Is The Dollar Dead?

“The Dollar is dead. The Dollar remains dead. And we have killed it.”

-Friedrich Nietzsche PhD, Federal Reserve Economist, 2023

Is the dollar really dead?Donald Trump seems to think so, and China is the culprit. Many say he is right.

I say he isn’t.

But it is dying, and we are killing it. Not China.

Although I imagine China is enjoying the show…

Axis of Evil: China and Russia Plot Against the Dollar

Let’s examine the argument for the death of the dollar, and China’s role in it.

The story goes a little something like this—

China and Russia both obviously hate the US and would like to see its economic dominance come to an end.

China has been notorious in the past for devaluing its currency, but over the past ten years has stabilized the Yuan in an effort to compete with the US Dollar.

If China’s Yuan becomes reliable and trustworthy, other countries — particularly countries sanctioned by the US, like Iran — will begin to trade in Chinese currency.

Russia and China can become powerful trading partners in the East, using the Chinese Yuan, which solves two concurrent problems for these cahooting powers:

1. US sanctions become even more meaningless than they already are for Russia

2. China takes a step closer to supplanting the US as World Reserve Currency

If this “Axis of Evil” is formed, then China may well succeed in overcoming the US as the global economic superpower.

We are warned that China and Russia are trying to enact this plan before our very eyes by forming a monetary alliance with India, Brazil, and South Africa that may soon challenge the US as the World’s currency.

What’s the evidence for this oncoming economic overturn?

Mostly, it’s the fact that China is buying up crap-loads of commodities, and that it holds onto roughly a $1 trillion US dollars in cash.

This poses a threat to US economic stability because currencies are measured relative to valuable commodities.

Let’s say China tries to buy up all the copper in the world (it currently owns roughly 16%).

If it uses its reserves of US dollars to buy up all that copper, then it devalues the dollar.

The dollar is devalued in the same way it becomes devalued when the government prints lots of it — it becomes less scarce and its purchasing power goes down.

Now, it's not like China jsut has the power to end the US dollar whenever it wants. Afterall, it only holds about a trillion bucks.

That may sound like a lot, but consider the fact that the US just dumped six times that amount over the last two years and only managed to devalue the dollar by about 12%.

China, we are told, is therefore simply waiting for the right moment to strike — when the values of our respective currencies will be close enough for China to dump the dollar and ascend as the NEW WORLD ORDER!

Get A Clue — Who Really Killed The Dollar?

Well, China will have to wait for sometime then.

As of last year, nearly 90% of all global transactions were denominated in the dollar, totally unchanged from the previous year.

The second, third, and fourth places belong to the Euro, the Japanese Yen, and the sterling respectively.

Not only that, but 60% of global reserves are US dollars. That may not sound that great, but 30 years ago it was only 50%.

So, we are in an overall better position than we have ever been historically, believe it or not.

What about China, then? Where did it match up? At just around 7% of global transactions — miles above India, Russia, Brazil, or South Africa.

Note that the over-whelming majority of these transactions had US dollars on the other side of the deal. So the percentage of dollar-exclusive transactions is even smaller.

Now that’s still impressive! A year ago China’s currency represented less than 4%, so that is the fastest growing currency, but it is no threat to the US dollar.

Why? Couldn’t the Yuan keep climbing at that rate and quickly overcome the US dollar?

No, probably not. China is a fascist country with huge capital controls and low investor security. The only reason it has climbed recently has been because of moves towards open markets.

As Economist Daniel Lacalle points out in his article on this issue — people tend to undervalue the importance of a stable legal framework to the operation of a successful currency.

As he put its —

“The yuan’s appeal as a global currency is severely hampered by capital controls and currency price fixing by the PBOC. It is impossible to simultaneously have a global reserve currency and capital controls…When the independence of the legal and regulatory system is in question, the state currency is always going to be considered second-rate. Independent institutions, transparency, freedom of capital movement and legal security are what matters.”

So that’s it then? There’s nothing to worry about and Trump was just dead-wrong about China and the dollar?

Of course not! It is still possible for the dollar to die, and in fact I believe we are seeing the death of the dollar.

How? The US can abandon its long-standing institutions of freedom of capital, investor security, legal consistency and stable monetary policy.

The US could embark on a pathway of essentially fascist monetary economics that would make it more like China.

On the flipside, China could adopt more free market institutions, which would eventually make its currency more competitive to the US dollar.

Isn’t it interesting that in order to compete with the US over the last few years, China has resorted to making their currency safer, more stable, and less inflationary?

In other words China has had to become more capitalist! Just as its economy had to become more capitalist in order to grow over the last thirty years.

If China did overtake the US as a world reserve currency, I suspect it would have to become the kind of country that the US and UK would gladly welcome into its ranks.

That’s fine by me, all things considered.

Far more likely, the US will descend into further fascist monetary policies, which will continue to devalue our currency.

If we continue on the path we are on, then we may begin to compete with other countries as the World Reserve Currency, and everyone will be poorer for it.

In that scenario, however, it will be the US that will have killed the dollar — in the Federal Reserve — with the lead pipe — not China.

As always, thanks for reading!