The American dollar is losing ground:
The American dollar is losing ground.
It’s becoming weaponized.
A global reserve currency is supposed to be neutral.
The American government has destroyed that idea.
The US House of Representatives approved a bill to assign Russia’s foreign dollar reserves to the Ukraine.
They’ve made their currency political.
Let me explain why this is an issue.
A world reserve currency is supposed to be neutral.
Supposed to be like the Switzerland of the world.
For a long time it was the Dutch Gilder.
Then the British Pound.
After World War 2, it became the American dollar.
What does this mean?
Most transactions globally happen in dollars.
Countries around the world use US dollars to transact.
The dollar’s trust and availability made it easily accessible to the world.
It also made it trustworthy.
If Kenya and Canada wanted to transact, each of them would buy dollars and use that as the base currency.
Energy also got transacted via dollars.
If you wanted to buy oil, you had to use dollars.
Every country needs to buy oil.
Therefore every country uses dollars.
The basis of this was the Petrodollar agreement.
An agreement signed by Kissinger and the King of Saudi Arabia in 1973 to make all oil transactions done in dollars.
In return, America would send Saudi weapons and the Saudis would use their dollars to invest in American assets.
It was a win-win for both.
At the time.
After the Petrodollar pact was signed in the 70s, the American dollar became the primary asset that oil was transacted in.
That’s changing.
Countries are now doing transactions in their own currencies.
India and UAE are using rupees.
China and Russia are using the yuan.
Does this mean those currencies will be the world reserve currency?
Absolutely not.
But it does mean the demand for dollars weakens.
Enter the BRICS system.
Countries around the world who want to build economic pacts around America and its G7 counterparts.
The BRICS has more of the world’s population, assets and now economic production compared to the G7.
They know how much power they have.
Leaders like Putin and Xi know how strong America is because of their dollar.
They use it to impose their way of the world on every other country.
Now that privilege may be breaking.
The US Congress just signed a bill to take Russia’s US dollar reserves and give that money to Ukraine.
A sign of America mis-abusing its power.
You don’t think the world knows what’s happening?
If I’m a country like China, India or Saudi, what if America one day wakes up and decides to take away my dollars?
Why couldn’t they if they did it to Russia?
Here’s the problem Washington elites are too stupid to realize.
Once you do that, you’ve made the dollar political.
Not neutral.
Once that happens, countries will start to de-dollarize.
It’s already happening.
Countries are disproportionately buying less US treasuries and more gold.
Especially BRICS countries.
Look at this chart.
That’s a bad sign for the dollar.
If countries are moving away from dollars and buying gold, that’s a sign you need to follow.
Is the US dollar going to lose its reserve status tomorrow?
Absolutely not.
It’s too important to the whole financial system.
Like I wrote a few years ago, America will suffer but the rest of the world will do worse.
Why?
Because the dollar has ultimate power.
Other countries will soon have to print their own currencies to get dollars, especially if it keeps going up.
It’s the least shitty currency.
Would I move away from dollars today?
No.
If you’re anywhere else around the world, you want to own US assets.
Not only for their appreciation but also because of their exchange rate to other currencies.
As the dollar does better, your assets do better.
It’s why the dollar milkshake theory is one of the best concepts in recent economics.
Hope Brent Johnson gets rewarded for that theory.
If you don’t know what that is, check it out here
Essentially comes down to the US being a milkshake that sucks up all other currencies in times of economic distress because it’s still the safe haven asset.
Although America has printed trillions of dollars, countries are still buying their currency.
They’re the best bad option right now.
Will that last forever?
History tells us no.
It’s signs like gold buying increasing, treasury buying decreasing and America politicizing its currency that you know something is different.
Pay attention.
The American dollar is losing ground.
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