News & Analysis.
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Vince Dhimos
You might say the US dollar is dying of a thousand cuts. It is strong for now, but there are numerous efforts to undermine if, thanks to the increasing use of sanctions to punish nations that refuse to come to heel. Donald Trump is leading the charge. There are essentially 3 prongs in the de-dollarization effort: --Reducing the use of the USD in international settlements. --Selling off Treasuries --Bypassing the US SWIFT system to facilitate payment transfers while avoiding sanctions. All three of these prongs are being strongly implemented, and now the EU has joined the effort, primarily to enable further trade with Iran. We had foreseen back in July 2017 that Russia had hopes the euro would eventually replace the US dollar as a reserve currency or at least compete strongly with the USD with the consequence of weakening it and eventually making it impotent as a weapon against nations that refused to kowtow to the Hegemon. Putin had mentioned at a Valdai club meeting earlier that year that Russia wanted a strong EU. Back then, European governments were hysterically accusing him of supporting anti-EU parties in Europe. But this Valdai speech made it clear to me (but apparently not to any other analyst) that Russia was counting on the EU to help replace the US dollar in world trade settlements. Now it is clear that I was right. The author of the translated article mentions a Bloomberg article on the tyranny of the dollar. We found it. Here is the URL: https://www.bloomberg.com/news/articles/2018-10-03/the-tyranny-of-the-u-s-dollar BEGIN TRANSLATION An eye for an eye: China will arrange the largest sale of US government debt 10-5-2018 MOSCOW, October 5 - RIA Novosti, Natalia Dembinskaya. China, which has already reduced its investments in the US national debt to semi-annual lows, is ready to take the next step. According to The Wall Street Journal, in October, Beijing plans to dump US bonds by another three billion dollars - this is one of the largest sales since 2004.The reason is the aggravation of relations with Washington because of the trade war. What will happen if the Chinese use the "debt weapon" at full power. From RIA Novosti. The PRC is the largest external creditor of the American economy. The balance of the Chinese Central Bank now includes US government bonds of more than a trillion dollars - almost 20 percent of Washington’s total government debt owned by foreign holders. At the end of 2016 - the beginning of 2017, the Chinese reduced their investments in these securities to compensate for the strengthening of the yuan, but since then they have already restored their bond portfolio. The economy of the PRC is suffering because of the actions of the United States: the damage from the trade war unleashed by Washington is estimated at billions of dollars. Since the beginning of the year, the Shanghai Composite Stock Market Index of China has fallen by 15%. In Beijing, they warned more than once: if it goes on like this, it will be necessary to get rid of the US state debt - solely for economic reasons. And now they have moved from words to deeds. For six months, China has already reduced investment in US treasuries by 7.7 billion dollars. A more massive dump threatens the US with dollar instability and a slowdown in the economy. But Washington does not seem to understand the hints. In late September, Trump introduced a new ten percent duty on goods from China for a total of $ 200 billion and promises to raise tariffs from the new year to 25%. Counter attack China, for its part, is determined. During the upcoming sale of US government debt, which, according to the the Wall Street Journal, Beijing will begin next week, investments in US bonds with maturities of five, ten and 30 years will be reduced by a total of three billion dollars. Financiers fear this could be costly for the US economy. If China sells a significant portion of US debt securities, their value will fall, and yield will rise sharply. This will automatically increase the cost of borrowing for the United States - and for companies and ordinary consumers, which means it will undermine economic growth. The issue of debt securities will be more expensive for the White House. “The economy will start to heat up due to high interest rates everywhere, which will have a powerful slowing effect,” explains Jeff Mills, chief investment strategist at the US company PNC Financial Services Group. Japan is on the way The fears of observers are also connected with the mood of the second largest creditor of the United States, ie, Japan. In June, the portfolio of treasury bonds of the rising sun country dwindled to 1.030 trillion dollars - the lowest figure in seven years. China and Japan are not the only sellers of US debt. Russia and Turkey, which have suffered from Washington’s economic pressure, have already dropped out of the group of thirty largest Treasuries holders. Moscow, in particular, ditched almost its entire portfolio: in April-May, the Central Bank reduced investments in American debt securities to a negligible $15 billion (at the beginning of the year the amount exceeded one hundred billion). Smaller holders - Mexico, India, Taiwan - are also getting rid of US government bonds. “Foreign lenders are extremely important for the US economy. We cannot exist at such rates of economic growth and depressing forecasts for a budget deficit without foreign capital,” say portfolio managers at American Loomis, Sayles & Co. In the meantime, the general trend for dumping treasuries is only increasing. According to Reuters estimates, international investors are now getting rid of US Treasury bonds at the highest rates since October 2016. The reasons are obvious: the aggressive policy of Washington is reducing the number of people willing to lend to the American economy, and at the same time it prompts more and more countries to exclude the dollar from their invoicing. The "tyranny" of the dollar US financial agency Bloomberg writes that the dominant role of the dollar will soon come to an end. Bloomberg experts define as "tyranny" the current status of US currency, indicating that "it's time to change the regime." The publication notes that a paradoxical situation has now developed in the global financial system. On the one hand, the dollar is the world currency, which accounts for more than half of all invoicing, and on the other hand, the US president declares the exclusivity of his country. That is why the world is hastily reconsidering its attitude toward the US currency. Russia, in particular, is reducing its dollar-denominated assets due to growing risks in international payments, and China is challenging the dollar in world energy markets by entering into contracts in yuan. END TRANSLATION Relevant: https://www.bloomberg.com/view/articles/2018-08-20/dollar-power-turkey-russia-iran-can-t-go-alone-on-currency Anti-Dollar Mavericks Can’t Win Just Yet For now, Turkey, Russia and Iran are powerless against the dollar’s dominance, even with China’s help. https://www.bloomberg.com/view/articles/2018-09-12/currencies-the-euro-has-the-power-to-challenge-the-dollar The Euro Has the Power to Challenge the Dollar Growing U.S. unilateralism is an opportunity to end the greenback’s dominance. https://www.bloomberg.com/news/articles/2018-10-03/the-tyranny-of-the-u-s-dollar The Tyranny of the U.S. Dollar The incumbent international currency has been American for decades. Is it time for regime change?
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