The Growing Revolt Against the US Dollar (2023)

Introduction

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Writing by Sam Denby and Tristan Purdy
Editing by Alexander Williard
Animation led by Josh Sherrington
Sound by Graham Haerther
Thumbnail by Simon Buckmaster

References
[1] webgate.ec.europa.eu/isdb_results/factsheets/country/details_iran_en.pdf
[2] www.justice.gov/opa/pr/300-million-yacht-sanctioned-russian-oligarch-suleiman-kerimov-seized-fiji-request-united~:text=May%205%2C%202022-,%24300%20Million%20Yacht%20of%20Sanctioned%20Russian%20Oligarch%20Suleiman%20Kerimov%20Seized,sanctioned%20Russian%20oligarch%20Suleiman%20Kerimov
[3] assets.bwbx.io/images/users/iqjWHBFdfxIU/ivnM5AVLqZzI/v2/pidjEfPlU1QWZop3vfGKsrX.ke8XuWirGYh1PKgEw44kE/1003x-1.png
[4] asia.nikkei.com/Politics/International-relations/China-and-Russia-ditch-dollar-in-move-toward-financial-alliance
[5] www.telesurenglish.net/news/60-Percent-of-Iran-Russia-Trade-Is-Already-De-Dollarized-20230602-0015.html
[6] www.msn.com/en-us/money/markets/argentina-will-pay-for-chinese-imports-in-yuan-instead-of-dollars-to-preserve-its-shrinking-greenback-reserves/ar-AA1apFwy
[7] www.globaltimes.cn/page/202304/1289034.shtml
[8] www.europarl.europa.eu/cmsdata/207504/CASE_FINAL%20online.pdf
[9] www.federalreserve.gov/pubs/bulletin/1996/1096lead.pdf
[10] www.bitcoinandmarkets.com/history-of-world-reserve-currencies-part-1-florin
[11] www.visualcapitalist.com/cp/how-reserve-currencies-evolved-over-120-years/
[12] www.atlanticcouncil.org/blogs/econographics/russia-and-china-partners-in-dedollarization/

Video

If an American wants to buy something in Britain.

They’d need British pounds.

The, easiest way to get pounds is by finding a British person who wants to buy something in America—they’d need US, dollars., Each currency, represents value that can be exchanged for goods and services.

So the logic follows that one can trade two facsimiles of value for each other.

But.

The same can be said for the Swedish Krona and the Samoan Tala—a certain number of each can be traded, for, say, a gallon of gas in each country—and yet, the two cannot be traded for each other quite so easily.

You, see, Samoans only import about $19,000 of goods from Sweden, each year, and Swedes barely import anything from Samoa.

Therefore.

The likelihood of finding a Swede looking for Samoan Talas at a given time is low.

Even if a certain number of Talas always corresponds to the same value as a certain number of Krona—it’s, just an exchange barrier.

But.

The Samoan can get around this., Some, $40 million flows between Samoa and the United States each year meaning, at any given time.

There is almost certainly an American looking for Talas to pay for Samoan exports.

So they can transfer their Talas into dollars.

Then.

Some $25 billion in trade happens between the US and Sweden each year.

So it's even easier to convert dollars into Krona, meaning, a full Talas to Krona transaction can take place just via the US dollar.

Not only has the transaction occurred faster than if one waited around for a willing Swede to trade for Talas.

It likely cost less since the Samoan didn’t have to incentivize demand through offering a higher than warranted number of Talas per Krona.

There are 180 UN-recognized currencies out there, meaning.

There are thousands upon thousands of unique combinations of currency that can be exchanged.

Even at the scale of the global economy.

This means it’s not always easy to find a willing partner to trade currency with when needed.

Therefore, 88% of the time, currency transactions occur with the US dollar.

This doesn’t mean, 88% of transactions are ultimately from or for the US dollar.

But rather that it’s often just easier to facilitate international transactions through the US dollar.

It’s, a sort of self-fulfilling, prophecy—it’s easiest to trade with the most traded currency.

And therefore, the most traded currency is traded.

Most., These days.

The US dollar serves that role.

It is the plumbing of the global economy, but that’s a relatively new role.

Before, the IMF or the WTO; before this century, last century, or the century prior; before central banks, or the concept of nations.

There was trade.

Trade between states, trade across kingdoms and fiefdoms, trade between tribes and clans.

In.

The West, as the world got bigger.

The trade networks became more complex.

And the means of trade centralized around currencies.

And since the very beginning of modern trade, there’s always existed a currency.

That’s just easier to do business.

With—A dominant, currency, a global currency, a reserve, currency.

The earliest coins, connecting trade across Europe.

And the Near East originated.

First in the merchant-heavy city states of the Mediterranean: Venice’s ducat, and Florence’s florin.

Because.

The coins were nearly the exact same—both being made of gold and minted at nearly an identical weight—the.

Two functioned largely as interchangeable across the Byzantine and Holy Roman empires from the 13th century through to the 16th—reaching, such common use that a host of other European.

Cities ended up minting.

The coins.

These, currencies, weren’t forced on the rest of Europe by Venice or Florence.

Instead, unlike local alternatives, they consistently held their value.

They could be trusted.

And because they rode the coattails of their originator’s successful trade across an ever expanding network.

They were prevalent.

If.

A Genoan boatmaker was seeking funding from a Genoan bank.

The unit of account would be in florins.

If a Venetian merchant sought to buy salt in Cervia or Ravenna to then sell on to their inland neighbors.

The transactions would be in ducats.

If.

The business was big enough to involve the era’s fledgling banks, or city-state governments, or trade from any of the dizzying array of tiny kingdoms, dotting, the bustling Mediterranean.

It was done not by the local currency, but the common currency, the one that both parties trusted, and both parties could get their hands, on—the florin or its twin.

The ducat.

Then, the Western world got a whole lot bigger and the dominant lanes of trade shifted from the Mediterranean to the Atlantic.

The center of this newly global network moved west too, as the Iberian Peninsula unseated, Italian city states as the world’s economic hub., While fabled cities of gold.

Never materialized in the New World, Portuguese explorers and Spanish conquistadors’ westward expansion opened an era of truly global trade.

And when they did stumble into mountains of silver in present-day Bolivia.

It was all but assured that the new dominant currency the world over would be the Spanish real.

With.

The opening of the Potosi silver mines and the coinciding consolidation of territory across Europe, a flood of carefully-managed Spanish coins.

Now made its way through the Americas, Asia, Africa, and Europe.

On, a bigger scale.

The real did what the florin did before it, becoming the world’s most readily available, reliable option for commercial transactions.

But this time, the world over., In, Britain’s, North, American, colonies, for instance, the Spanish dollar maintained popularity throughout the 1700s because it was far more accessible.

While pounds were difficult to physically obtain, merchants imported goods from the West Indies by paying with comparatively prevalent Spanish, currency, continuing to do.

So even after American, independence.

Even, though the Spanish empire reached its peak in the 1500s, ceding territory and power for the following two centuries, its silver coinage remained a mainstay across the colonies simply because it was too convenient.

But.

The real’s staying power as reserve currency proved shorter in Europe, as the land-poor, but ever innovative Dutch, provided an alternative for European traders in the form of the guilder.

With.

Arguably the first central bank, protecting Dutch currency from debasement, and the world’s first corporate entity, establishing the state as the most powerful of trade partners.

The Dutch money quickly became Europe’s.

Most trust-worthy currency.

While, not the globe-trotting empire, the size of Spain’s or Britain’s that would follow, Dutch guilders were so stable in value, and so easy to transact with via notes and receipts that by the mid-18th century, an estimated 85% of all European banks accepted Dutch currency to settle claims.

Since, the dawn of international trade, the currency of the conquerors—on account of its reach and its steady value—became.

The global currency out of convenience, sometimes holding onto that top spot long after the sun had set on the empire that created them.

Through such convenience.

They became the period’s de facto reserve, currency—the form of money that banks and businesses would hold onto to facilitate international transactions.

With.

The arrival of nation-states, central banks, and paper money, the conqueror’s cash, still ruled.

But now its status as a world reserve became codified., Like dominant, currencies before it, the pound sterling rode the territorial expansion of the British Empire, the rapid commercial success, wrought by industrialization, and the meteoric rise of its capital city to the top of the financial world.

With, global reach and demand, central banks around the world began to hoover up pounds, as it would facilitate trade quickly with the world’s largest power.

It stood little risk of losing value, and it could easily be reinvested back into the world’s most dynamic banking environment in London to further its value in the long-term.

Central banks, the world over trusted the pound as a store of value, and found it so useful to facilitate international trade that by 1900, the pound, accounted for 62% of the world’s reserve, currency.

But, the pound’s era of dominance, like those before it, wouldn’t last.

With.

The US controlling the lion’s share of world’s gold after World, War, II, international trade.

And therefore central bank reserves, moved to the US dollar.

While.

The specifics of the arrangement have changed as the dollar’s moved off.

The gold standard.

It has remained the unquestioned international trade, currency, decade after decade after decade… until now., Over recent years, events cascaded into a barrage of questions over whether 2023 marks the beginning of the end for the US dollar.

And while hardly the cause, the trigger, at least, was Vladimir Putin’s decision to send his country’s troops on an illegal, unprovoked invasion of Ukraine.

In the view of most, this required consequences.

But only medium-sized ones.

After all, Russia is a nuclear power with a massive military and irrational, volatile leadership.

So rather than engaging in physical warfare, the west confined their actions to economic warfare.

But.

This battlefield was bizarrely confined to the US.

You see, in the global financial system.

The United States has a degree of jurisdiction.

If US financial infrastructure is used, if US banking institutions are used.

If US companies are involved, if US nationals are involved, or even if the US dollar is used.

That’s to say, given the centrality of the dollar in global finance, the US has near-total jurisdiction over global finance—if.

It wants to cut off financial flows.

Anywhere.

It almost certainly can.

It is for this reason why a US sanction is essentially a global sanction.

For example, when the US withdrew from the Iran Nuclear Deal and reinstated sanctions on Iran in 2018, European Union nations were still free to do business with the country.

But in order to do so, they would need to avoid interacting with US, banks, US companies, or the US dollar, which was near-impossible: trade cratered, a full 92.8% between 2018 and 2019.

Even though it was completely legal.

Western countries, concurred quite a bit more on the US’ implementation of sanctions against Russia.

But the scale and severity of these financial penalties was massive.

The US was able to easily and almost immediately immobilize, freeze, or seize some $330 billion in Russian money in the US and abroad, and play a part in freezing half of Russia’s central bank reserves.

But it didn't stop there.

Thanks to the US International, Emergency, Economic, Powers Act.

It was able to physically seize assets far outside the United States.

For, example, Fijian, authorities seized a $300 million yacht owned by Russian oligarch, Suleiman Kerimov on the US’ behalf since the Russian owner, routed payments for the ship’s maintenance and operations through the American financial system., Now, few outside of Russia and its allies debated, the merits of these sanctions, but their extent and efficacy led certain nations, especially those sitting in the vast gray area between ally and enemy, to ask whether this was too great, a power to bestow to a single country.

It’s, the same debate as with any powerful weapon—the, mere existence of a nuclear bomb is worth questioning.

No matter who holds it—and yet in this case.

There was a way to take oneself outside the range of this economic warhead., Russia fired first—but.

This time, out of necessity.

Or put another way, Russian trading partners set up systems to allow the country to circumvent the sanctions placed to punish them for the unprovoked.

Invasion of a sovereign nation.

China led the charge on this side of the equation: trading volume between the Russian ruble and Chinese yuan spiked, massively as the nation offered its financial system up as an origin, destination, and intermediary for Russian money.

After, all, the direct financial connections—circumventing, the western SWIFT payments system that Russia could no longer use—were.

Actually already in place.

China had started a concerted push in 2010 to internationalize the yuan as an alternative to the dollar and Russia was a willing partner in this mission.

The.

Two countries were able to reduce their reliance on the dollar for trade from 94% in 2015 to under 23% by 2020.

So.

Whereas in the past China might’ve paid for Russian oil in dollars—as is the case with most international oil, transactions—today China pays directly in yuan.

This situation has been emulated, elsewhere., Russia and Iran are progressively connecting their financial systems and now pay for 60% of their bilateral trade in ruble or rial.

Argentina, facing a historic drought, and therefore low exports.

And therefore, a reduced inflow of dollars, agreed to start trading with China in yuan in order to safeguard its dwindling dollar reserves.

Brazil struck a similar agreement, and the Sao Paulo branch of the Industrial and Commercial Bank of China started to act as an overseas hub to settle yuan-denominated transactions with the country.

But.

The dedollarization push with perhaps the strongest potential comes not from one nation.

But from a collection of them:, BRICS—Brazil, Russia, India, China, and South Africa.

Now.

This was originally a mere acronym to describe the five fast-growing nations expected to dominate the global economy by 2050.

But in recent years, the group has metamorphosed into a loose intergovernmental organization similar to the G7.

In fact, in many ways, considering their growing influence and lack of overlap with the G7 member nations.

They’re considered a rival to the more western organization.

And BRICS is now seriously discussing the potential of creating a new, international currency, specifically for the purpose of dollar-free, trade—in fact.

It’s expected to be the central topic for the upcoming BRICS summit in August, 2023., Economists, agree, that, at least on paper, given the scale of their economies.

Their trade surplus, and the willingness of dozens of other countries to sign on to such an effort, a BRICS currency might pose the strongest challenge yet to the dollar’s reign.

But is any of this actually happening? Is the world actually rejecting the dollar, or is this just one big media hype-cycle—a convenient configuration of facts that collectively make for a click-inducing headline? After all.

That’s certainly happened.

Before.

As, European, Union countries bound their economies together to create the Euro, many speculated that an inherently international currency would naturally grow into the global reserve, currency, usurping, the dollar.

But.

Then it just… didn’t., After, initial growth in international use relative to the US dollar, Euro reserve volume, plateaued—stymied by the European debt, crisis, the lack of UK integration into the system, and ultimately lower confidence in the currency’s stability, relative to the US dollar.

But today, beyond the rhetoric.

There is some evidence that can be used to say a dedollarization trend is occurring—most directly.

The share of central bank reserves.

Accounted for by US dollars has declined since its peak.

But.

This share has always ebbed and flowed, and today’s ebb is not outside the normal range.

So the question is, whether today’s downward trend is truly the start of a long, downward slide into oblivion, or just another hype-cycle, inducing data, anomaly.

Well.

What might answer that is another question:? Where would the money go? There has never not been a definitive, global reserve currency in modern times.

So barring the unlikely, but theoretically possible fragmentation of the global economic system in a way that has never happened before.

Something would have to replace the US dollar.

A, theoretical BRICS currency, despite its potential to challenge, the US dollar, faces, massive, likely, insurmountable obstacles to usurping its spot at the top.

The first is it actually happening.

Despite.

Their increasing cooperation, BRICS nations are hardly strong, allies.

India and China’s relationship is strained, at best, and regularly devolves into deadly skirmishes over their disputed.

Border.

Russia’s, belligerent status makes relations with it tricky—just.

Now, South Africa is having to decide whether to comply with an International Criminal, Court, arrest warrant for Vladimir Putin when he travels to the country for the upcoming BRICS summit, or if to relocate the summit, elsewhere.

In, any geopolitical environment, remotely similar to today’s, a BRICS currency could likely reach wide scale use among these developing nations, but not much more as it would be viewed as a tool for Russia to evade sanctions, and, therefore, a tool to finance, their war, efforts.

Western adoption would be low and, even as BRICS nations grow their share of the world economy.

They alone could not force a currency to replace the US dollar globally.

Similarly.

The yuan has potential as China continues its march towards world’s largest economy status.

But the uniqueness of the country’s economic system makes it incompatible for further integration with much of the rest of the world’s.

Despite their efforts to internationalize the yuan.

There are still sizable restrictions on moving money in and out of China.

Individuals are only allowed to send $50,000 a year abroad without permission.

And the view is that this could not change without significantly damaging.

The country's economy.

China has accumulated a tremendous amount of wealth, and then propped up its economy by keeping that wealth, inside—considering, how hard the country’s mega wealthy already work to get their money out.

It seems certain that relaxing.

These policies would lead to massive capital, flight., In, reverse.

There are massive restrictions on foreign access to Chinese financial, markets., For example.

The Shanghai Stock Exchange is largely closed to foreign investors—the primary way to get access to it is through the Shanghai-Hong Kong Stock Connect program, which allows investors to purchase Shanghai stocks through the Hong Kong stock exchange and vice versa.

But there are restrictions and daily trading quotas, especially in the southbound direction—and.

Even this is a uniquely liberal access-point to Chinese financial markets., The, US, dollar, in comparison, is about as open as a traditional currency can be.

There are essentially no meaningful restrictions on movement of dollars in and out of the country—in fact.

While it’s surprisingly, difficult to know for sure, somewhere between half and three-quarters of US dollars are held outside of the United States.

It is exceedingly common for high net worth individuals and large multinational companies to have US-denominated bank accounts, no matter where they are in the world, and therefore US-dollar to US-dollar international transactions regularly occur without direct involvement by a US bank.

While China is setting up mechanisms for a growing yuan trade, abroad, the restrictions on movement to and from the country make it nearly impossible for the yuan to meaningfully challenge, the dollar’s international role, as access to a robust, liquid capital market is perhaps the key tenant of a reserve currency—it’s, an investment meant to emulate nearly all qualities of one’s domestic currency.

So it must be transferable to the domestic currency nearly immediately and without restriction.

Ultimately.

There are two situations that could lead to the end of the US dollar’s international supremacy.

The.

First is the more traditional—if, the American economy encounters a massive economic collapse to the point where the dollar is no longer the safest store of value, then capital will flee elsewhere.

But.

This would have to be massive—generation, defining—and likely isolated to the country itself, rather than a global financial crisis that would make all currencies.

Risky stores of value., This, is, afterall, how every other reserve currency before has fallen.

But today, with the powers unlocked by the modern financial system.

There is a new option—the, forced option.

The one that the current media hype-cycle is based on.

Reserve.

Currencies operate off a network.

Effect., They’re useful because everyone else uses them.

Right now.

The majority of the world’s economy agrees that the so-called weaponization of the dollar is primarily being done for good.

And this will likely stay this way.

Ultimately.

The US can only use its economic weapon so much because the weapon is granted to it by the rest of the world.

Someone’s always going to have it.

And so the rare case that could force it to change hands is if there’s overwhelming international consensus that the US is using it improperly—that.

The US is meddling in global affairs.

Thanks to dollar.

Centrality.

What’s sure is that in today’s tense, geopolitical environment.

Those calls are growing louder, but they’re from a minority of nations.

And the majority agrees that American action is merely a reflection of international consensus.

That means there’s always this implicit threat—if, the US acts improperly.

Then countries will move their reserves out of the dollar—that keeps America more or less in line with the international consensus.

Rhetoric matters in this system.

But the forces keeping the dollar in that top spot are just so strong that the impetus for its fall would not be confined to columns in the financial section—they’d be a fundamental shake-up of the world order, the fall of empires, the end of American superpower status as we know, it., If.

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