Jared Cohen’s Post

Great oped in Foreign Policy by Jared Cohen. There are many facts and figures that I like, but that section is very important to various dollar sceptics: “According to the Bank for International Settlements, the U.S. dollar is the backbone of the BRICS trade. In 2022, it was involved in 97 percent of all foreign exchange transactions involving the Indian rupee, 95 percent of all such transactions involving the Brazilian real, and 84 percent of all such transactions involving the yuan. While efforts to move away from the dollar have, in some sectors, gained traction, the rhetoric around de-dollarization is, in many ways, more about performative politics than serious policy. To make the yuan more attractive, Beijing could loosen its capital controls or move away from a surveillance state model, but it shows little signs of doing do. The European Union could boost the euro if it were to create the kinds of capital markets that drive the U.S. financial system, but it hasn’t. These moves would be beneficial to Chinese citizens and Europeans alike. But for now, the dollar remains the most trusted, and in many ways most efficient, currency for not only the United States but most of the world. And while BRICS may have the desire to build a new international financial system, the global economy that has allowed the emerging markets to emerge over the last 25 years was built on the dollar”

https://lnkd.in/g4XEFhsA Summary of Key Points on the Dominance of the U.S. Dollar: 1. Global Reserve Currency: The U.S. dollar remains the world’s principal reserve currency, accounting for around 59% of foreign exchange reserves held by central banks globally. This dominance is attributed to the stability, liquidity, and wide acceptance of the dollar. 2. Economic and Financial Factors: • The size and strength of the U.S. economy. • The depth and liquidity of U.S. financial markets, particularly the Treasury securities market. • The dollar’s role in global trade and finance, with many commodities priced in dollars. 3. Geopolitical Stability: The geopolitical stability and military strength of the United States also support the dollar’s dominance, as countries and investors seek a safe haven in times of uncertainty. 4. Challenges and Threats: • The rise of other currencies such as the euro and the Chinese renminbi as potential challengers. • U.S. economic policies, including high levels of debt and fiscal deficits, which could undermine confidence in the dollar over time. • Geopolitical tensions and sanctions, which have led some countries to seek alternatives to the dollar to reduce their vulnerability to U.S. influence. 5. Technological Advances: The emergence of cryptocurrencies and digital currencies, including potential central bank digital currencies (CBDCs), could influence the future role of the dollar. However, these technologies currently pose more of a complementary role rather than a direct threat to the dollar’s dominance. 6. Institutional Confidence: The trust in U.S. institutions, legal systems, and the rule of law also plays a crucial role in maintaining the dollar’s status. Any erosion in these areas could impact the dollar’s attractiveness as a reserve currency.

In the world of finance, few things are as constant as change. Over the years, currencies rise and fall, economies expand and contract, and the global financial landscape evolves. One topic that has been gaining significant attention is the diminishing value of the U.S. dollar and President Trump recently addressed this issue during an interview on Fox Business. https://lnkd.in/gnzZdgxr

Dollar, Waller and Keynes US Fed is currently holding the third edition of conference on the topic of "International role of US Dollar". Many research papers on various sub topics will be presented. Governor Chris Waller delivered the opening remarks yesterday and addressed the issue of "imminent demise" of the dollar. His remarks outlined a world view away from the alarmist headlines and sought to reassure that the dominant position of US dollar is not under threat in near future, the word "imminent" might be true about the "certainty" aspect but not about the "soon" aspect. As soon as the time element gets into any prediction, we are generally reminded of Keynes dictum, that in the long run all of us are dead. This means that any bet we take to have a convivial effect on our health has to play out in our life time, something which ultimately happens but long past we are gone is of no use. The dollar bears bet is hence not directly on its demise but a proxy one like the rise in the yields of US treasuries because of a crash in its demand. Currently the Fx reserves of the world are kept 60% in USD and 20% in Euro, Chinese Renminbi forms a small 2% part of this arrangement. These reserves are then invested into USD assets, primarily in US treasuries. As the demand keeps growing because more countries are building reserves, the treasury prices on the demand side remain stable. Now the composition of the reserve basket can change. Lets say more countries are willing to invest in euro however there are no eurobonds issued by ECB, there are only euro denominated debt issued by various countries in the euro zone like Germany or Italy or Greece. Now that means, investing reserves in the euro brings a country risk element to the picture. Individual countries can also tweak the capital account regulations bringing unforeseen risks to the investments. This is also the biggest contention which is made against Renminbi too.  Another valid argument is made on the supply dynamics of USTs. Given that the world reserves are denominated in dollar, the US govt can be lured into issuing more of it. Waller in a 2023 speech counters this aspect by saying that the seigniorage privilege which the US has will survive a US fiscal profligacy onslaught too. The argument in favor of above requires a slightly more nuanced understanding. If US runs a major current account deficit with its trading partners and its consumers keep feeling confident for more spending, then the trading partners are essentially trapped. In a world where the goods are commoditized, no single nation can choose to ignore US demand. The capital account flows emanating from US also form the major portion of global investment flows. Those dollars when land on foreign shores have to be absorbed so that the local currency doesnt appreciate and becomes uncompetitive on the current account side. Those Fx absorption interventions build reserves which get invested in USTs.

Certainly, here are the reasons why the US dollar is considered the most powerful currency in the world: 1. **Global Reserve Currency**: Since the Bretton Woods Agreement, the US dollar has been designated as the world's primary reserve currency, held by central banks and governments worldwide. 2. **Stability and Trust**: The US economy is known for its stability, transparency, and adherence to the rule of law, instilling confidence among investors and traders globally. 3. **Financial Market Dominance**: The US boasts the largest and most liquid financial markets, including the New York Stock Exchange and the NASDAQ, attracting investors seeking liquidity and opportunities. 4. **Monetary Policy Credibility**: The Federal Reserve, the central bank of the United States, is respected for its prudent monetary policy decisions, contributing to price stability and economic growth. 5. **International Trade Standard**: The US dollar is the primary currency used in international trade transactions, giving it unparalleled influence in global commerce. 6. **Strong Economic Fundamentals**: Despite challenges, the US economy maintains its position as the world's largest economy, driven by innovation, entrepreneurship, and diverse industries. 7. **Network Effect**: The widespread use of the US dollar in global financial systems, contracts, and investments creates a network effect, reinforcing its dominance. These factors collectively contribute to the US dollar's status as the most powerful currency in the world, underpinning its role in international finance and trade.

Are we on the eve of a collapse of the US dollar? Check out the latest post by deVere Group and let me know your opinion in the comments. #usdollar #economy https://lnkd.in/dizye4Ru

According to the #DollarMilkshakeTheory, the #dollar is becoming a financial powerhouse, attracting foreign investments and further solidifying its status as a safe haven. What's in it for you? 🏠Increased #foreigninvestment in U.S. #realestate  📈A surge in market growth and property values  💰U.S. assets, especially real estate, gaining appeal Embrace the strength of the U.S. dollar and watch your #investments soar! Read the blog to know more. https://lnkd.in/g9baTYY2

Exploring the rich history and enduring dominance of the US dollar in global finance. Discover how the dollar became the world's primary reserve currency, backed by America's economic power, stability, and extensive capital markets. #thrivingassetmanagement #usdollar #americanseconomy #financialhistory

Foreign nations are finding the best way to protect their own currencies is to sell the U.S. Treasuries held in their excess reserves. Add to that negative ratings and record debt, and those are - taken together - ample reason for other nations to lighten up. As foreign purchases of U.S. Treasuries decrease, their sales increasing, and our deficits routinely in the trillions to pay for interest that has reached a trillion, the Federal Reserve will be forced to get back into the Treasury-buying-biz primarily for yield control. In theory, the Fed could ultimately own all of the U.S. Treasuries and the smartest guys in the room can only guess what the implications and ramifications of that might be. There is no risk in U.S. Treasuries, impugning their creditworthiness rating demonstrates a lack of understanding. The risk is in a long-term fragile monetary scaffolding that has been deliberately created through profligate monetary and fiscal largesse. The ultimate impact will be to destroy the U.S. Dollar just as the Dutch and British destroyed the Guilder and Pound Sterling. Some see this but mistakenly think gold and Bitcoin will be their best and safest place to secure their wealth. That too will turn out to be a bitter lesson and a bad mistake. https://lnkd.in/g4mrvGx6

Happy 1st of May to my network outside of the U.S. I’ve attached a very good perspective from Bloomberg on the pro’s and con’s regarding the U.S. Dollar. Let’s look at the alternatives and understand why the greenback is still the dominant currency around the globe. The U.S. Dollar's global significance stems from its role as the most widely used currency for international transactions and as a reserve currency by many countries. Its dominance is attributed to the U.S.'s economic power, stability, strong institutions, and the liquidity of U.S. markets, making it a safe haven for investors.