"Are the days of US dollar dominance drawing to a close?"

[bluewater]

Financial Review
Mar 20, 2022 – 8.00pm

Are the days of US dollar dominance drawing to a close?

Concern is growing that Russia’s invasion of Ukraine will accelerate the demise of the international financial system, and dislodge the US dollar from its privileged status.

For many, reports that China and Saudi Arabia are now stepping up negotiations to price oil sales in yuan provided confirmation that the US dollar has now begun its ineluctable slide. As The Wall Street Journal reported last week, Saudi Arabia is now in active talks with Beijing to price some of its oil sales to China in yuan, a move that would dent the US dollar’s dominance of the global petroleum market.

The report comes as a growing number of analysts warn that Beijing’s determination to diminish the US dollar’s privileged position at the heart of international finance will have been bolstered by the sanctions imposed on Russia by the United States and its allies.
...

The problem is that if the US dollar and US government bonds are no longer deemed risk free, there will be a growing focus on assets that are presently outside the global banking system, such as gold and commodities, and cryptocurrencies.
Zoltan Pozsar, global head of short-term interest rate strategy at Credit Suisse, says a crisis unlike anything since Nixon took the US dollar off gold in 1971 is now under way, which will lead to the creation of a new world monetary order.

https://www.afr.com/companies/financial-services/are-the-days-of-us-dollar-dominance-drawing-to-a-close-20220320-p5a67o

[mathematic]

1. No, 1) chinese currency is not freely floated & 2) "traded for" is not the same as "priced in"

1) The chinese currency is tightly managed by China to a fixed exchange rate with the dollar, so right now trading in yuan might as well be trading in dollars.

2) The dollar is the world's reserve currency because everything is priced in dollars. Trading gold for oil? Ok, The price of oil is $100 a barrel. An ounce of gold is $2000. So we'll give you 1 ounce of gold for every 20 barrels of oil. The transaction is still priced in dollars, but the barter happens between equivalent dollar-value quantities of goods.

It's time to worry about dollar dominance when Saudi Arabia trades with South Africa who trades with Russia who trades with China, all with yuan denominated prices AND china lets its currency freely float against the dollar.

[bluewater]

8. "reports that China and Saudi Arabia are now stepping up negotiations to price oil sales in yuan"

So that's just the first step?

Next step, as you point out, would be "AND china lets its currency freely float against the dollar."?

I see.

Isn't that becoming increasingly likely? And I don't mean just in the extreme short time but rather, say, over the next 5 years?

Thanks for the insights.

[mathematic]

13. Nah, that's only superficially "priced in yuan" like the gold example I gave

Under the "dollar loses dominance" scenario china freely floating their currency is step one, as there's no indication Saudi Arabia would take yuan for their oil if they didn't think they could get a certain amount of dollars for that yuan.

[uponit7771]

22. If the dollar wasn't the judge of the Juan yes it would be the first step. China wont float its ...

... currency cause then their crap isn't cheap any more

For anyone

For a generation or two, they can't take that

[bluewater]

23. "For a generation or two, they can't take that"

Nod.

Looking back at the pace which the world's economy has shifted over the last 30 years, I can see it taking another 20-30 years before the yuan is a serious alternative as a reserve currency.

Thanks for your insights.

[BootinUp]

2. They are dreaming imho. Nt

[lapfog_1]

3. all the more reason to get rid of oil

as an energy source.

There is a saying about the generations in the oil rich middle east.

“My grandfather rode a camel, my father rode a camel, I ride a Mercedes, my son rides a Land Rover, and my grandson is going to ride a Land Rover, but my great-grandson is going to have to ride a camel again.”

Let's make it true.

[lagomorph777]

11. Bingo. The real currency is oil. That needs to stop.

[fescuerescue]

18. If they are ridging camels again

We will likely be riding horses again.

[lapfog_1]

19. They need to sell oil

to have money. If the world no longer needs oil, they have very little else to offer the world.

If we move to green energy (and I will include nuclear in that both fission and fusion), we have much more to offer to continue our current (or even better) standard of living.

[Wounded Bear]

4. More worried that the world will continue its dependence on oil...

[dawg]

5. The time is ripe for the rise of Doge.

[Ferrets are Cool]

6. At least I learned a new word

ineluctable

[brooklynite]

7. My wife (Treasury Dept) has raised this concern

The USD is the world's reserve currency because its freely transferrable. The freezing of Russian dollar assets, however merited, makes the dollar less reliable for national deposits going forward.

[bluewater]

9. Indeed.

Russia and China have both been making the case that the US has, in their words, "weaponized the international financial system".

[bluewater]

12. Surprisingly better after Putin announced payment for Russian Oil and Gas must be in rubles

Prior to the Russian invasion of Ukraine, the ruble was trading at ~78 rubles to 1 US dollar, as it was pretty much for the previous year.

On March 7th during the invasion of Ukraine, the exchanged rate reached its most unfavorable value hitting 135.5 rubles to 1 US dollar.

After Putin announced Russia is now demanding payment in rubles for its oil and gas, the exchange rate improved considerably and today is 89.5 rubles to 1 US dollar.

https://www.msn.com/en-us/money/tools/currencyconverter/fi-avys2w?ocid=ansMSNMoney11&duration=1D

[Fiendish Thingy]

14. As much as Elon Musk and Steve Bannon want this to happen, it ain't gonna happen anytime soon

[bluewater]

15. It's a legitimate concern.

https://www.democraticunderground.com/100216515984#post7

[JCMach1]

16. Nope, these stories pop up every few years and never amount to jack

Bitcoin is much more likely than the Yuan. Just saying. No banks needed.

[bluewater]

20. The unprecedented scope of sanctions imposed on Russia have responsible people concerned

As pointed out by a DU-er with, well, "intimate" knowledge of the issue.

My wife (Treasury Dept) has raised this concern

The USD is the world's reserve currency because its freely transferrable. The freezing of Russian dollar assets, however merited, makes the dollar less reliable for national deposits going forward.

https://www.democraticunderground.com/100216515984#post7

Pardon the joking but well intentioned wordplay.

[JCMach1]

25. I stick by my point. Not happening in this century

And yes it pops up every few years then crickets.

No doubt there is talk... There always is... Just talk

[fescuerescue]

17. If that happens our way of life will change drastically

Deficits and debt will start to matter.

We'll be the tail instead of the dog.

It will make our current inflation crisis look like a nice summer day.

[bluewater]

21. That is the concern, yes.

[DFW]

24. You can park that concern with Susan Collins

The Chinese are terrified that demand for their currency could move its price upward after decades of their trying to keep it down with a firm lid. They are an export-driven country. If the price of their currency rises too much, places like Vietnam will gladly wave their hands to the consuming world and say, "hey, we're still cheap! Check out the breaks you get if you move your manufacturing operations HERE!"

What advantage would the Chinese have with a revalued currency? The ability to get a 4% discount on Mega-mansions in California and penthouses in Manhattan? The same Chinese that would buy them in five years can buy them now. We still have the stuff they want. They can only buy it if they have the dollars they get by selling us the stuff we want.

The balance could always change due to some unforeseen cataclysmic event (Putin exploding a nuke in midtown Manhattan would do nicely), but for now I don't see the dollar in any kind of peril.