- Feb 10, 2023

The USD hegemony is NOT over

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8 Comments

Feb 11, 2023

The US financial market is really an enormous hegemonic advantage. If I was a China Communist Party official, I would try my absolute best to create an alternative vehicle somehow to soak up excess savings of Asia. I realize this is a very difficult task given legal system, and govt meddling. But the rewards would be worth it.

For an individual with dollar liabilities, there is no doubt the US stock and debt markets are a great benefit. I don't know what it is like in Israel but I do know that in other nations, it is quite difficult to feel comfortable holding long term assets in local currencies.

David

Feb 12, 2023

Replying to

Most of the world savings are held in local currencies. The advantage of the US markets for foreign investors is that it offers true diversification. Most other countries tend to be very industry specific in terms of their stock markets

Dominik Blaettler

Feb 10, 2023

Dear David

Thank you for your video.

The US with the USD as a global reserve currency is acting as a banker to the world, absorbing with its fiscal and current account deficit the excess savings of europe, asia and opec countries.

How do you consider the aspect of shortages of safe assets as described by the IMF in 2012 in the willingness of the US to provide the global reserve currency going forward?

How would the creation of a synthetic commodity & asset class, for example carbon credits, change the game?

David

Feb 11, 2023

Replying to

I started my career at the IMF and have many friends at the WB. I can tell you that these institutions are often under heavy political influence from their shareholders to promote certain political agenda in which they have little institutional competency. Climate change is a great example

CTC

Feb 10, 2023

Very interesting but aren't there two countervailing points to US dollar in terms of global hegemony?

1) As the US takes aggressive actions (seizing Russian assets, threatening China over the balloon, forcing other countries to choose US over Russia/China), any country that even thinks about disagreeing with the US, realizes that its dollar assets are at risk. If Saudi buys Russian military equipment, what is to stop the US and its vassals from threatening the Saudi wealth fund? So why should China have any money in US Treasuries. Why $800 bn? Why not 0? Yes - non dollar assets may be suboptimal but it is a question of return of your money, not return on your money. I would imagine…

David

Feb 11, 2023

Replying to

CTC, The data on the trade balance for advanced technology products is from the department of commerce. I agree with you that we will see a return of the 1970s over the next few years: geopolitical tension and stagflation. Why the market has not figured this out is really beyond me. The Chinese know that if they start dumping US Treasuries openly in the market, the US might just decide to freeze their holdings. Remember, the NY Fed is the custodian for most of the foreign central bank holdings of US Treasuries. Foreign central banks are trapped in the USD. Moving into the EUR makes little difference because Russian holdings of European assets have also been confiscated. This is wh…

The USD hegemony is NOT over

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