Tuesday, November 26, 2019

De-dollarization - The End of the U.S. Dollar's Dominance

At the recent Russian Energy Week meeting held in Moscow from October 2nd to 5th, 2019 Russian President Vladimir Putin made some very interesting comments about the changing role of the United States dollar as the world's foremost reserve currency during a panel discussion.  Let's look at some background information on the world's reserve currencies followed by quotes from President Putin's commentary and how Russia is handling its affairs in light of the potential tectonic shift in global reserve currencies.

According to Philosophy of Metrics, the history of the world's reserve currencies since the 15th century and their duration are as follows:

Portugal - 1450 to 1530 (80 years)

Spain - 1530 to 1640 (110 years)

Holland  - 1640 to 1720 (80 years)

France - 1720 to 1815 (95 years)

United Kingdom - 1815 to 1920 (105 years)

United States - 1920 to 2030 (estimated) (110 years)

As you can see, the United States dollar has now reigned as the world's foremost reserve currency for longer than most other currencies.

The United States dollar ascended to the throne in 1914 when the first U.S. dollar as it is known today was printed; this took place shortly after the creation of the Federal Reserve Bank under the Federal Reserve Act of 1913.  It was during the First World War that many nations had to abandon the gold standard in order to pay their military expenses using paper (fiat) currencies.  Even the United Kingdom which had clung to the gold standard to maintain its position as the world's reserve currency of choice had to abandon the gold standard in order to borrow money to fund its military.  In 1944, a meeting of 44 Allied nations in Bretton Wood, New Hampshire, negotiated a new system of foreign exchange.  In this new system known as the Bretton Wood Agreement, central banks would maintain fixed exchange rates between the currencies of their nation and the U.S. dollar.  In turn, the United States would redeem the American dollar for gold upon demand of their allies.  It was at this point that the U.S. dollar was officially declared the world's reserve currency, largely because it was backed by the world's largest gold reserves.

Here is a table from the International Monetary Fund showing the currency composition of the official foreign exchange reserves for the entire world, showing the dominance of the United States dollar:

Here are both a pie chart and bar graph showing the same information:

As of the second quarter of 2019, $6.792 trillion or 57.9 percent of the world's total foreign exchange reserves are held in United States dollars.

Now, let's look at the comments made by President Vladimir Putin in October 2019 about the United States dollar and its historical and future roles:

"The dollar enjoyed great trust around the world.  It was almost the only universal currency in the world.  For some reason, the United States began to use dollar settlements asa tool for political struggle.  Imposing restrictions on the use of the dollars.  They began to fight the hand that feeds them.  They'll collapse soon.  Many countries in the world began turning away from using the dollar as a reserve currency.  They restrict Iran in its dollar settlements.  They impose some restrictions on Russia and other countries.  This undermines confidence in the dollar.  Isn't it clear?  They are destroying the dollar with their own hands."
Let's look at some examples of how Russia and China are working around the United States dollar.  Back in September 2019, the South China Morning Post announced this:

In July 2019, the Moscow Times announced this:

Here is a graphic showing Russia's growing gold reserves:

Just for interest's sake, here is a graphic showing China's growing gold reserves:

Let's close with this graphic showing the significant readjustment in China's U.S. dollar foreign exchange reserves from 2014 to 2017:

In conclusion, while Vladimir Putin's opinion on the United States dollar as the world's reserve currency may be nothing more than wishful thinking, it is clear that both Russia and China, the world's second largest economy and likely inheritor of the global superpower "crown" are taking significant steps to protect themselves from the possibility of a tectonic shift in the global monetary reserve reality.  Given Washington's penchant for using economic warfare as part of its efforts to retain its dominant status in the global village, one could easily see why nations would elect to insure themselves against such economic bullying.


  1. The dollar holds a special place in the world currency market. Following Friday's strong job report it is surprising we are not hearing anyone talking about raising interest rates or how this may be inflationary. Instead, the focus has been steered in the direction of how we have obtained a "Goldilocks" situation and if anything Fed Chairman Powell may have room to cut rates even more.

    It is possible that rather than bending to pressure from Trump that Powell is trying to navigate a course that doesn't cause the dollar to strengthen to where it devastates emerging markets. It may be that the Fed's chief concern is that a stronger dollar would create massive instability. The article below explores Powell's actions.


  2. Trump is in on the plan to destroy the dollar as Payback for what the Federal Government did to him and his father's business, back in the 70's.