Economics

Die Kraftreserven des Dollar

Apr 8, 2022 Gene Frieda

LONDON – Das Einfrieren eines Großteils der offiziellen russischen Währungsreserven hat unweigerlich dazu geführt, dass manche erneut das bevorstehende Ende des „exorbitanten Privilegs“ des Dollar als weltweite Reservewährung ersten Ranges prophezeien. Doch es ist noch zu früh, einen Nachruf auf den Greenback zu verfassen.

Für sich genommen dürfte die Sanktionierung der russischen Reserven die Vorrangstellung des Dollar als Rückgrat des Fiat-Währungssystems bekräftigen. Nur wenn die Vereinigten Staaten solche Finanzsanktionen regelmäßig als offensive außenpolitische Waffe einsetzen würden, könnte es zu einer schnelleren Erosion des Status des Dollar kommen.

In den letzten vier Jahren – einer Zeit, die von einem Handelskrieg zwischen den USA und China und der Covid-19-Pandemie geprägt war – entfielen tatsächlich lediglich 40% der neu gebildeten Währungsreserven auf den Dollar im Vergleich zu 23% auf den Euro. Der Anteil des chinesischen Renminbi an neuen Reserven ist auf 10% emporgeschnellt, während der japanische Yen und das britische Pfund ebenfalls an Boden gewonnen haben.

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vic lai Apr 10, 2022

According to Luke Gromen, suppose Russia sells a barrel of oil to the West for US$100 today, invests the dollars in one way or another, according to "the Rule of 72," even at a relatively high compound interest rate of 7.2%, it will double and grow to only US$200 after 10 long years.
But suppose BW 2.5 prevails, there are effective and enforceable global commodity and energy cartels, and before the new technologies and new energy crop up to replace the old ones, it will only takes perhaps 3 or 4 years for the oil, natural gas and commodities underground to perhaps quadruple in price, if the supply of them is highly restricted artificially during that period of time.
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So, under BW 2.5, the era when the Eurodollar standard and the Commodity standard coexist, it's in the interests of all those commodity suppliers to leave most of the oil and commodities they own in the ground, and let them grow in value, like trees.
And so, the refuse-to-buy-more threats of the buyer's market under the Eurodollar standard has to always compete fiercely with the refuse-to-sell-more threats of the seller's market under the Commodity standard, with the more powerful side determining the global terms of trade.
All the other merchandise-processing countries in the global value-added chains (like China, the world's factory) will stand to lose, because this time they are not only "exploited" by the relatively few goods-buying countries in the traditional buyer's markets, but are also squeezed by the few commodity-supplying countries in the new seller's markets.
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To defer the writing of the greenback's obituary, the US will have to do everything she can to break up all the potential globally cartelized commodity and energy cartels that will be formed in the future, by hook or by crook.
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David Punabantu Apr 8, 2022

The US dollar issue looms in the shadow of economist Friedrich Hayek and his book "The Denationalisation of Money" . Hayek advocated "the establishment of competitively issued private moneys, where he speculated that rather than entertaining an unmanageable number of currencies, markets would converge on one or only a limited number of monetary standards, on which institutions would base the issue of their notes."
The concept of one currency hinges on having the correct value. One currency should have multiple values based on its supply and demand within national markets.
To understand the correct value, a look at the wrong value is seen in the IMF fixed cross rates. An example of International Monetary Fund ( IMF) fixed cross rates is seen clearly on the 10th August 2021. The exchange rate between the US dollar and British Sterling pound on the 10th of August 2021 was £1 per US$1.385. This "1.385" cross rate appears in the US dollar and British Sterling pound of other national currencies as if they have the same US dollar/British Sterling pound liquidity in their national money markets to justify such an IMF fixed cross rate.
For example the British Sterling pound exchange rate against the Japanese Yen on the said date was ¥152.878 per £1 against ¥110.371 gives a cross rate of 1.385. The Chinese Yuan Renminbi value against the British Sterling pound was ¥8.973 per British Sterling pound and ¥6.478 per US dollar gives a cross of 1.385. The North Korean Won against the British Sterling pound stood at W1,245.795 against W899.978 against the US dollar gives a cross rate of 1.385.
The Euro against the British Sterling pound stood at €1.179 against €0.8519 per US dollar to give a cross rate of 1.385.
The Canadian dollar against the British Sterling pound stood at C$1.739 and C$1.256 per US dollar to give a cross rate of 1.385.
The Swedish Krona value in British Sterling pound stood at kr12.055 against kr8.7048 per US dollar giving a cross rate of 1.385. The Indian Rupee Sterling pound value on the 10 the August 2021 stood at R102.967 against R74.36 per US dollar giving a cross rate of 1.385. The South African Rand Sterling value stood at R20.422 against R14.752 per US dollar giving a cross rate of 1.385.
The Zambian Kwacha Sterling pound value on the 10th August 2021 stood at K26.7427 per Sterling pound and the US dollar value stood at K19.3069 per US dollar giving a IMF cross rate of 1.385.
Does it mean that North Korea, the European Union, Japan, Canada, China, India etc all have US dollar and Sterling pound liquidity within their money markets to justify the IMF fixed cross rates day in and day out?
Therefore the concept of having just "one value" undermines the concept of real value driven by markets.
One currency can have multiple values in a Free Floating Cross Rate System. A case in point as noted by the IMF managing director Mr. M. Gutt at Harvard University on the 13th February 1948, when he presented a paper "The Practical Problem of Exchange Rates".
Then the official direct Sterling-US dollar rate ruling in Britain and the United States is one Sterling pound to US$4, but the Lira-Sterling and Lira-US dollar direct rates are such that the Sterling pound-US dollar cross-rate in Italy is one Sterling pound to US$2.6.
Americans found it cheaper to purchase goods from the UK via Italy until the IMF stepped in and imposed the IMF fixed cross-rate system in favor of the UK and not Italy nor the US.
It is here that Hayek wrote about "issuing of currencies" by companies should be varying value of the US dollar between national currencies within money market in let currency arbitrage equal quotations between markets. The "issuing of value" determined by markets will place the value of the US dollar at varying levels in the economic multiverse of national markets to counteract the Triffin Dilemma.
- vic lai Apr 9, 2022
  
  Up until today, it can't be seen that China's top leaders (let alone that of Russia) have the real intention of accelerating the internationalization of their Chinese currency, the yuan, by further broadening and deepening her own government treasury markets, FX markets, and her money markets (including her repo, derivative, forward, and commodity markets), not to mention the yuan's current underdeveloped offshore markets (Euro-yuan).
  The yuan's internationalization strive will further be hindered by China's yet-to-improve (non-common-law) legal system, relative lack of global military power, and even her own non-English-speaking Chinese language.
  Zoltan Pozser's supposedly upcoming transition from Bretton Woods 2 to BW 3 is much easier said than actually done.
  For one thing, we only have a global energy cartel (OPEC+) right now, but there are no global commodity, food and fertilizer cartels.
  Facing no real competitor, the US dollar will keep her global dominance intact in the foreseeable future.
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  Modern Money Theory (MMT) works well today, especially for the de-industrialized and highly financialized advanced western countries (my dollars, your problems), but with a possible quick transition of our global monetary system from BW 2 to BW 2.5 in the future (ie, coexistence of the current US Dollar Standard with the new Commodity Standard), MMT may pale into insignificance, because, as said by Zoltan Pozser, you can print dollars, but you can't print energy and food (my commodities, your problems).
  The transition from BW2 to BW2.5 (or BW 3) is actually a blessing in disguise for the US (and the European Union), because simple and always-easy "money printing" means the US, like other oil and commodity-exporting countries, has seriously been suffering from the famous Dutch Disease (resource curse).
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  - vic lai Apr 9, 2022
    
    Contrary to the "equilibrium" concept discussed so often in many Economics textbooks, the state of most transacting entities in our real world is, as said by Richard Werner, governed by the "Short Side Principle".
    When demand is smaller than supply, surplus exists, it becomes a buyer's market, and the buyers dominate.
    When demand is bigger than supply, shortage exists, it becomes a seller's market, and the seller(s) dominate.
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    BW2, the current US Dollar Standard, a standard without a standard, is a buyer's market, because so many net-exporting countries are competitively exporting at the same time to the world's buyer of last resort, the US (and the EU).
    While net-importing goods and services from the foreign countries, the US pretends to pay, but don't actually pay, thanks to the country's easy "money printing" ability.
    BW3, perhaps the upcoming co-existing Commodity Standard, is a seller's market, because so many net-commodity-importing countries are competitively importing at the same time from the world's relatively few commodity, food and energy exporters --- now the latter calls the shots, a power they continue to master until brand-new energy, commodity and technologies crop up to replace the traditional ones.
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    - David Punabantu Apr 9, 2022
      
      The issue of BW3 as pointed out is a double edged sword, a juxtaposition of one being a seller and getting huge US dollar inflows and on the other hand being a buyer and suffer the loss in value as a drop in the US dollar purchasing power occurs. This loss affects international reserves as well.
      The US has as already stated an efficient and globalized network financial infrastructure to conduct business in US dollars.
      However what VALUE that infrastructure will carry would have to define BW3 and the juxtaposition.The US dollar dominance in trade will still exist but through value variance. The concept of "dominance" is clearly seen in the rise of the Chinese economy. As noted by the former editor of the London Financial Times Mr Geoffrey Crowther in his book "An Outline of Money" in that "if a purchaser is some one who wants D-marks in order to pay for German exports, the fact that he can get his marks cheap is equivalent to a reduction in the price of exports; it will stimulate sales in exactly the same way as an ordinary depreciation of the exchange rate." (Crowther Geoffrey (1951) p.260).
      Note it is German D-marks buying German goods in line with the underlying axioms of Adam Smith's Supply and Demand Doctrine. China's dominance has been in a "reduction in the price of exports" to stimulate US dollar inflows as seen in cheap Chinese products. Although Chinese firms quote in US dollars the final payment settlement is in Chinese Yuan Renminbi as a result of foreign currency regulations. Now we have Russia with its Russian rouble for oil and its discounts given to India and China for her exports of oil and gas.
      This brings to BW3 the underlying axioms to the Supply and Demand Doctrine.
      Adam Smith (1723-1790) propounded his Theory of Supply and Demand. It is important to understand the underlying axioms to that theory. He wrote about British goods being bought by British Sterling pounds whose supply and demand created a "price".
      If a German with D-marks wanted British goods he/she COULD NOT buy the British goods DIRECTLY with German D-marks but FIRST had to convert his/her D-marks into British Sterling pounds. The supply and demand of D-marks and British Sterling pounds (British citizens supplying British Sterling pounds wanting to buy D-marks to buy German goods) set an "exchange rate" between the D-mark and British Sterling pound The D-marks buy British Sterling pounds which are then used to purchase British goods.
      This means the production of all British goods is weighted or represented by the British Sterling pound which is the TITLE DEED to the British economy.
      That is why you can go to the United Kingdom with US dollars and they will NOT accept you to buy anything from the United Kingdom until you change your US dollars into British Sterling pounds. You can have a Euro from the European Union and go to the United States of America (USA) and try buying any goods from the USA.
      They will REFUSE you to buy any goods DIRECTLY from the USA with a Euro unless you FIRST change your Euro into a US dollar.
      However the developing world demand DIRECT US dollar payments for exports which in effect adds the value of those exports to the US dollar and subtracts the value from their national currencies. The developing world does not follow the underlying axioms to Adam Smith's Supply and Demand Doctrine as they play their part in the US dollar "exorbitant privilege". The "privilege" is selling DIRECTLY in a US dollar against the underlying axioms of the Demand and Supply Doctrine.
      It was the Interim Committee of the Board of Governors of the IMF's fifth meeting held in Jamaica in January 1976 that set to resolve the on going crisis, that in the past also plagued the Gold Standard.
      Here the IMF Board of Governors fifth meeting, set the seal on the Second Amendment of the IMF articles that limited reforms to those areas on which consensus had been reached [in an attempt to correct the crisis.] But on the central aspect of reform-the exchange rate regime, convertibility of official balances and the reserve system-the Jamaica agreement virtually accepts the "fait accompli" that had followed the breakdown of the Bretton Wood system. (North-South: A Programme for Survival (1980) p.205).
      The results saw a continuation "with the prevailing situation with the role of the US dollar reduced, with an increased role for other currencies and private financial markets, and with all governments trying to reduce their exposure to exogenous events; or moving in the direction of regional monetary blocs, which would each work out their own relations with other monetary areas; or advancing to a better-organized world system (North-South: A Programme for Survival (1980) p.206).
      This saw structural adjustment programs that introduced the free movement of US dollars, stock exchanges, open markets in many developing countries. These reforms where meant to get to US dollars locked up in international reserves and regulations so as to deal with the Triffin Dilemma. However instead of the US dollars ending up in the US they ended up in China with her cheap exports stimulating inflows in that direction.
      After the 2008 economic and financial crisis the notion of invisible economic blocks collapsed.
      Despite BW2 wanting a "reduced role for the US dollar" nation's still wanted it.
      The shape of BW3 will still have the US dollar as the main carrier of value but the value should be based on actual trade and linked to existing market liquidities within national money markets. In other words free floating cross rates which BW2 assumed as a "fait accompli". While nations swap their currencies for the largest gain through currency arbitrage, the final destination for the US dollar will be the United States of America. With a varying value profile between markets and getting more through arbitrage operations, the US goods and services would appear like cheap Chinese products. This inturn would boost US production level and thus deal also with the Triffin Dilemma.
      It is the same question the EU had on getting "roubles". Roubles would be cheaper in nations that have a trade surplus with Russia if the final payment settlement is in national currencies. Sadly with the IMF fixed cross rates it puts value in a straight jacket despite the different market demand of currencies and commodities.
      We just have to wait and see.
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