Weekly Market Update by Retirement Lifestyle Advocates
The evidence that the US Dollar is continuing to weaken globally continues to grow by the day.
“Nikkei Asia” reported that the Chinese currency has now outpaced the US Dollar in Chinese cross-border transactions. Here is an excerpt (emphasis added) (Source: https://asia.nikkei.com/Business/Markets/Currencies/Yuan-exceeds-dollar-in-China-s-bilateral-trade-for-first-time):
The yuan was used in 49% of China's cross-border transactions last quarter, topping the dollar for the first time, a Nikkei analysis shows, mainly due to a more open capital market and more yuan-based trade with Russia.
Nikkei looked at international trade by companies, individuals, and investors based on currency, using statistical data from the State Administration of Foreign Exchange of China. Nikkei's compilation does not include yuan-based settlements for trades and capital transactions that do not involve China as a counterparty.
The Society for Worldwide Interbank Financial Telecommunication, better known as SWIFT, reports that as of June, the dollar's share is the largest globally at 42.02%, including trades between countries other than China. The yuan represented 2.77% and ranked fifth overall after the euro, the U.K. pound, and the Japanese yen.
The yuan's share of global payments remains small compared with the size of China's economy, but is up from 1.81% about five years ago. Bilateral payments, backed by China's economic influence, have gradually expanded its foothold.
Cross-border settlements in the Chinese currency totaled 42.1 trillion yuan ($5.85 trillion) in 2022, the People's Bank of China reports. Capital transactions accounted for 31.6 trillion yuan, or about 75%, with current-account transactions such as trade making up the rest.
Yuan-denominated international payments last quarter grew 11% on the year to $1.51 trillion, while dollar payments shrank 14% to $1.4 trillion, the first quarter in which the Chinese currency pulled ahead in data going back to 2010.
The big takeaway from this article, as I note in the August issue of the “You May Not Know Report,” is the rate of acceleration away from the US Dollar.
Yuan-denominated international payments are up 11% year-to-date, while US Dollar payments are down 14%.
Matthew Piepenburg also commented on this topic (Source: https://goldswitzerland.com/the-brics-wont-kill-the-dollar-us-policy-will/):
When it comes to the “bell tolling for fiat,” we can all hear its loud chimes, but that bell has been tolling since 1971 (or frankly 1968), when the US leadership decoupled the world reserve currency from its golden chaperone.
Like any teenager throwing a house party, the lack of a parental chaperone leads to lots of crazy events and lots of broken furniture.
The same is true of post-71 politicians and central bankers suddenly freed of a gold-backed chaperone and thus suddenly loaded with drunken power to mouse-click currencies and expand deficits.
And since then, all kinds of things have been breaking, from banks to bonds to currencies.
And now, with all the extreme hype (and, yes, some genuine reality) behind the headlines of a revolutionary gold-backed BRICS trade currency, many are making sensational claims that the World Reserve Currency (i.e., USD) is nearing its end and that fiat money from DC to Tokyo is effectively toast.
Before we start tossing red roses over the shallow grave of an admittedly grotesque US Greenback in general, or fiat fantasy money in general, let’s all take a deep breath.
That is, let’s re-think through this inevitable funeral with a bit more, well, realism, mathematics and even geopolitical common sense before we turn our backs on the USD, and this is coming from an author who has never thought highly of that Dollar, be it fiat, politicized and now weaponized.
So, let’s take a deep breath and engage open, informed, and critical minds when it comes to debating many of the still open, unknown, and critical issues surrounding the so-called “game changer” event when the BRICS+ nations convene this August in S. Africa.
As made clear literally from Day 1 of the Western sanctions against Putin, the West may have been aiming for Putin’s (or the Ruble’s) chest, but it then shot itself in the foot.
After decades of DC exporting USD inflation from Argentina to Moscow, a large swath of the developing countries of the world who owe greater than $14T in USD-denominated debt were already reeling under the pain of rate-hike gyrations which made their own debt and currency markets flip and flop like a dying fish on the dock.
Needless to say, a 500-basis-point spike in the cost of that debt under Powell didn’t help. In fact, it did little good (or goodwill) for USD friends and enemies alike, from the gilt markets in London to the fruit markets in Santiago.
Adding insult to injury, DC coupled this strong-Dollar policy with a now weaponized-Dollar policy in which a nuclear and economic power like Russia had its FX reserves frozen and access to SDRs and SWIFT transactions blocked.
Like Napoleon at Moscow, this was going a step too far…
The net result was an obvious and immediate distrust of that once neutral world reserve currency, an outcome which economists like Robert Triffin warned our congress against in 1960, and even John Maynard Keyes warned the world against long before.
Heck, even Obama warned against such weaponization of a reserve currency as recently as 2015.
Thus, and as I (and many others) warned from Day 1 of the sanctions, the distrust for the USD unleashed by the sanctions in early 2022 was “a genie that can never go back in the bottle.”
Or, more simply stated, the trend toward de-dollarization was now going to come at greater speed and with greater force.
This force, of course, is now being seen, as well as debated, under the highly symbolic as well as substantive example of the BRICS+ nations seeking to usher in a gold-backed trade currency to move openly away from the USD, a move which some maintain will soon de-throne the USD as a world reserve currency and send its value immediately to the ocean floor.
For me, the trajectory of this de-dollarization trend is fairly obvious; but the speed and knowable magnitude of these changes are where I take a more realistic (i.e., less sensational) stance.
Piepenburg goes on, commenting that the US Dollar will likely not fall away from supremacy anytime soon but will continue to see its worldwide dominance fade, stating the dollar will die slowly at first, then all at once.
It reminds me of what Hemmingway said about going bankrupt – you go slowly at first, then all at once.
I’ll take this opportunity to again have you consider a question that could be one of the most important questions that you could ever ask yourself about where your nest egg is invested:
Do you have enough assets in your portfolio that cannot be printed?
In other words, do you have some assets in your portfolio that are not fiat currency denominated?
If you have all your portfolio assets denominated in fiat currency(ies), you might want to think about changing your strategy.
One of the easiest ways to do that is to own some precious metals.
Throughout most of history, gold or gold and silver have been money.
Prior to 1971, for most of US history, gold or gold and silver were money.
Now, with the world anticipating the BRICS countries announcing a gold-backed currency this month, it seems that the world may be returning to a gold-backed currency at least in some form.
The radio program this week features an interview with Mr. Michael Oliver, founder and President of MSA, Momentum Structural Analysis.
Michael was ahead of the curve in adjusting his analysis to account for fiat currency devaluation, and his work is excellent. Listen to the show now by clicking on the "Podcast" tab at the top of this page.
I know you’ll enjoy my conversation with him.
“All currencies eventually return to their intrinsic value.”