(Bloomberg) — King Dollar is facing a revolt.
Most Read from Bloomberg
Donald Trump’s Taxes Reveal Big Losses: What We Learned So Far, in Charts
I’ve Seen Trump’s Tax Returns and Now You Can, Too
China Is Likely Seeing 1 Million Covid Cases, 5,000 Deaths a Day
Bankman-Fried Associates Flip as FTX Founder Arrives in NYC
Musk Lashes Out at Unhappy Investor as Tesla Shares Retreat
Tired of a too-strong and newly weaponized greenback, some of the world’s biggest economies are exploring ways to circumvent the US currency.
Smaller nations, including at least a dozen in Asia, are also experimenting with de-dollarization. And corporates around the world are selling an unprecedented portion of their debt in local currencies, wary of further dollar strength.
No one is saying the greenback will be dethroned anytime soon from its reign as the principal medium of exchange. Calls for “peak dollar” have many times proven premature. But not too long ago it was almost unthinkable for countries to explore payment mechanisms that bypassed the US currency or the SWIFT network that underpins the global financial system.
Now, the sheer strength of the dollar, its use under President Joe Biden to enforce sanctions on Russia this year and new technological innovations are together encouraging nations to start chipping away at its hegemony. Treasury officials declined to comment on these developments.
“This will simply intensify the efforts in Russia and China to try to manage their part of the world economy without the dollar,” said Paul Tucker, a former deputy governor of the Bank of England in a Bloomberg podcast.
Writing in a newsletter last week, John Mauldin, an investment strategist and president of Millennium Wave Advisors with more than three decades of markets experience said the Biden administration made an error in weaponizing the US dollar and the global payment system.
“That will force non-US investors and nations to diversify their holdings outside of the traditional safe haven of the US,” said Mauldin.
Bilateral Payments
Plans already underway in Russia and China to promote their currencies for international payments, including through the use of blockchain technologies, accelerated rapidly after the invasion of Ukraine. Russia, for example, began seeking remuneration for energy supplies in rubles.
Soon, the likes of Bangladesh, Kazakhstan and Laos were also stepping up negotiations with China to boost their use of the yuan. India began talking up more loudly the internationalization of the rupee and just this month, started securing a bilateral payment mechanism with the United Arab Emirates.
Progress however appears to be slow. Yuan accounts haven’t gained traction in Bangladesh for example due to the nation’s wide trade deficit with China. “Bangladesh has tried to pursue de-dollarization in trade with China, but the flow is almost one-sided,” said Salim Afzal Shawon, head of research at Dhaka-based BRAC EPL Stock Brokerage Ltd.
A major driver of those plans was the move by the US and Europe to cut off Russia from the global financial messaging system known as SWIFT. The action, described as a “financial nuclear weapon” by the French, left most major Russian banks estranged from a network that facilitates tens of millions of transactions every day, forcing them to lean on their own, much smaller version instead.
That had two implications. First, the US sanctions on Russia stoked concern that the dollar could more permanently become an overt political tool — a concern shared especially by China, but also beyond Beijing and Moscow. India, for example, has been developing its own homegrown payments system that would partly mimic SWIFT.
Second, the US decision to use the currency as part of a more aggressive form of economic statecraft puts extra pressure on economies in Asia to choose sides. Without any alternative payments system, they’d run the risk of being compelled into compliance with, or enforcement of, sanctions they may not agree with — and losing out on trade with key partners.
“The complicating factor in this cycle is the wave of sanctions and seizures on USD holdings,” said Taimur Baig, managing director and chief economist at DBS Group Research in Singapore. “Given this backdrop, regional steps to reduce USD reliance are unsurprising.”
Just as officials across Asia are loath to pick a winner in US-China tussles and would prefer to keep relations with both, the US penalties on Russia are pushing governments to go their own way. Sometimes the action takes a political or nationalist tone — including resentment of Western pressure to adopt sanctions on Russia.
Moscow looked to convince India to use an alternative system to keep transactions moving. Myanmar’s junta spokesman said the dollar was being used to “to bully smaller nations.” And Southeast Asian countries pointed to the episode as a reason to trade more in local currencies.
“Sanctions make it more difficult – by design – for countries and companies to remain neutral in geopolitical confrontations,” said Jonathan Wood, head of global risk analysis at Control Risks. “Countries will continue to weigh economic and strategic relationships. Companies are caught more than ever in the crossfire, and face ever more complex compliance obligations and other conflicting pressures.”
It’s not just the sanctions helping to accelerate the de-dollarization trend. The US currency’s rampant gains have also made Asian officials more aggressive in their attempts at diversification.
The dollar has strengthened about 7% this year, on track for its biggest annual advance since 2015, according to a Bloomberg index of the dollar. The gauge reached a record high in September as dollar appreciation sent everything from the British pound to the Indian rupee to historic lows.
Huge Headache
The dollar’s strength is a huge headache for Asian nations who’ve seen prices of food purchases soar, debt-repayment burdens worsen and poverty deepen.
Sri Lanka is a case in point, defaulting on its dollar debt for the first time ever as a soaring greenback crippled the nation’s ability to pay up. Vietnamese officials at one point blamed dollar appreciation for fuel-supply struggles.
Hence moves such as India’s deal with the UAE, which accelerates a long-running campaign to transact more in the rupee and to set up trade settlement agreements that bypass the US currency.
Meanwhile, dollar-denominated bond sales by non-financial companies have dropped to a record low 37% of the global total in 2022. They’ve accounted for more than 50% of debt sold in any one year on several occasions in the past decade.
While all these measures may have a limited market impact short term, the end result may be an eventual weakening of demand for the dollar. The Canadian dollar and Chinese yuan’s shares of all currency trades, for instance, are already slowly edging higher.
Technological progress is another factor facilitating efforts at moving away from the greenback.
Several economies are chipping away at dollar use as a by-product of efforts to build new payment networks — a campaign that pre-dates the surging greenback. Malaysia, Indonesia, Singapore and Thailand have set up systems for transactions between each another in their local currencies rather than the dollar. Taiwanese can pay with a QR code system that’s linked with Japan.
All-in, the efforts are driving momentum further away from a West-led system that’s been the bedrock for global finance for more than half a century. What’s emerging is a three-tier structure with the dollar still very much on top, but increasing bilateral payment routes and alternative spheres such as the yuan that seek to seize on any potential US overreach.
And for all the agitation and action afoot, it’s unlikely the dollar’s dominant position will be challenged anytime soon. The strength and size of the US economy remains unchallenged, Treasuries are still one of the safest ways to store capital and the dollar makes up the lion’s share of foreign-exchange reserves.
The renminbi’s share of all foreign-exchange trades, for example, may have climbed to 7%, but the dollar still makes up one side of 88% of such transactions.
“It’s very hard to compete on the fiat front — we have the Russians doing that by forcing the use of rubles, and there’s wariness with the yuan as well,” said George Boubouras, three-decade markets veteran and head of research at hedge fund K2 Asset Management in Melbourne. “At the end of the day, investors still prefer liquid assets and in this sense, nothing can replace the dollar.”
Nevertheless, the combination of moves away from the dollar are a challenge to what then-French Finance Minister Valéry Giscard d’Estaing famously described as the “exorbitant privilege” enjoyed by the US. The term, which he coined in the 1960s, describes how the greenback’s hegemony shields the US from exchange-rate risk and projects the nation’s economic might.
And they may ultimately test the entire Bretton Woods model, a system that established the dollar as a leader in the monetary order, which was negotiated at a hotel in a sleepy New Hampshire town at the close of World War II.
The latest efforts “do indicate that the global trade and settlement platform that we’ve been using for decades may be beginning to fracture,” said Homin Lee, Asia macro strategist at Lombard Odier in Hong Kong, whose firm oversees the equivalent of $66 billion.
“This entire network that was born out of the Bretton Woods system — the Eurodollar market in the 1970s and then the financial deregulation and the floating rates regime in the 1980s — this platform that we have developed so far may be beginning to shift in a more fundamental sense,” Lee said.
Valuable Lesson
The net result: King Dollar may still reign supreme for decades to come, but the building momentum for transactions in alternate currencies shows no sign of slowing — particularly if geopolitical wild cards continue to convince officials to go their own way.
And the US government’s willingness to use its currency in geopolitical fights could ironically weaken its ability to pursue such methods as effectively in the future.
“The war in Ukraine and the sanctions on Russia will provide a very valuable lesson,” Indonesian Finance Minister Sri Mulyani Indrawati said last month at the Bloomberg CEO Forum on the sidelines of the G-20 meetings in Bali.
“Many countries feel they can do transactions directly — bilaterally — using their local currencies, which I think is good for the world to have a much more balanced use of currencies and payment systems.”
–With assistance from Shruti Srivastava, Sudhi Ranjan Sen, Adrija Chatterjee, Daniel Flatley, Nguyen Dieu Tu Uyen, Yujing Liu, Anirban Nag, Claire Jiao, Grace Sihombing, Philip J. Heijmans, Jeanette Rodrigues, Arun Devnath and Finbarr Flynn.
(Adds comment from former BOE deputy governor in fifth paragraph)
Most Read from Bloomberg Businessweek
Apple Investors’ Loyalty Is Rewarded With a $454 Billion Gift
China’s Hasty Reopening Is a Risky Bet That Beijing Can Control the Narrative
Child Care Faces $24 Billion Fiscal Cliff as Pandemic Aid Ends
The Federal Reserve Doesn’t Care About Your Misery
Drugmakers Are Testing Ways to Stop Alzheimer’s Before It Starts
©2022 Bloomberg L.P.
Related Quotes
Pope Francis on Thursday denounced psychological violence and abuse of power in the Church, as the case of a prominent priest accused of exploiting his authority to sexually abuse nuns has rocked the Vatican. The 86-year-old pope made his comments in his annual Christmas address to cardinals, bishops and other members of the Curia, the central administration of the Vatican. Francis has often used the occasion to decry perceived flaws in the top bureaucracy, such as gossip, cliques and infighting.
(Bloomberg) — FTX co-founder Sam Bankman-Fried landed in the US late Wednesday to face a range of criminal charges just as two of his long-time associates said they were cooperating with prosecutors.Most Read from BloombergDonald Trump’s Taxes Reveal Big Losses: What We Learned So Far, in ChartsI’ve Seen Trump’s Tax Returns and Now You Can, TooChina Is Likely Seeing 1 Million Covid Cases, 5,000 Deaths a DayBankman-Fried Associates Flip as FTX Founder Arrives in NYCMusk Lashes Out at Unhappy Inv
(Bloomberg) — Months after Shanghai endured a brutal lockdown to stop the spread of Covid, the virus is starting to make its way virtually unchecked through the megacity’s 25 million-strong population.Most Read from BloombergDonald Trump’s Taxes Reveal Big Losses: What We Learned So Far, in ChartsI’ve Seen Trump’s Tax Returns and Now You Can, TooChina Is Likely Seeing 1 Million Covid Cases, 5,000 Deaths a DayBankman-Fried Associates Flip as FTX Founder Arrives in NYCMusk Lashes Out at Unhappy I
(Bloomberg) — China’s reopening is disrupting energy markets as the abrupt shift from Covid Zero shutters industry and upends the usual flow of commodities.Most Read from BloombergDonald Trump’s Taxes Reveal Big Losses: What We Learned So Far, in ChartsI’ve Seen Trump’s Tax Returns and Now You Can, TooChina Is Likely Seeing 1 Million Covid Cases, 5,000 Deaths a DayBankman-Fried Associates Flip as FTX Founder Arrives in NYCMusk Lashes Out at Unhappy Investor as Tesla Shares RetreatA dramatic sur
(Bloomberg) — Tesla Inc. is offering US consumers $7,500 to take delivery of its two highest-volume models before year-end, adding to indications the carmaker is struggling with demand.Most Read from BloombergDonald Trump’s Taxes Reveal Big Losses: What We Learned So Far, in ChartsI’ve Seen Trump’s Tax Returns and Now You Can, TooChina Is Likely Seeing 1 Million Covid Cases, 5,000 Deaths a DayBankman-Fried Associates Flip as FTX Founder Arrives in NYCMusk Lashes Out at Unhappy Investor as Tesla
Yahoo Finance Live’s Brian Sozzi breaks down the stat of the day.
Yahoo Finance Live anchors discuss reports that AMC Entertainment will raise $110 million in new equity capital by selling its APE units.
These snowbirds are heading south for the winter. And staying put.
Not long ago, Amazon (NASDAQ: AMZN) looked unstoppable. A year later, that momentum has vanished, and Amazon is in disarray. Excluding Amazon Web Services, the tech giant has lost more than $8 billion through the first three quarters of the year.
Novavax (NASDAQ: NVAX) has brought investors extreme gains and extreme losses in just a few years. Since, Novavax shares have made their way progressively back down to earth. Meanwhile, due to a late commercial start, Novavax's vaccine sales have disappointed.
Because of that, these energy master limited partnerships (MLPs) look like ideal options for investors seeking lucrative passive income streams. Energy Transfer currently offers investors a 9% yield. Put another way, a $1,000 investment in Energy Transfer could generate $90 of annual passive income.
Sam Bankman-Fried, the disgraced crypto tycoon, is expected to appear in court shortly in the US to face a range of criminal fraud charges.
Yahoo Finance Live’s Brian Sozzi breaks down a Citi analyst’s bullish take on Apple.
2022 is almost over and although 2023 brings with it plenty of uncertainty, most investors will no doubt be happy that a tumultuous year for the stock market is finally coming to an end. The selling pressure has at times been so severe that it didn't really matter whether a stock has strong fundamentals or not, the reflex has been to throw the baby out with the bathwater. The upshot to the relentless selling is that now investors get a chance to load up on their favorite names at a big discount.
Yahoo Finance's Brad Smith highlights how stocks are trading at the open on Thursday.
Shares of cybersecurity software stocks CrowdStrike (NASDAQ: CRWD), Palo Alto Networks (NASDAQ: PANW), and Fortinet (NASDAQ: FTNT) were falling today, down 2.1%, 1.1%, and 1.3% as of 1:49 p.m. ET, even though the broader Nasdaq Composite was up by about 1.5% at that time. Yesterday, Palo Alto announced the closing of its acquisition of Cider Security, a leader in software application protection. On Tuesday night, cybersecurity peer BlackBerry had its fiscal third-quarter earnings report, in which management noted some caution in closing large cybersecurity deals in the near term, as sales cycles have become "elongated," which is a fancy term for customers being slower to sign off on purchases.
In this article, we will discuss the 15 biggest lithium battery stocks. If you want to explore similar stocks within the lithium industry, you can also take a look at Lithium Stocks List: 5 Biggest Lithium Stocks. At a time when the world is at a crossroads with regard to climate change, lithium has risen […]
Most investors won't build life-changing wealth from the stock market overnight, but when you're investing in wonderful stocks for many years at a time, you don't need to hit a one-time jackpot to build and sustain meaningful returns. Here are four different stocks, each on a unique growth trajectory, that have the potential to multiply a $100,000 investment by at least 5 times in the years ahead. E-commerce spend will account for 31% of all retail transactions in the U.S. alone by 2026, compared to its current share of 23%, according to Morgan Stanley.
Legendary investor Peter Lynch once said, "When there's a war going on, don't buy the companies that are doing the fighting; buy the companies that sell the bullets." While numerous companies are fighting for control of end markets like cloud computing, consumer electronics, and electric cars, all of them depend heavily on semiconductors. Building on that, Nvidia (NASDAQ: NVDA) and Taiwan Semiconductor Manufacturing (NYSE: TSM) have seen their share prices plunge 51% and 46%, respectively, but both stocks are well positioned to rebound when economic conditions improve and the next bull market thunders to life.
U.S. stocks plunged Thursday morning as December's sell-off resumed after a rally in the previous session that failed to hold ground.
Suddenly Everyone Is Hunting for Alternatives to the US Dollar – Yahoo Finance
