What the USD’s Decline as Global Reserve Currency Means for the US. What’s the Chance of a Recession? Will Interest Rates Hit Real Estate? What’s Going on with New & Used Vehicles?

Wolf Richter on This Week in Money, at HoweStreet.com


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  89 comments for “What the USD’s Decline as Global Reserve Currency Means for the US. What’s the Chance of a Recession? Will Interest Rates Hit Real Estate? What’s Going on with New & Used Vehicles?

  1. MattF says:

    Is there a toe point for reserve currency status? Do they tend to go down a percent a year until they hit some level and then fall off the cliff? The data set of reserve currency changes is small, but is there a historical or theoretical change point?

  2. shangtr0n says:

    great commentary, Wolf, always a treat getting to listen to you on these YouTube shows

    • joedidee says:

      all we’re seeing is the implosion of fiat $currencies
      no I only want …. no $dollars, no $euro
      heck no – no Argentina peso

      • Wolf Richter says:

        Send me all the dollars you don’t want. You can conveniently do it here 🤣❤. I’ll be happy to take them off your hands without charge. Euros too. But do NOT send me Argentine pesos. They don’t even work as toilet paper because they cannot be easily flushed down and might stop up the plumbing.

        • Jason says:

          I need a “Like” button for this comment Wolf!

          As always, appreciate the way you speak directly to the issues and dispense with all the diluted highbrow speak!

      • Juliab says:

        I’d take all and the Argentine peso to change the wallpaper in the living room with it. 😁

  3. Bill says:

    Maybe companies like Toyota are focused on a better area called Hydrogen. Subaru has had cars for years. Oil companies. Bosch has gone 100% are for hydrogen. 90% of the infrastructure exists. Just need to perfect the batteries and electrical cars are history.

    • MarMar says:

      No way. Hydrogen has a massive uphill battle ahead of it. The reuse of existing infrastructure like natural gas pipelines is limited because of hydrogen’s ability to infiltrate the steel itself and weaken it.

      • Mike R says:

        That’s old school thinking. Many of the pipelines are already lined with impermeable plastic composites similar that are not affected by hydrogen. People would be shocked at the already huge number of hydrogen pipelines criss crossing states underground. Hydrogen combustion engines will be more probable and prolific, but we will see a mix of technologies, still with domination by combustion and hybrids well into the next century. This initial excitement on battery electric has hit a wall both with materials available and charge times that are just too long, super chargers that are too much for the grid, and a power grid that just cannot be re designed economically without slowing electric car growth for the masses to a near stand still before 2030. Toyota is playing the long game, and not placing too much of their bets on pure battery electric. They will smartly keep two hydrogen options in the mix, and hybrids for decades to come. Tesla is pushing the legacy makers to the brink of extinction, and they should either stick to fossil hybrids or get out of electric entirely and let Tesla sink on its own dead battery weight. Tesla can’t bring its car prices down fast enough, but they are forcing legacy guys to wipe out their profitable ICE businesses to waste money chasing battery electric which is futile. Toyota isn’t being sucked into teslas game. Tesla introducing 84 month payment plans is their death knell. Real inflation rates will have a second spike, probably towards the end of this decade where we will see 15%. Ain’t no bev going to survive at 15% unless prices drop below $20k.
        Most battery electric vehicles on the road today will be discarded rubbish in 5 years. All that money people say they are saving on gas will be a mere pittance compared to their depreciation losses and insurance. Repairs for many things on these vehicles will be non existent, as will be places to get them fixed. It’s going to be one hell of an environmental disaster with all the batteries that will be sitting around as so much toxic waste. Very sad.

        • nicko2 says:

          Battery efficiency is advancing around 5% a year. Hydrogen is dead end….it costs at least a million dollars to build a Hydrogen fueling station vs. thousands for electric charger (and electric chargers will be EVERYWHERE).

          Holy grail is solid state batteries; they’re coming.

        • jr says:

          We have a 10 year old BEV that has been trouble free and has lost none of of it’s range/capacity. Bought it off lease 6 years ago with 23k miles for $7500. We live on an island where all gasoline has to come by barge, they won’t allow it on the ferry, so gas is expensive while electricity is not.

        • Valerie in Australia says:

          “This initial excitement on battery electric has hit a wall both with materials available and charge times that are just too long, super chargers that are too much for the grid, and a power grid that just cannot be re designed economically without slowing electric car growth for the masses to a near stand still before 2030.”

          I realise that I am not the typical Wolf Street reader, but the horrific conditions under which Cobalt is being mined has completely turned me off lithium ion batteries. I realise electric car batteries are not the only technology that need it, but that is also going to be an issue for people like me. My husband and I have decided that we are sticking with driving less, driving as small and fuel efficient cars as possible and getting on our bikes when local destinations are possible.

      • mol says:

        Agreed, on the direct use of hydrogen. But plenty of CO2 available for capture… React the hydrogen to produce methanol, then transport the methanol. Some big natural hydrogen deposits appear to exist also, from what I read a little about lately. To your point about hydrogen transport, even to drill for it… how do we do it? Inconel? Polymer lined steel?

    • Ethan in NoVA says:

      Toyota just made headlines not long ago saying they are sitting on solid state battery tech breakthrough and propose they will have EVs with 750 mile range, 10 minute charge times and by 2024.

      • Wolf Richter says:

        Another announcement… I’m really getting tired of these announcements. They’re all just making announcements while Tesla is making EVs at a rate now close to 2 million a year (480,000 in Q2).

        • ru82 says:

          Telsa seems to be eating Fords lunch. I read that Mustang Mach-E EV inventory is piling up and is at 90 days?

          I did a search on the FORD web site and searched for Mach-E local inventory at 5 dealers that are within 15 miles from my zip code. They have 63 in inventory. If I expand to 30 miles and 15 dealers, there are about 120 available.

          If I do a 30 miles search on ICE Mustangs. Only 26 in inventory. Understandable as they are moving away from ICE.

          A local 30 miles search on Ford F150 Lightning shows only16 in inventory and they all fall into the $73k to $95k price range.

        • Einhal says:

          ru82, don’t Teslas have double the tax credit?

        • El Katz says:

          Look to make sure that the availability your quoting is on ground only and not including in-transit vehicles. That’s a common item that is often overlooked when someone is perusing the web.

          “Availability” means that they have one that they can commit for sale. It’s assigned a VIN and is somewhere in the production/final inspection/POE (yes, even domestically produced vehicles go through a “POE”, if in designation only)/shipping pipeline.

      • Arnold says:

        In the Tech industry, they call that “Vaporware”.

      • Seba says:

        Ah yes, that was around late 2020 early 2021, at the same time everyone else was touting their solid state battery tech development that was “just around the corner”. Memorably Volkswagen had invested a bunch in QuantumScape, at the peak of the SS battery mania QS was worth something like $132, at the time I write this it’s worth $9.44.

        Hopefully I’m wrong but I’m not holding my breath on a Toyota with SS batteries in 2024

    • Bill says:

      The lesson learned from the Hindenburg must have been forgotten over time apparently.

      • Gilbert says:

        Indeed. 62,000 BTUs per pound. There will be great fireworks displays on the road should hydrogen become a vehicle fuel.

    • Denso says:

      Toyota is working on solid state storage for battery powered vehicles.

      It is and has been a hot research topic at many universities around the world.

      Once the research makes into actual products you’ll see a massive shift in Toyota’s production profile. Estimates are less than five years now.

      It will mean a massive change to power systems, mining, and drive distance for EV’s.

      There is a lot of research being done at companies that takes years and the right time to make it to market.

      Nippon Denso was working on regenerative braking systems for trucks back in the early 1980’s….

      At that time the costs and benefits made it unprofitable to put into production on vehicles.

    • Jason says:

      IMO, the EV opportunity was less risky (b/c much of the infrastructure is there/adapting).

      I think Range Rover has a hydrogen car ready. Conceptually (with the infrastructure) it seems like a total win, maybe in time making the EV as outdated as a “buggy whip”.


      • Wolf Richter says:


        The article from Edmunds that you linked was from 2015. Now we’re awash in EVs and hydrogen cars are still just experimental. Everyone has known for decades that hydrogen fuel cells work great. They have been around for 150 years, and they powered the electrical systems of the Apollo missions and the Space Shuttle – where the cost of fuel didn’t matter. But the problem is the fuel, hydrogen. It is the worst bitch to work with out there. It has the lowest energy density of any fuel out there, and so have to compress it to 10,000 psi to make it useful for cars, which poses additional problems that are expensive to deal with. In addition, though H is everywhere on this planet, it’s very energy-intensive to break off from the other elements it’s attached to, such as carbon or oxygen. For example, you can get hydrogen from water (H2O) via electrolysis, but it will cost you more energy to break off the H than you get out of H. This has been known this for decades. And the issues haven’t changed because H hasn’t changed.

  4. Hubberts Curve says:

    In the 1970’s when the US had 85% of the global reserve currency, did that take in to account the portion of the world that was ” behind the wall”. To what extent were the communist nations of the time ( USSR, China, Cuba, Viet Nam, North Korea ) totally separate and thus did we have 85% of the reserve currency of a smaller system. Or did these countries hold reserves outside the country for trade with non-communist countries and were thus counted partially?

    • tolkapiam says:

      Russia has paid dividends from the Sakhalin oil and gas development projects in Chinese yuan
      After Moscow last year established new companies to manage its interests in the projects, located in the country’s far east, Russian entities said they would change their dividend payment methods but did not specify which currencies they would use.
      Before the sanctions, Sakhalin project dividends had been transferred in dollars about twice a year through a bank account in Singapore. However, with the sanctions essentially barring Russia from the dollar settlement network, financial institutions are now reluctant to conduct Russia-related dollar transactions.
      Early this year, the Russian entities created a new remittance route to pay dividends from the Sakhalin projects.
      Russian entities recently used yuan to pay dividends to Japanese trading companies that have stakes in the projects. The related transactions are believed to have been handled by Gazprombank, a subsidiary of state oil and gas company Gazprom.
      Japan’s Sakhalin Oil and Gas Development Co. — in which the Ministry of Economy, Trade and Industry and Japanese trading companies have equity stakes — holds a 30% interest in Sakhalin 1. As for Sakhalin 2, Mitsui & Co. has a 12.5% stake and Mitsubishi Corp. 10%. Japanese companies maintained their stakes even after their U.S. and European partners withdrew.
      Yet yuan-denominated transactions are on the rise around the world.
      In March, China National Offshore Oil Co. (CNOOC), China’s state-owned oil giant, and Total Energies of France settled LNG transactions in yuan. Brazil has introduced a system in which yuan can be used to settle trade and financial transactions with China.
      Middle Eastern countries are also said to be positive about settling transactions in currencies other than the dollar.
      Yuan transactions are increasing particularly in Russia, owing to the sanctions.
      According to the Central Bank of Russian Federation, the yuan’s share of foreign exchange transactions rose to a record high of 39% in March, while the dollar’s share fell to 34%.

    • Xavier Caveat says:

      None of the Communist bloc country’s currency had any convertibility with western currencies, imagine half the world’s population being in that boat before 1990.

    • Not Wolf says:

      Or the amount that was held in reserves in gold?

      • Wolf Richter says:

        No because gold is NOT “foreign exchange reserves” (it’s a “reserve asset”) for central banks. Foreign exchange reserves are central bank assets that are denominated in a currency other than the local currency, such as Treasury securities or German government bonds held by the PBOC, which count as foreign exchange reserves on the PBOC’s books.

  5. SoCalBeachDude says:

    The US Dollar is the ONLY stable global currency and there are no present challengers to it at all nor will there be in foreseeable future (many decades ahead) and the US Dollar is around 100 on the DXY and which is an excellent and well-balanced global exchange rate.

    • George Wolfe says:

      Your simply wrong

    • Escierto says:

      The DXY is pushing higher on upcoming interest rate increases. It’s over 101 now.

    • Einhal says:

      How is it “stable?” It’s purchasing power has dropped 20-40% (depending on what measure you use) in the past 2-3 years. If that’s “stability,” I’d love to know how you define unstable.

  6. Micheal Engel says:

    American consumers taste is shifting. They shun large pickup trucks in favor of Toyota Corolla. Yugo ev, made in China, for $10K, might sell.
    After Ilan will finish cannibalizing most of the competition, during the next
    recession, China will march in.

    • El Katz says:

      Most Chinese sourced vehicles do not comply with U.S. crash standards. If they change the design, the cost will rise.

      If you look at the highest death rate per 1M vehicles on the road, most have one thing in common: They’re little sh&t boxes. The others are ridiculously overpowered for the common *driver* (and I use the word loosely). The list, below, is from MotorTrend magazine.

      Chevrolet Sonic: 107 Deaths Per Million Registered Vehicles
      Chevrolet Camaro Coupe: 110 Deaths Per Million Registered Vehicles
      Kia Forte: 111 Deaths Per Million Registered Vehicles
      Nissan Altima: 113 Deaths Per Million Registered Vehicles
      Dodge Charger HEMI (RWD): 118 Deaths Per Million Reg Vehicles
      Kia Rio (sedan): 122 Deaths Per Million Registered Vehicles
      Chevrolet Spark: 151 Deaths Per Million Registered Vehicles
      Hyundai Accent: 152 Deaths Per Million Registered Vehicles
      Dodge Challenger (RWD): 154 Deaths Per Million Registered Vehicles
      Mitsubishi Mirage: 205 Deaths Per Million Registered Vehicles

      • VintageVNvet says:

        This report makes a TON of sense to this old boy EK:
        Some of my first reading for fun was the stories about the ”street racers” in the midwest part of USA in the early 1950s, and the main theme, repeated often was what it took; ”lots of hair and a lead foot.”
        Had one of the vehicles near the bottom of the list, a hatchback accent,,, with automatic stick shift it was just as much fun to drive as my old bathtub porsche 1500,,, and, similarly, they both had a tendency to invite me to go too far for my driving skills…
        Other than another attempt to legislate ethics OR morality OR common sense, all such attempts certainly going to fail,,, WHAT TO DO??? To make people stop having fun fun fun until too late,

        • Arnold says:

          Because to many people driving home were being killed by other drivers having fun fun fun.

        • Escierto says:

          People can have fun but don’t expect my tax dollars to support the use of the emergency rooms and EMS for them or their victims. If you act irresponsibly then don’t expect the rest of us to bail you out.

      • cas127 says:

        What are the death rates for SUVs, etc?

        205 per *million* is about 1 in 5000 if my math is right. And while 1 in 10,000 (if SUV number) is *half* the rate, they are both pretty small numbers.

        Particularly if that 1 in 5000 can be pushed downward due to careful seatbelt use etc.

        I’m sure that loser US automakers would be happy to “sell” us 2 MPG tanks (weighing 100,000 lbs) , sale price $500,000, financed at $750 per month…forever.

        With government subsidies, “in the name of safety”…

        Everybody in the US has seen this grift before…because we are getting to the point where we have seen *every* grift…

        For instance, given the insane used car inflation, how does that “cash for clunkers” supply-destruction scheme look in retrospect?

      • elbowwilham says:

        That settles it. I’m getting my teenage son an Escalade. Only 6 driver deaths per million.

      • DawnsEarlyLight says:

        What are the highest death rates of vehicles ‘per accident’, not based on per registered?

      • nick kelly says:

        Hyundai Accent: 152 Deaths Per Million Registered Vehicles
        Dodge Challenger (RWD): 154 Deaths Per Million Registered Vehicles

        Tiny auto vs Giant auto…HUGE death diff

        • El Katz says:

          You miss the point…. one is overpowered (the Challenger) and the Accent is a sh!tbox. With the exception of the overpowered vehicles (Challenger, Charger and Camaro – all RWD by the way) the remaining 7 are small vehicles that had to pass NHTSA crash standards to be sold in the U.S. of A.

          Most vehicles from China are as small or smaller and not suitable to U.S. roads nor engineered to U.S. crash standards. They’re commuter cars at best, death traps at worst.

          If you’re ever bored, look at some of the NHTSA offset barrier crash tests. A-pillar meets head looks like it hurts… a lot.

  7. longstreet says:

    I vaguely remember stories about there being a dollar “shortage” in the world trade a few years ago…
    Werent Fed Foreign Swaps designed so as make certain this never happened?
    And is this why there is a movement to a digital currency?
    And what would that mean to the dollar as a reserve “digital” currency….or would the concept of “reserve” disappear with the “digital” as other currencies go “digital”?
    Could you please shed some light on this. Thanks

    • Thomas Hafen says:

      I think that has more to do with the drive to speed up money.
      There is this relationship of inflation, rates, productivity and the speed of money.
      To decrease the inflation, you can raise rates, or increase the productivity or speed up the money (so more transactions happen with the same money per given time since there is less hoarding).

      To speed up the money central banks keep the supply short, when inflation is too high, rates can’t be raised well and productivity can’t be increased.

    • Wolf Richter says:


      There was never a “dollar shortage.” That was fabricated clickbait BS. But for foreign governments and companies that borrowed in dollars, it got more expensive to borrow in dollars when interest rate rose. They borrowed in dollars because that was a lot cheaper (low interest rates) than borrowing in their own trashed currencies (high interest rates). They also borrowed in yen and euros. But when interest rates began to rise in the US in late 2020, from the absolute low in Aug 2020, suddenly, it got more expensive to borrow for them in dollars (LOL, join the club), and they had to refinance their maturing debt and issue new debt at much higher interest rates, and that was mis-represented as a “dollar shortage.” This “dollar shortage” term was the most ridiculous description of the reality of rising interest rates for non-US governments and non-US companies that borrow in dollars.

      The Fed’s foreign currency swaps addressed a different issue: the sudden and relatively brief freezing up of global financial and currency markets in March 2020. The swaps provided standby dollar liquidity for a select group of central banks so that they could feed dollars to their banks, if needed, so that they could deal with dollar payments issues in trade, etc., while markets were frozen. That was a very brief episode. We know the dollar amounts of those swaps. They shot up from Apr 1, 2020 to early May 2020, stayed at that level for May 2020, and in June 2020 they matured and were paid back and vanished. And that was that.

      Since those swaps were for dollar liquidity standby purposes, to have if needed, we don’t know how much of it, if any, the central banks actually used with their banks during that two-month period (April – May 2020).

      None of this has anything to do with digital currency. The dollar is already a quasi-digital currency as most payments are made digitally, bank deposits are digital, etc. You can have free and instant digital dollar-payments right now, no problem, including through Zelle, which I use. Over the coming years, FedNow will make free and instant payments standard, hopefully, if the banks implement it and make it available. But the banks have been fighting FedNow for 10 years because they would lose a profitable part of their business (payments and the three-day float – free money for banks – associated with their current practices). The Fed has said many times that it isn’t clear if it needs or even wants a CBDC (it’s studying the issue and looking at feasibility, use, and risks, and occasionally it releases reports on its work). The Fed is in no rush to proceed, and it may never proceed.

      • VintageVNvet says:

        Thanks for this very good summary and update on the potential for digital currency about which there is SO much click bait these days.
        Other than the giant bank I do most biz with these days apparently shortening the 3 day float on deposits into my account, what you say rings true in my day to day experiences.
        As an entirely owned by banks entity in deed, why would the FRB ever want to do anything to disturb the profits of their owners?

      • DawnsEarlyLight says:

        ..”they would lose a profitable part of their business (payments and the three-day float – free money for banks – associated with their current practices”.

        You can say that again!

      • longstreet says:

        Thank you for your reply and thanks for taking the time to explain.

  8. Bruce says:

    A decline in the dollar as the global currency will only with time increase inflation pressures in the US…..has to.

  9. Karl says:

    When countries trade directly with each other, like India and Russia or Russia and China, or Russia and Iran, or Russia and Brasil, or Russia and Africa, maybe that trade does not show up in this statistic of “global reserve currency”. What about the new BRICS currency or trading platform that will bypass SWIFT?

    • Wolf Richter says:

      You’re talking about an entirely different thing: Trade, paid for with currency. The biggest “trading currencies” are tracked by SWIFT. The euro’s and the dollar’s shares have run neck-to-neck as the top trading currencies, well ahead of all the others. Cross-border trade can be paid for in any currency the two companies agree on, and this has always been the case.

      Foreign exchange reserves — which I discussed in the interview — are “assets,” meaning securities denominated in dollars, such as US Treasury securities, US corporate bonds, etc. They’re held for investment purposes.

  10. fred flintstone says:

    On a PPP basis India and China are over 27% of world GDP. We are about half that and declining very steadily……and particularly India is set for very strong growth coming up.
    So….to think the US dollar will in the long run hold onto its dominance is hard to accept.
    Europe is fading away slowly, while most of the Asian tigers and even some South American countries emerge. European demographics are horrible in the next decades.
    China is building naval facilities in Argentina, has a treaty with the Solomons for facilities…….the world is changing right before our eyes and denying it in my opinion is foolish.
    How fast…….one day you have it……..one day you don’t.
    In 39 Britain ruled the world……in 45 Britain asked the US how far to jump
    The main question is can we defend ourselves and live a good life……yes……but we have got to control our spending.

    • nicko2 says:

      India will be stuck with high inflation (especially with rising climate change costs); China will have deflation due to shrinking/collapsing population. Already China is concocting ways to prop up it’s imploding property market.

      There is no substitute for the greenback.

      But anyway….why do you figure the US is signing so many big deals with India? They are hitching a ride to the biggest democracy.

      • Escierto says:

        I had to laugh reading the phrase “world’s biggest democracy”. What a joke. The only true democracy left is in Uruguay and the town meetings of New England. Let’s face it – democracy is hated all over the world and nowhere is this more true than in the good old USA!

        • VintageVNvet says:

          Town meetings in NE, MAYBE ”briefly” E, but for the rest of these ”isms, etc.,” they have never existed outside of the minds of some folks whose main thrust, always, has been utopia,,,
          And especially utopian visions focused on their personal well being, etc., etc., ad infinitum…
          Hope you can get over the ”true democracy” fallacy, and get back to helping WE, in this case WE the Entire Population of People on this globe who are NOT going to Mars at the earliest opportunity, LOL.
          Thank you.

        • Gilbert says:

          Town meetings in NE are — for the most part — a joke. The vast majority of voters don’t attend, and those who do vote cautiously. Ask yourself why anyone would vote no on, say, a school budget when your next door neighbor has children in the system? Want to ruin a perfect relationship with a neighbor – vote against something they hold dear.
          A bright spot is the recent emergence of written ballot town meetings where the warrant articles are voted on with paper ballots.

      • Arnold says:

        India will eclipse China as the most populous country sometime this year.

    • El Katz says:

      The U.S. has become a country that can’t be trusted to keep its word. Treaties are broken with wild abandon. I still recall a conversation I had with a woman in Vienna a few years ago. The question I raised was along the line of “do Europeans hate Americans”…. her response was lightning quick. “We love Americans. It’s your government we can’t stand.”

      • VintageVNvet says:

        Other than the part, ”has become…” I totally agree EK, to our continuing shame.
        Ask the ”early or at least earlier peoples”,,, many of whom had fair if not easy local government of their tribe and clan and even regional peoples who made ”treaty” with USA GUV MINT, only to see USA GUV MINT abrogate and ignore those treaties over and over again.
        While I have SOME serious and otherwise difficulties with some current concepts of reparations,,, with reparations to earlier peoples I have none.
        OTOH, the apparently total legalization of gambling recently certainly appears to have provided a non tax payer remedy, eh
        Remembering well the Seminole kids in my HS, I am very glad to see their families doing SO well with the current situation, and hope it continues for them, in spite of all my age peers gone to their Great Spirits SO young.

    • Wolf Richter says:

      fred flintstone,

      The “PPP-basis” (purchasing power parity) isn’t worth the paper it’s written on. It’s just an aglo (a formula). The measure is very “controversial” for its long list of well-documented short-comings. Consume at your own risk.

      • fred flintstone says:

        Respectfully. Both main methods are full of holes…….but…….understood……PPP has its faults.

      • Kilowatt says:

        PPP is interesting from a theoretical perspective, but ignores many of the factors that influence it’s result.

        It is just like the LCOE that people use to push solar and wind.

        The best “way” to make solar and wind competitive in the market is not to push concepts like production cost comparisons, but to increase the cost of electricity to consumers to the point where adoption of these technologies is cheaper than buying in the market.

        This is especially so for solar panel systems.

        Compared to the rest of the world these solar panel systems are extremely costly in the USA and also increase property taxes as well.

        Both work to limit adoption for households in the USA along with cheap electricity prices.

    • Not Sure says:

      The collapse of China’s working-age population is a mathematical certainty at this point. Even if they started pumping out babies tomorrow, the gap in their labor force caused by their one-child policy and decades favoring the births of sons is going to be hitting them hard. the post pandemic labor shortages and skills gap has been bad in the western world, China is going to make those issues look pretty tame with the fastest aging population in the world. Their working age pop could be down by 300 million by 2050, which is nuts. Their pension will almost certainly have collapsed by then as well. And that’s before we even touch on the world’s most inflated RE market and how bad it’s collapse will be… Based on the horrible build quality in their construction, their RE collapse will be structural as well as financial. China’s demographics and bubbles are by far the worst of any major power in human history.

      India is big and they have a lot going for them, but they have so much catching up to do in terms of infrastructure both physical and financial. Just California alone has an economy about the same size as India, and India’s GDP per capita is still pretty poor. Best case, they still have at least a couple decades of development ahead before they could be on the map as a front running economic powerhouse while China fades off of the map. I don’t see the Rupee on any of Wolf’s reserve currency graphs. There’s probably a reason for that.

      When we figure in Korea’s disastrously low birth rate along with Japan’s aging population and Europe’s questionable demographic quality, one could say that the world economy will likely look a lot different by 2050-2060. And the dollar could still be the cleanest shirt in the laundry at that point. We’ll see.

      • Miller says:

        Not really, we got an assignment to study this very issue in one of our business team trips there not too long ago and the Chinese demographics there are misunderstood on a lot of sides. The one child policy really was far less than all the press it got, they only ever applied it at all in some of the big cities with heavy over-crowding and even then, many of the wealthier families just paid the fine (which was a token fine even for the middle class) to get around it. It was never really applied in smaller cities leave alone in the villages and farms where most of the population lives, so result is most kids over there have grown up with siblings–the country actually had much sharper birth drop before the policy went into effect, when family planning became more widespread and the subsequent censuses better accounted for kids previously unregistered (mostly girls). So the actual male female ratio imbalance is much less than previously estimated, and for what it is, the farmers just marry women come in from Vietnam, the Philippines, India, Burma or escape from North Korea. In fact cities like Shanghai and other tech and business centers get a lot of immigrants themselves, though it’s much more regionally there mainly from south or southeastern Asia.

        Sure, the working age population of current generation is smaller but that’s a problem everywhere in the West too, including in the US. In fact the USA has a big demographic problem compared to both the West and many Asian countries due to our abnormally high level of early deaths and sickness from things like opioids, suicides, shootings and accidents, so we’re actually losing our working population a whole lot faster than other countries are. That’s why in the team’s final reports, the demographic issue over there was basically dismissed as something for investors or businesses to really fret about. Sure it’s an issue, but no more than it is for the US or Europe either, we’re all facing it so if it’s a problem there, it’s a problem here too.

        • Miller says:

          However agreed with you on India, it’s such a frustrating place for investors because it’s so, so full of potential that gets unrealized due to the many structural problems, above all due to overpopulation and the tremendous strains this puts on India’s infrastructure, physical and society. There really is a lot of potential for industry and tech to take off in India, but that potential is frustrated when there are so many young people desperate for work and basics to make a living, this leads to social tensions, migrations, stresses on healthcare and infrastructure, best people leaving and increased crime and gridlock. The longer it takes for India to get the population stabilized, the more potential industrial and tech opportunities will slip away for good, as industry and trade partnerships move to other countries.

          At least recently, India finally brought it’s birth rate below replacement and that will finally help them to get a demographic dividend and reduce the stresses from these issues, which could at least help them to realize their potential. But due to age structure it’s unclear how long it’ll take for population to stabilize, though some more recent data indicated the fertility rate may be falling even faster now after 2021, which indeed may help India to get its population in check to fulfill the demographic dividend, that’s the most basic requirement to then apply it’s resources to some key areas of economic and tech development at home.

        • Not Sure says:

          2022 was China’s first year of population decline, down 850k people. The U.N. estimates that China will be down 100 million over all by 2050, with the working age pop taking an even bigger hit as prime workers age out physically. Overall pop will likely be down to 800 million, maybe as low as 500 million by 2100. At that point it will also have a very high average age. Even with loosening policies and government encouragement, their fertility rate is 1.18 and dropping.

          Miller, I’m looking at estimates from big organizations like the U.N. and Pew Research. China’s demographic crisis seams to carry a consensus among all major journalistic outlets of all political alignments as well, and just American outlets. These are institutions that have a lot of resources and access to a lot more information than you would have had for a business research project. I can’t imagine that they’re all wrong. Anything is possible, but it’s very unlikely.

          I did also mention the labor shortages that we’re seeing in the western world in part due to an aging population and demographic weakness. But I posit that China’s dilemma will be much worse. Our growth is slowing, but we still have a little ways to go before our population actually starts shrinking. Meanwhile theirs already is.

  11. Richard says:

    Aren’t some countries like China now using gold as a reserve as opposed to dollars?

    • Wolf Richter says:

      1. The People’s Bank of China has $3.2 trillion in foreign exchange reserves, much of it in dollar-assets, including about $900 billion in Treasury securities, but also assets denominated in euros, etc.

      2. Gold is NOT “foreign exchange reserves” (it’s a “reserve asset”) for central banks. Foreign exchange reserves are central bank assets that are denominated in a currency other than the local currency, such as Treasury securities or German government bonds held by the PBOC, which count as foreign exchange reserves on the PBOC’s books.

      • Xavier Caveat says:

        Do the central banks keep as much in silver as they apparently all do in gold reserves?

        • Wolf Richter says:

          Do they keep any? It seems very impractical to me.

        • nick kelly says:

          Silver as a monetary metal had a long history that is pretty much gone. One of the last state hoards in the West was in Mexico.

          During the attempt to corner silver by the Hunt brothers and the Suads, their opponents including Mocatta metals were able to convince the Mexican central bank that 50 US$ an oz was a VERY high artificial price and convinced Mexico to unload.

          The US Comstock Lode, which was almost pure silver was a boon for pre-war China, where ‘silver’ came to mean ‘money’ and was a reliable means of exchange. Don’t know how Chinese got the silver: did they work as miners and building RR like in Canada? But in the Depression the price of silver collapsed pricing China out of world markets.

          One prob with silver coins, they are easy to debase. There was an attempt by a cartel called the Latin Union that around 1890, tried to fix the gold/ silver ratio for silver coins but even state actors alloyed them.

          Re: gold. Canada with an economy the size
          of Russia’s has 137 ounces of gold in BoC.

          In general, the shakier the economy, the more a regime talks about its gold.

  12. Xavier Caveat says:

    Having the cleanest dirty shirt (I believe it to be a Hane’s Beefy T) as far as a currency goes, is about as good as it gets now, right?

    • SpencerG says:

      I don’t know about that. ALL currencies have “dirty shirts” as you say. But a global RESERVE currency generally depends on two things… a nation being large enough and rich enough that other nations want to both trade with it and hold its currency for future investment purchases…

      AND safe enough that those held notes won’t decline in value due to war, inflation, and such.

      You see those two rules play out ever since the Spanish created the first “Reserve Currency” following Columbus coming to the New World. The Spanish Silver Dollar served that function until inflation (and pirates) destroyed its value in the mid-1500s. The Netherlands took over after breaking free of Spanish domination with another silver coin and what we would now consider a “modern” central bank only to fall when wars with France and Great Britain weakened it substantially and it lost its overseas empire.

      Then, a stable France was next in the 1720s… followed by Great Britain once the threat from Napoleon was removed in 1815. That lasted until the end of the First World War when America now had the world’s dominant economy and two oceans (and a large Navy) protecting it from attack.

      Looking at things as they stand now… the economies of the European Union and China are roughly equivalent to America’s… but they certainly haven’t SUPPLANTED it in size and they are unlikely to do so. China is facing a demographic implosion that will limit its economic growth over the next 50 years and has had “one-party” CCP rule supplanted by a one-ruler dictatorship… so it is hard to see any Central Banks thinking it wise to stock up on Renminbi. The European Union is in the MIDDLE of a demographic meltdown (albeit modest) and has a fractious leadership model (to put it mildly)… so the Euro having a 20% share of Reserve Currencies seems appropriate and unlikely to change.

      That leaves “safety” as a factor. Militarily, while in the age of ICBMs the distance that two oceans provides America is less important… it is not UNIMPORTANT. Pickle off even a single nuclear weapon at us and we will drop 100 to 1000 on you and “never lose a night’s sleep over it” to quote Truman about Hiroshima. As to NON-nuclear warfare, the simple fact is that our military is the same size as the next ten combined (most of whom are American allies). Moreover in the event of a non-nuclear conflict, we can support ourselves with both food and fuel… China cannot do either and Europe can only feed itself.

      Thus the biggest threat to America’s dominance of the Global Reserve Currencies is weak political leadership allowing INFLATION to take hold the way it did in the 1970s. As to whether or not THAT happens over the course of the next 20, 50, or 100 years… your guess is as good as mine. But it is also true that EVERY currency faces that SAME problem.

      • Miller says:

        Our econ class taught this to us in some of the same ways but also some differences. Reserve currencies today mean something different than meant centuries’ ago, partly because people and institutions have so many other choices to place their value. So it’s not just other currencies a reserve currency is “competing” against, it’s other stores of value–part of why the US dollar has lost so much ground so fast is that not only foreign investors and institutions, but even many Americans have gotten frustrated with the loose and foolish monetary policy that led to runaway inflation in 2021, and had more places to turn to keep their money. To contrast, when Spain had the reserve currency it was a whole lot more dominant in a lot of ways because there were places to turn, that’s why by some calculations, Spain had that role well into the 1600’s and even into the 1700’s, long after they’d stopped being a top political or military power. (The Spanish coins were one of the few trusted currencies and sources of stored wealth in the 13 colonies, and a lot of the policies establishing the USD itself were based on the Spanish currency and what it was worth in the late 1700’s) Later reserve currencies haven’t had nearly that level of near monopoly control or durability, as contrast the British pound had such an importance for less than half that period and the dollar is eroding even faster by historical standards.

        A big part of it is the “death by a thousand cuts” that happens when a reserve currency holder gets careless with it’s monetary policy for a prolonged period like you said, like the Fed did with the incredibly foolish policy of prolonged QE even before Covid (including the unforgiveable sin of buying MBS’s like they did) and ZIRP on top, and then deluded dismissing inflation as “transitory” while being beholden to billionaire speculators vs the good of the currency and American people as a whole. This has maybe always been the case for reserve currencies but esp now, it’s not just a single other reserve currency the USD is eroding against, it’s a whole basket of them, and commodities, and precious metals, and equities markets and even things that shouldn’t be valued but are anyway (aka, crypto and Nft’s).

        The Middle East oil exporters and Asian manufacturers (even including Philippines) have been dropping the dollar at much faster than they expected. But not because of some grand geopolitical calculation, it’s just because they can’t tolerate exported inflation from lazy US Fed monetary policy, or they risk social unrest, toppled governments and (maybe even literally) their leaders losing their heads. It wouldn’t necessarily be a bad thing for the US dollar to get revalued down, Wolf has talked about this and it would help US exports and manufacturing, but it’s not a good thing for the USD to get gutted due to bad monetary policy that leads foreign and domestic holders to move away from the dollar due to high inflation. This is one of the less appreciated costs of the Fed’s dangerously foolish loose monetary policy going back 40 years–including Greenspan, Bernanke and Yellen before JPow–and another piece of evidence how ahead of his time Paul Volcker was and still is. It’s not even clear the US can be so assured of providing food and fuel to our people as we used to be, the heat recently has been wreaking havoc on food production and there are only so many wells that can be fracked, on the other side, other countries esp in Asia have been investing heavily in better battery tech and storing up oil, coal and making effective renewables faster than we expected.

        • SpencerG says:

          I agree with much of what you say, but here are three points I don’t buy.

          1) The US Dollar has “has lost so much ground so fast”??? In point of fact it has held up rather well. It’s peak in the post-Reagan/Volcker era was 72% and then the Euro was introduced in 1999 causing it to slide six points in three years. It has taken another twenty years for it to slide another six points… and has actually upticked in the past four years. Wolf has a chart of this in his first comment on this thread.

          2) In terms of security, the US food supply is totally safe. Nobody can starve us out… whereas China would be in a pretty pickle if maritime traffic suddenly stopped flowing. I agree with you more about oil… fracking is somewhat suspect over the long term… but we would still be able to access Mexican and Venezuelan crude without too much concern of those lines of communication being cut. Moreover, our coal is just sitting in the ground… it is not going anywhere so we don’t have to bunker it like Asian countries do.

          3) EVs and renewable energy are somewhat of niche products for the moment. EVs are still about 1% of car sales in the U.S. (and less elsewhere) while no manufacturing country (or region in the EU’s case) bases its energy sector on renewables.

  13. jim says:

    Wolf, you used to bash Tesla and Elon till a year ago. You stated Tesla stock was a bubble and it had the tiniest market share. You even said Elon was pumping up the stock with his various comments and hyperbole. What had changed? You now seem to be a Tesla fan.

    • Einhal says:

      I read Wolf’s posts much differently than you did. I read his posts to mean “Tesla makes a great product, and they’ve done a great job disrupting an industry that refused to seriously do anything with electric cars, but their stock price is not reasonable given that it’s a car manufacturer which has to compete with others.”

      I never read it as him “bashing” Tesla and I don’t see being a Tesla “fan” today.

    • Wolf Richter says:


      Einhal nailed it.

      In terms of Tesla’s stock, my opinion has not changed. The stock is a lot lower than it was: -35% from the peak in Nov 2021. If I had extra sleep I wanted to lose, I would short it. As the stock goes down and earnings go up, eventually it might be in a place where it’s reasonable. But it’s still a good distance from that point.

      But some things have changed:

      1. Musk is now largely busy pumping other stuff… so that has changed.

      2. And Tesla is now cleaning everyone’s clock, and that has changed. I have for decades despised the oligopolistic pricing behavior of the legacy automakers with regards to full-size pickups. They just ripped people off and got away with it because there was no competition on price, which led to obscene profit margins in the pickup segment. It’s just ridiculous. So I’m having a blast watching a newcomer tearing up their strategy with big price cuts and the fastest capacity-build by a single brand that the global auto industry has likely ever seen. This is really good for consumers and the economy, though it’s potentially shitty for legacy US automakers. And I love that. And that’s new (started ca. 2 years ago).

  14. Micheal Engel says:

    1) Russia accumulated so many useless deflating Yuan, they cancelled their bilateral trade agreement with China.
    2) India signed 17 bilateral trade agreements with UK Sunak, Putin, UAE, Israel …
    3) China and India compete with each other for influence and economic power. There will be a race to the bottom between them. China and India want to be less dependent on the dollar, but they might cannibalize their currencies first.
    4) There is a race to the bottom between Tesla, Ford and GM…Each of them want to stay in the EV game. China is upgrading, waiting on the sideline.
    5) Japan is “upgrading” unsinkable islands north of Taiwan.

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