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The Surprising Truth About "De-Dollarization" |
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The world isn't replacing the dollar with another reserve currency… "De-Fiatization" and the return to gold… Are you aware of the looming Jan. 28th Ultimatum? Well, that's the one date you MUST have circled on your calendar. Why is Jan. 28 so important to you? Get the crucial details here.
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Dear Reader, |
"The world is abandoning the dollar"... "The dollar is in danger of losing its reserve status"... "Countries are dumping U.S. Treasurys." |
Each day we are treated to such headlines as these — or various variations on them. |
Yet a question arises naturally in response: |
If the world is rotating away from the United States dollar… into which currency… or currencies… is the world rotating? |
The euro? The pound? The yuan? Some combination thereof? |
The answer is neither of them; not even in combination. |
The Worst, Except for the Rest |
The simple fact is that — for all its blemishes and disfigurement — the United States dollar retains its throne atop the global monetary order. |
It may be the tallest midget in the circus, as the phrase runs. It may be the cleanest rag in the laundry heap, as another phrase runs. |
Yet it is the tallest midget. It is the cleanest rag. And in a world of comparative advantage, that is advantage enough. |
The euro, the pound, the yuan, each is shorter than the dollar, each is dirtier than the dollar. |
The United States dollar simply boasts structural advantages over all of them. |
The Dollar, by Default |
Economist Daniel Lacalle: |
The US dollar is the world's strongest weak currency because it has a higher level of liquidity, more independent institutions, and better legal and investor security than any alternative. The US dollar is… not losing its position relative to the euro, yen, pound, or yuan… |
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The US dollar's share of allocated FX reserves remains at 59.6%, and when adjusted for exchange‑rate moves, the IMF itself concludes that the dollar's share has been broadly stable, with recent declines explained mostly by valuation effects, not active selling. |
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The euro, at 20.3%, is not even close to being a contender. The euro, yen, sterling, and even the Chinese renminbi have not captured the supposed "lost" dollar share… |
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The dollar is on almost 90% of all FX transactions and roughly half of global SWIFT payments, with the euro a distant second and the renminbi still only a low‑single‑digit share. There is no crossover where another fiat currency replaces the dollar's role in trade, finance, or reserves… |
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It's Not "De-Dollarization" |
More: |
Calling this "de‑dollarization" is misleading, because it suggests a transition from a dollar‑centric order to a euro‑, yuan‑ or BRICS‑centric fiat order, something the data clearly do not show… |
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The dollar remains the least‑imperfect fiat currency, with unmatched liquidity… and support in trade and finance, so there is no scalable alternative that reserve managers can move into without assuming even greater risk… |
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While investors legitimately worry about America's credit credibility and the US dollar's purchasing power, no one is naive enough to consider the euro area, Japan, China, or a basket of serial devaluators like the BRICS as viable alternatives to the US dollar… |
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The US dollar's central role in the fiat system remains intact. |
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Just so. And yet — and yet — the United States dollar does in fact occupy a declining reserve position among the world's central banks. |
"De‑Fiatization at the Margin" |
If the dollar remains the dominant global currency, yet represents a declining portion of global reserves… what then is transpiring? |
The answer, says Dr. Lacalle, is what he labels "de‑fiatization at the margin." |
The world's central banks must retain their core holdings of United States dollars for the reasons listed. |
Those reasons, again, reduce to practical necessity. Recall the value of being the tallest circus midget, the cleanest laundry rag. |
Thus the world's central banks are not embarked upon "de-dollarization" as such. |
Yet the same central banks do not wish to tie their fates to the tallest midget or the least dirty rag. |
They are after a true monetary anchor, a stabilizing money in which they can set store. |
That money — it should not surprise you — is gold. |
Gold Is the Answer |
Dr. Lacalle continues: |
The real story is that all major fiat currencies are losing relative trust to an asset outside the system, like gold… |
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This fundamental loss of confidence in the solvency of developed economies' sovereign issuers is boosting demand for gold… |
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Since the pandemic, major central banks have combined ultra‑loose policy, large balance sheets, and implicit financial repression to maintain the illusion of solvency of sovereign issuers, which has strengthened the view that fiat currencies will be used to manage debt through inflation and negative real rates for a long time… |
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The world is penalizing the fiscal and monetary excesses of developed economies by demanding less of their debt and more gold, not by building a new fiat‑currency alternative. The record highs of gold and the constant purchases by central banks indicate a lack of confidence in the long-term purchasing power and credit quality of sovereign issuers, not in a competing fiat currency. |
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That is, we are witnessing "de‑fiatization at the margin." Hence the world's hunt for stabilizing and reassuring gold. |
The Sky Isn't Falling |
In conclusion: |
The global system is therefore not moving from "dollar hegemony" to "yuan hegemony" or a multipolar fiat regime; it is moving from unchallenged trust in developed‑market paper to a world where gold re‑emerges as the ultimate reserve asset, and the dollar stays at the declining fiat center because nothing else can replace its security, infrastructure, and depth. |
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And so you should not expect an imminent collapse of the United States dollar… in my telling at least. |
Nor do I recommend that you heed the shrieks of the infinite Chicken Littles who forecast it daily. |
The dollar, for the foreseeable future at least, will likely retain its global centrality. |
Will it shed additional value against gold? I hazard it will, yes — and perhaps heavily. |
A Source of Pride |
Yet we must appreciate what value the dollar retains. We must likewise appreciate the dollar's relative supremacy over the euro, the pound, the yuan and the rest. |
After all: If the one-eyed man is king in the land of the blind… |
Then the tallest midget in the circus is giant — and the least dirty rag in the laundry heap is pristine. |
Thus, as a proud American through whose veins coarse the reddest blood… |
I burst with pride. |
Brian Maher |
for Freedom Financial News |
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Regards, |
Matt Weinschenk
Publisher & Director of Research, Stansberry Research |
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