • 2banana says:

      There are plenty of other countries with higher yields then US treasures but their share of global reserves are not growing.

      • SoCalBeachDude says:

        The difference is that those countries don’t have currencies of any significance at all. The foreseeable path forward for the US Dollar has never been brighter or more vibrant than now.

        • KWHPete says:

          The only reason that the US dollar hasn’t crashed yet is that there are so many international financial transactions such as derivatives and swaps that have sold the dollar short.

          The market unable to close them all at once without the dollar soaring and then crashing.

          There is nothing in the future for the US dollar that is bright. Inflation is out of control in the US, deficits have surged to ridiculous levels, ordinary people have little or no savings, the rule of law doesn’t exist anymore, borders are not secure, and the US military has gone woke.

        • joe2 says:

          The US is waging financial war with the dollar and financial sanctions. What happens will be determined by which side wins the war. I for one have no idea but, in either case I see the common people losing quality of life.

      • COWG says:

        The only problem is that few other countries can back up their currencies as a reserve with rule of law and a military…

        The 2nd place Euro doesn’t count because they are not a country and they have no military (yet)….

        The rest are totally economically or governmentally unviable for most business transactions on a global scale…

        With that discount, there are no real alternatives….

        • DawnsEarlyLight says:

          Yes, the dollar is the largest reserve currency, due to its’ stability.

    • cb says:

      @ Peanut Gallery “So then what happens if yields on UST explode higher? Won’t that incentivize other countries to increase their dollar reserves?”
      ——————————————————————–
      To do that, they must have the means. If they exchange their own currency or goods to buy dollars, they run the risk of exchange rate changes when they wish to convert back to their own currency.

    • kam says:

      “What if interest rates explode ?”
      Purchasing power of the dollar declining at 9-15% annually and interest rates explode to what? 5% ?
      With the Patients in charge of the Insane Asylum at the Fed and Congress, party like there is no tomorrow.
      Certainly your children, grandchildren and the unborn have no idea (yet) how something as precarious as a fiat currency, founded in trust, can be so carelessly abused, as if it was secure in the hands of a Deity.

    • Augustus Frost says:

      I don’t know when the limit will be reached but there is one.

      Central banks hold their current level of FX reserves for non-economic reasons, like China does for domestic employment. It’s apparently more important to them to keep the domestic labor force employed even if the US is trading intrinsically worthless currency units for real goods.

      Private entities have no need and won’t accumulate endless amounts of a foreign currency they have no use for, especially when it’s losing value at an accelerated rate or the issuing country arbitrarily decides to freeze or confiscate assets within it’s reach.

      • DR DOOM says:

        The US and its Euro-vassals politicians declared war on the Russian Rouble and OWJ crowed and gloated as it dropped from 80 to 140 per USD. Then a funny thing happened. Euro-vassals realized they needed to manufacture and keep warm and eat. Another funny thing happened , the Rouble went back to about where it started. Was it because the Rouble is a “good” fiat currency? Hell no, all fiat is butt wipe. However the nation that issues the Rouble butt wipe can feed you and provide energy and materials for manufacturing and keep you warm. This is the real wealth of a country. Only an arrogant politically ignorant nation would think that their Fiat Currency was wealth. There are some hard lessons that will have to be re-learned by those who forgot that Fiat is based 100% on trust. Reserve currency Fiat must be absolute, universally non-conditional in regards to trust. The USD has demonstrated to the world in a loud and clear way that it cannot be trusted and it make things worse it is being de-valued, de-based rapidly by inflation. Perhaps even more disturbing is that the US Treasury and the political class in Washington D.C. are too busy en-riching themselves using their power to even give a shit.

    • Saltcreep says:

      PG, I’m betting on them imploding lower (on the longer dated treasurys at least). If I’m wrong and it doesn’t happen I’ll eat my losses, but as the Fed tightens and hikes into GDP and corporate profits flattening over coming quarters, I suspect markets will chase rates lower.

  12. SoCalBeachDude says:

    Stock market gains depend on profit margins rising, and they’re already impossibly high – MarketWatch

    • Jon says:

      Stock market gains depends upon cheap money and it is evident from last 10 years or so.
      Fed can start qe and push down rates making stocks soar to new highs.

  13. cb says:

    Wolf said: “But having the dominant reserve currency enables and encourages the US to run up its twin deficits, without much of a price to pay.”
    —————————————————-

    only if you don’t consider the large damage done to savers, the damage done to the working class, and the societal damage of concentrated wealth and power which awards the banking/FED/WallStreet cabal and the political class.

  14. SoCalBeachDude says:

    DM: Biden blames Putin and US oil companies for the rising prices making Americans’ lives miserable, but the TRUTH is that runaway inflation is his own fault – and a new chart decisively proves it, writes former restaurant empire CEO Andy Puzder…

    Runaway inflation – much more than just gas prices alone – is depleting the savings of hard-working Americans. And now we can now say definitively that Biden’s massive government spending – not war in Ukraine or greedy US corporations – is largely responsible for inflation. A new San Francisco Federal Reserve study released this week contains a chart showing that U.S. inflation spiked in early 2021 at almost precisely the same moment that Biden signed his massive $1.9 trillion Covid ‘relief’ bill. The study, titled ‘Why Is U.S. Inflation Higher than in Other Countries?’ compares inflation in the U.S. to inflation in other Organization for Economic Cooperation and Development (OECD) countries. You can literally see the inflationary impact of Biden’s $1.9 trillion debacle. U.S. inflation exploded U.S. from below 2% in early 2021 to nearly 5% at the end of 2021, unlike the average in Canada, Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden, and the UK.

    • phleep says:

      Both parties have been doing this for decades and finally some chickens are coming home to roost. And behind every over-spending decision is a complicit public.

      • 91B20 1stCav (AUS) says:

        phleep-check- the printing was going on well in advance of the current admin…

        may we all find a better day.

  15. cb says:

    Wolf said: “Of note: The fact that the Eurozone has had a large trade surplus with the rest of the world in recent years – particularly with the US – demonstrates that an economy with a trade surplus can also have one of the top reserve currencies, thereby debunking the outdated theories that the country with a large reserve currency must have a large trade deficit.”
    ——————————————————-
    So how does a country acquire foreign reserves?
    1. through trade
    2. through buying the currency wanted (in some cases printing your own currency to exchange for another)
    3. through borrowing
    4. through being gifted
    5. through counterfeiting?

    • cb says:

      is it a theory or is it just math? how else would a country get your currency to establish reserves with?

  16. AK says:

    I would like to point out that there is a factor today that didn’t exist in the 1978-1991 period when USD share of global reserves went from 85% to 45%. I mean the fact that US government has weaponized USD by frequent and large scale use of sanctions. To quantify the likely impact of this factor on USD foreign reserves, I would propose making a list of biggest USD reserve holders, and then splitting this list into three groups: the “antagonists” group that would include countries like Russia and China, the “vassals” group that includes countries like Korea and all EU countries; and “unaligned” group (India, South Africa etc.). The vassals group is stuck with USD (with respect to USD being weaponized); antagonists will dump all USD; non-aligned countries will reduce their USD holding to a safe level (as seen by each country individually).

    • Arthur says:

      Yes. Non-aligned countries can see that they must divest or align.

      The question is whether vassals like France and Germany will choose to remain vassals. The promise of LNG is too distant to avert the incipient suffering. Will their people accept it?

  17. Do foreign held financial reserves also reflect foreign debt denominated in dollars, or is it strictly trade weighted?

    • Wolf Richter says:

      From the article:

      1. Dollar-denominated foreign exchange reserves consist of Treasury securities, US corporate bonds, US mortgage-backed securities, and other USD-denominated assets that are held by foreign central banks and other foreign official institutions.

      2. The values of foreign exchange reserves denominated in currencies other than dollars are translated into dollar figures. For example, the value of Japan’s holdings of euro-denominated assets is expressed in dollars at the current EUR-USD exchange rate to make them comparable to other holdings.

  18. SoCalBeachDude says:

    David Stockman on the Coming Bond Bear Market… And What Comes Next…

    If you didn’t think the $70 trillion global bond market was a train-wreck waiting to happen, surely last week’s yield surge was a wake up call. From the 2.15% close one week earlier, the 10-year yield soared to a peak of 2.50% just after mid-day last Friday; and that 36 basis point gain was, in turn, the culmination of a stunning 200 basis point rise from the cyclical low point (0.51%) recorded during July 2020.

    Needless to say, an economy staggering under the weight of $87 trillion in debt, representing a record 365% of GDP, can’t take much interest rate increase in any case. But when the Fed is drastically behind the curve and will be forced to hit the brakes hard (and unexpectedly) in coming months, you are talking about a recipe for financial carnage.

    Of course, the knuckleheads in the Eccles Building are just beginning to faintly recognize the trap they have backed themselves into.

    In fact, the term “Volcker-like action” is surely an understatement. As shown in the chart below, the Fed has literally buried the bond market in false economics. That is, ultra-low nominal yields which cannot possibly withstand the inflationary gales coming down the pike.

    As of the end of February, the 16% trimmed mean CPI stood at +5.75% on a Y/Y basis, meaning that the real 10-year yield after inflation stood at a hideous -3.81%. But with inflation continuing to rise toward 10%, the handwriting is surely on the wall. To wit, last week’s yield surge was just a warm-up for the surges which lie ahead.

    • cb says:

      I like Stockman. He’s a genius. But I stooped listening to his forecasts after he made this specific call sometime after 2015. He said” “S&P 500 is heading through 1300 from above long before it ever again penetrates from below it’s old May 2015 high of 2130”

      Well, correct me if I’m wrong, but it still has never since penetrated 1300 from above, but it roared through 2130 and left it long in the dust.

      • Old School says:

        Stockman is a good writer and believes in hard money which if you had listened to him makes him a poor investment consultant.

        It really depends on what Congress and the Fed does and how the market reacts. You just have to keep in mind that at bottom of GFC SP500 was at 666 and if Fed has messed up with policy we could go back there.

  19. Prophet says:

    “and the ballooning trade deficit, engineered by Corporate America’s 30-year search of cheap.” labor?

    • RemoteWorks says:

      > “and the ballooning trade deficit, engineered by Corporate America’s 30-year search of cheap.” labor?

      A ton of it is due to wasting on healthcare DOUBLE what the US should spend as % of GDP.

      That monster has to be brought under control, rationing might be the only way to get it done.

      • Augustus Frost says:

        It will either be rationed by the government or the US Frankenstein version of the “free market”. Either way, there isn’t a single country on the planet which currently has single payer or nationalized medical care where it isn’t already rationed.

        • Old School says:

          I have heard some bad stories out of Great Britain lately where it’s easy to see the General Practitioner but waits to see a specialist are so long that people just pay out of pocket to get into a specialist office to save their life. Hope it’s not that bad.

  20. RemoteWorks says:

    The alarm about inflation being super high and still single-digit cracks me up.

    High inflationary times are times of GREAT opportunity!
    Don’t panic, figure out how to make the most of it and enjoy the ride.

    One of the upsides of this period versus the 70s people tend to try to compare this one to is that gas prices are 50% as relevant as they used to be, 4% of spending versus 8% back then. With WFH, remote work and the like, a ton of us are spending under $40 per month on gas anyway, even at these “high prices”.

    • Flea says:

      Retired so don’t drive much 50$ a month for fuel about right,also with work from home =less fuel consumption,shortages are because oil companies selling overseas at 3-4 times multiple,people are stupid

  21. cas127 says:

    Wolf,

    Any historical data on how quickly the Brit Pound went from absolute overwhelming center of economic universe to 4th banana, reserves-wise?

    At least the Brits had imperial delusions, and two world wars to blame.

    • Anthony A. says:

      Read the book “The Gods of Money” as it’s all laid out in there. Lending nations the money to rebuild after WWII was the start of our move to be the reserve currency.

      • OutWest says:

        And the US continues to be the number one global destination for immigrants, many of which become successful entrepreneurs and business owners. Until that trend changes I think greenbacks will continue to be in demand.

        Follow the money…

        • Lucas France says:

          I think the same, US Dollar will still #1 for decades. and will surprise many people.

    • Wolf Richter says:

      Maybe somewhere. I’m not interested in it. Happened long before my lifetime.

    • TheAltonRoute says:

      Hmm…I recommend The Monetary Sin of the West by Jacques Rueff. Rueff is very critical of the gold exchange standard that came out of WWI.

      • cas127 says:

        Given what politicians are, it is hard to believe that anchored currencies are worse than unanchored currencies for any appreciable amount of time.

        Castrate Keynesian deficit financing/monetary ratification thereof, and you’ll get longer recessions.

        Give politicians the crack cocaine of money printing and you’ll end up with an utterly debased currency, ruined economy, and toppled state.

      • exiter says:

        As Rueff explained , the Gold Standard and the Gold-Exchange Standard are very different, and the latter foretold [predictable] fraud.

        Namely, the GS settled “promises to pay” yearly in agreed-upon amounts of gold.
        The GES allowed settlement in USDollars or Gold, because the USD were allegedly guaranteed to be convertible to gold. This was basis for the maxim “the Dollar is good as gold”.

        There was no provision in the Brettonwoods Agreement for default by the US,which occurred in 1971 refusal to “Exchange” USD fo gold.

        I am certain that failure at Brettonwoods to plan for possibility of default was because there were no banking representatives or lawyers present, [sarcasm]. And that gives the lie to the whole affair that was/is promoted to the public.

  22. RemoteWorks says:

    > because I’ve spent nearly a decade as a full-time caregiver for a relative who has no money to hire care or to go to a care facility. It’s exhausting and leaves few options for making a living, even working remotely.

    From a previous post about wages not keeping up with inflation. This is the most important comment IMHO in that post, a crucial point IMHO of why women in old age are going to become the biggest block of homeless and the poor.

    Women have to stop volunteering for these types of tasks or they will face poverty in old age, even more so now that healthcare extends the period in which the elderly/sick need care to a much longer one than it used to be.

    We need to encourage women to say “No, my financial safety net hasn’t been fully built yet” before donating time for caregiving. These are times to be more strategic.

    • Harvey Mushman says:

      “because I’ve spent nearly a decade as a full-time caregiver for a relative who has no money to hire care or to go to a care facility. It’s exhausting and leaves few options for making a living, even working remotely.”

      RemoteWorks,
      Really sorry to hear about your predicament. Being a caregiver is probably one of the most difficult things one can do. I hope your relative appreciates your sacrifice.

      • RemoteWorks says:

        It’s not my predicament, it’s Dorothea’s and MILLIONS of other women. This is my best attempt at stopping the madness of pushing old women into poverty due to burdening them with caregiving duties.

        You will NEVER see me doing this, not until my own financial safety net is rock solid and on automatic pilot.

      • rick m says:

        HM- remote works isn’t the original poster, that’s a lady named Dorothea who posted on an earlier article. But I would tell remote that most of these situations aren’t possible to blow off until you get yours. I look after my 91year old mother, but my situation isn’t anywhere near as difficult as Dorothea’s. He ought to cop some sympathy for other human beings and thank God it’s not him in need, relying on the humanity and sacrifice of others, it’s very humbling.. and pray he never has to learn how that feels. Man plans, and God laughs.

    • cas127 says:

      1) Some states do pay for relatives to be caregivers,

      2) It might be possible to simultaneously help care for 1 or 2 other (unrelated, paying) dependents at the same time, converting unpaid labor into more of a paying job,

      3) It might be possible to work for a care facility that would pay you, discount your dependent’s fee, and limit your workweek to 40 hrs.

      Just some, admittedly imperfect, alternatives to consider.

      • RemoteWorks says:

        Hard pass! Women need to delegate elderly caregiving to retired men. They are physically built better when it comes to lifting elderly people in and out of toilets, bathtubs, beds and the like.

        We are built instead to take care of babies :-)

        In my family, we’ve delegated elderly caregiving to retired males with great success. I highly recommend other women to do that.

  23. roddy6667 says:

    Tainting the poop.

  24. gopherboy91 says:

    This is incomplete, or at least leaves an open question. How much of any particular nation’s reserves are held in gold? (Physical in-country, physical out-of-country, certificates; hidden or reported). If all currencies are inflating, the obvious move is to buy gold with them. But that got left off your charts.

  25. Bobber says:

    It seems the foreign central bank holdings be going down partly because US treasury bonds have lost some value over the past year. 2 year treasuries have lost 5%. 10 year treasuries have lost too. Even if they held 100% of the bonds, they are worth less than last year.

    • Bobber says:

      However, since the DXY has risen, maybe the value of US bonds stated in local currency has risen.

  26. unamused says:

    The decline of the US, economically and as a democracy, is a process rather than an event, and the weakening reserve status of the dollar is one indicator. That process is expected to accelerate dramatically over the next couple of years. Enjoy it while you can, because it’s not going to last.

    • Bobber says:

      These things do have a tendency to accelerate, as awareness grows. Losses beget greater losses, until there is capitulation.

    • VintageVNvet says:

      USA has never been a democracy.
      It has been a government and economy by and for the rich.
      From the so called founding fathers, all of the richest folks at the time, until now, the government has obeyed the orders of the oligarchy. The FRB was started to stop the ”Little Old Ladies — of every age and gender — burying their gold in the yard during the good/boom times; then taking it out and buying real assets for pennies on the dollar during the busts/bank runs.
      This has been documented clearly recently again.
      The only time there has been any degree of fairness/balance of distribution of earnings was the period after World War 2 when the rich folks shared some of the incredible bounty that resulted from the millions of poor folks willing to put their lives on the line to defeat the fascists powers — led to be sure by other oligarchs ( and a crazy or two ) who wanted to take away the wealth of the USA and allied oligarchy.
      This could be seen clearly if the wonderful charts Wolf puts out went back to the start of the FRB in 1913.
      ”They who have the gold make the rules;;; ) always have done and always will do, until we do actually have democracy, and democracy will NOT be any panacea as so many appear to think, because it will eventually become a meritocracy, the only permanent solution to human relations.

      • unamused says:

        “USA has never been a democracy.”

        You could make that argument, but it would not be entirely valid. It’s a matter of degree: a political entity can be more or less democratic.

        The interesting development these days is that a lot of people have been gaslighted into believing democratic principles should be rejected – and social morality and objective reality besides. But it’s a large subject and outside the scope of the present discussion in any case.

      • Brent says:

        =so called founding fathers=

        VNV

        As they used to say in the military “You dont salute the Man,you salute the Rank !”

        FYI spelling Founding Fathers with lower case is a minor violation under the Article 15 of UCMJ 😀

        As to the US being or not being a Democracy – Charles E. Beard in 1925 wrote a book “Economic Interpretation of the Constitution of the United States”.

        Which caused quite an uproar, with howls and outcries emanating from Academia reverberating well into the late 50’s.

        This book is still in print.

        Regards

  27. Michael Gorback says:

    Haven’t any of you heard of Triffin’s dilemma? He called the Bretton Woods failure 12 years before it happened.

    • TheAltonRoute says:

      I have his book Gold and the Dollar Crisis. I haven’t finished it yet.

  28. Mojer says:

    The numbers of billions of debt are unimportant because everything will be canceled with inflation and there will be no lifeline even by buying gold because everything is manipulated by the big mess on citizens who become poorer every day and can only pay and still pay more every day by entering a hellish game. Obviously, credit is only the engine of inflation for him, without credit the economy would freeze, it is said, but this statement would have to be re-verified. Buying the future in order not to see the present is the blindest constraint towards total planned failure. And it is now impossible to stop everything because the money supply is traveling like a train at 300 miles per hour towards the terminus.

  29. SpencerG says:

    I think the second chart tells the tale really. The reason that the US Dollar remains the Reserve Currency of the world has more to do with how well our FISCAL policy has been conducted than anything else.

    Paul Volcker’s Fed tamed inflation way back in 1982. Granted that it may have taken some time for people/nations/central banks to realize that the genie was truly back in the bottle… but not NINE YEARS. The US Share of Global Reserve Currencies continued to fall until 1991… the same year that the FIRST George Bush went back on his “Read My Lips” promise in exchange for a Democratic Congress giving him real (inflation-adjusted) spending caps on discretionary spending, and the “PAYGO” process for entitlements and taxes.

    Couple that with a Democratic President getting marginally higher taxes and a Republican Congress getting marginally lower spending for the rest of the decade… and eventually “the streams crossed.” That may be bad for capturing ghosts and ghouls but it turned out to be a good thing fiscally… three years of actual budget surpluses.

    Obviously other nations noticed as well because the US percentage of Reserve Currencies rose from 46% to 72% in those ten years. Sadly they also seem to notice that the good times didn’t last. The introduction of the Euro dropped the Dollar’s percentage by about 5% almost immediately in 2003… and it has been a slow goodbye of seven or eight points since then… which isn’t TOO bad over 20 years time but is not ideal.

    Looking at that chart from Wolf, it seems that the brief uptick in the holding of dollars by central banks mostly corresponds to the 2013 imposition of Sequestration and tax hikes. Again… fiscal discipline results in global benefits for America. Unfortunately, the last politician in Washington who thought budget discipline was a hill worth dying for was John Boehner… and he was run out of town by his own party seven long years ago.

    Seven long years in which the central banks of the world watched our fiscal situation unravel… again… and dropped the Dollar’s share of the Reserve Currencies by six points.

  30. Wisoot says:

    Pepe: ‘Rublegas:’ the world’s new resource-based reserve currency. Thecradle.co

    A Moment in Time. Grandkids celebrate planet Earth has a voice. Again -to Lemuria.
    Resources are the new world barter. Reserve name of the currency reduced to binary code of 1’s and 0’s. An irrelevance in 5 yrs.
    EU snivels, puts on a new bib.

  31. sinbad says:

    Countries need FOREX reserves to buy goods, a lot of those goods are commodities like oil metals and food. The Kissinger petrodollar is an example of generating demand for a currency via a commodity.

    Currently FOREX is the domain of the big financial players, but according to Zoltan Pozsar an analyst at Credit Suisse, the world is moving to a commodity based FOREX system.

    The current Russian demand to be paid in Rubles is possibly an early sign that commodity suppliers feel their currencies are under valued, and the numerous cases of the US UK and EU effectively stealing the deposits of other countries is causing countries to have second thoughts about keeping all their eggs in one or two baskets. One to one currency swaps with major trading partners is less risky, and cheaper by removing the money changing fees.
    Really reserve currencies are old world, where London and New York moved gold bars from one country’s cage to another cage.
    They relied on the whole world trusting them to play honest brokers. That trust has been broken by the seizure of depositors accounts.

    • TheAltonRoute says:

      Yep…gold was money, and domestic currencies were just local names for some amount of gold. A pound was 0.23 oz, a dollar was 0.05 oz, a franc was 0.01 oz, etc.

  32. Jan de Jong says:

    It took Volcker 5 years of 6% real interest rates in the early 1980s. When the CPI calculation was not ‘corrected’ yet.
    Powell will not come close, let alone Lagarde.

    • SpencerG says:

      Volcker wasn’t fighting 7% inflation that had been in place for less than a year. This is more akin to Greenspan’s fight against rising inflation in 1990… which he won pretty handily.

  33. Asul says:

    “The Chinese renminbi has been growing fairly consistently in minuscule increments and in Q4 reached a share of a whopping 2.8%, having gained 90 basis points in two years. At this pace, it will take the RMB another 18 years to breach the 10% mark.”

    Sarcasm is a great tool, but not if you use it for the Chinese. They have a long term plan and 18 years, which seem like a lifetime for an American, are only a blip for the Chinese.

    The petrodollar already has problems, because the Saudis are selling the oil in Reminbi to the Chinese. Big countries are moving away from the dollar, because of its weaponization.

    When I look at the long-term chart it seems that the spread of globalisation benefited the dollar immensly in the 90s, but now it seems it has run its course.

    The Iron curtain 2.0 is emerging and I’m not really sure, that the idea of a dollar global currency is feasible. The Asia continent will definitely become a Chinese economic zone, which has 2-3 billion people, so the reminbi has a great long term opportunity to gain an important share of global trade.

  34. TimmyOToole says:

    Wolf, could you elaborate on the value and benefits of controlling one of the world’s major reserve currencies? What do we “lose” as the rest of the world holds and uses fewer $US? Is there a way to quantify it?

  35. elysianfield says:

    “What do we “lose” as the rest of the world holds and uses fewer $US?”

    Timmy,
    Permit me. What we “lose” is the ability to Jamb the dollar up their…throats. If they did not “need” the dollar for trade payments, oil and food, they would avoid it like a Lyme-tick infested dog. The dollar would float, and imports would become insanely expensive.

  36. joe2 says:

    This whole discussion is moot:

    Executive Order on Ensuring Responsible Development of Digital Assets
    MARCH 09, 2022

    My Administration places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC.

    within 210 days of the date of this order, provide to the President through the APNSA and the APEP a corresponding legislative proposal

  37. Pehdro says:

    Mar 22 2022

    China assures Pakistan of ‘firm’ support in defending its ‘sovereignty’.

    Foreign Minister Wang Yi is in Islamabad to attend the 48th session of the Council of Foreign Ministers of the Organisation of Islamic Cooperation (OIC), as well as to hold a bilateral meeting with “iron brother” and strategic ally Pakistan.

    First time in OIC and Pakistán minister is out cause…

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