Going to gold as trust in the USD as a safe asset wanes. The status of a reserve currency is based on whether other countries choose to save in it. That willingness to hold the dollar appears to be decreasing.
Asia Times
China’s gold stockpiling is dollar warning sign
William Pesek
Just swap it for another currency. This craving for gold is not rational.
ReplyDeleteJust swap it for another currency.
ReplyDeleteLike what?
The USD is still the only viable reserve currency for a number of reasons most of which are traceable to national power. The USD can be "weaponized" as a result of US national power. Sine there is no currency alternative to the dollar, saving is being transferred to real assets.Weaponization of the dollar is a big reason that other countries are rethinking saving in dollars, which exposes them further to US national power and the "rules-based order" where the US makes the rules and punishes those who don't kowtow.
This transfer of USD to gold is gradual, since cbs are aware that if they move on this too quickly they will drive up the price of gold (gold is sensitive to cb action) and cheapen the reserves not yet converted. If there were to be a run out of the dollar, the price of gold relative to the dollar would quickly increase.
While this wouldn't create the disastrous scenario for the US that many predict based on erroneous assumptions, it is an indication of the way the wind is blowing in the world system and why Sergey Glazyev wants a commodity-based reserve structure for international trade in order to provide an escape from dollar hegemony that doesn't sacrifice effectiveness and efficiency while increasing reliability and resilience.
Even without dollar weaponization, the dollar-based system as well as the IMF SDR structure benefit the US and West (US vassals) while disadvantaging the ROW (rest of world).
The currencies of resource rich countries (Canada, Australia, Russia, Brazil, etc.) and neutral countries would be a logical choice.
ReplyDeleteSavings can also be put into tangible assets i.e. real estate.
For operational reasons, leave currency swaps to your chosen financial institutions. They're happy to do this for you - for a fee of course.
This desire for a 'reserve' currency in a free floating exchange system is irrational.
Neil Wilson showed us that the whole reserve currency thing is bunk. Nations have dollar reserves because they choose to use export led growth. Changing your dollar reserves to gold doesn't do anything to "dethrone the dollar". Neil explained that it's the transaction between importer and exporter that happen first (facilitated by banks) and the dollar reserves are just the accounting entries after the deal is done.
ReplyDeleteSo all that will happen is that the importer (America) still gets the goods from the exporter (China). The international banks still does the discounting of USD to RMB. Then the Chinese central bank gets a few extra bars of gold in its vaults and slightly fewer treasury bonds are bought.
Much ado about nothing.
Ref please? Link
Deletehttps://new-wayland.com/blog/anatomy-of-an-fx-transaction/
ReplyDeletekey passage
"Note that either the Oil importer in the UK does the FX, or the oil supplier in Norway does the FX. Either way it has to be done to pay people in Norway, who want to receive NOK, not GBP. Similarly although oil may be priced in USD, the transaction here is GBP to NOK. That’s because customers desire to pay in the currency they have and suppliers desire to receive the currency they wish to hold. The financial system gets paid to make that desire a reality and selling in a local currency increases sales. The currency something is priced in isn’t necessarily the one it is invoiced in, or settled in - at either end of the deal."
Ask Fadhel Kaboub what he thinks of reserve currencies, fixed/targeted exchange rates, and export led growth - and whether that is advisable for developing nations.
ReplyDeleteThe BRICS are going to repeat the mistakes of the past to end up with the system that exists now. They could use MMT to avoid that, but there's little indication they desire that knowledge or the insight.
The BRICS are going to repeat the mistakes of the past to end up with the system that exists now. They could use MMT to avoid that, but there's little indication they desire that knowledge or the insight.
ReplyDeleteUnfortunately, that is the way it seems to be heading. They can't shake the the conventional approach to economics and finance.
The MMT "lens" would fix that, but they don't seem to have figured that out yet.
Then the Chinese central bank gets a few extra bars of gold in its vaults and slightly fewer treasury bonds are bought. Much ado about nothing.
ReplyDeleteYes and no. China is in real danger of its reserves being confiscated by the US like the Iranian and Russian reserves have been. Going to gold held domestically in China would obviate that possibility, since dollar reserves reside at the Fed.
Since international gold reserves are generally held at either the Fed or the Bank of England, gold not held domestically is not a sufficient hedge either, since gold that is held internationally can be confiscated too, as Venezuela learned when the UK refused to honor custody. Russia's gold reserves were frozen and so were other countries, like Afghanistan.
China realizes that it needs to move out of USD and into other saving vehicle. Gold is an obvious choice, especially since China and Russia are major gold producers.
In the larger picture, international trust is breaking down, and this has implications not only for the global economy but also the entire world system.
Tom that's actually very interesting point about reserve confiscation. It may be behind how non US aligned countries are thinking. I do wonder what the whole point of moving to gold is though. I mean yes it solves the accumulating US reserves that can be confiscated at any time problem. But if it really is a problem why would you have an export sector that serves the US? Kind of defeats the purpose...
ReplyDeleteI think it comes back to what Matt says, they are all morons.
@sths
ReplyDeleteI think it comes back to what Matt says, they are all morons.
Yes. They are all monetarists. This is the just about the entire world of economics, finance, and even business, plus brainwashed publics. It's a big reason the system is so screwed up from the top.
It’s not as easy as you guys make it out to be…
ReplyDeleteThese nations need advanced equipment and they need people qualified to operate and administer them…
A lot of that is even more complicated than being aware that they are not “out of money!”..
iow even if the knew they are not “out of money!” then the really hard part starts…
They simply don’t have the schools and people … it’s more for them than not knowing they are not “out of money!”…
If at some point khaboub wants to really help his homeland he’s probably going to have to go back there and teach… along with many others
Transfixed by monetarism, they've lost their capacity to learn.
ReplyDelete