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Nov 7, 2022
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The US dollar is not yet giving way to other currencies

However, over 15 years there has been a more than 11-fold increase in the dollar supply in circulation.

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Many people say and write about the fact that America has been cutting the branch on which it sits for many years. Strictly speaking, America has several such bitches. For example, military souk – military dominance in the world. But perhaps the most important bough is the US dollar. The dollar bough is cut, but not cut down. America continues to sit on this bitch.

In the late 1990s and early 2000s, the share of the US dollar in world foreign exchange reserves, according to the IMF, exceeded 70 percent. So, in 1999 it reached its maximum – 70.9%. Then there was a gradual decrease in this indicator. In the middle of last year, the share of the US dollar dropped to 59.18%. True, in the middle of this year it rose slightly – up to 59.53%. But even this can be called absolute dominance. Following the US dollar, the euro currency had a share that was almost three times smaller – 19.77%. This was followed by such reserve currencies as the Japanese yen (5.18%), the British pound sterling (4.88%); Chinese yuan (2.88%); Canadian dollar (2.49%); Australian dollar (1.68%), Swiss franc (0.25%). All other currencies combined accounted for 3.15%. There has not yet been a dramatic decline in the share of the US dollar in world foreign exchange reserves this century.

Another indicator characterizing the position of the currency in the world is its share in international payments. Such statistics are kept by the SWIFT system, which provides information and communication support for international operations on payments and settlements. According to the latest data, at the end of September 2022, the share of the US dollar in international payments amounted to 42.31%. Two years earlier (in September 2020), this share was 38.45%. As we can see, there was a strengthening of the positions of the American currency against the background of the weakening of the positions of other well-known currencies over these two years.

Among other indicators that allow assessing the positions of individual monetary units in the world monetary system, one should name their share in foreign exchange transactions. Such operations are carried out on the FOREX market (from the English. Foreign Exchange – “foreign currency exchange”, sometimes FX). Ever since the post-war gold-dollar standard was abolished at the Jamaican International Monetary and Financial Conference in 1976 and replaced by the paper-dollar standard, the global currency exchange market has grown exponentially. Accounting for transactions in the FOREX market is carried out by the Bank for International Settlements in Basel. According to him, the daily turnover in the market in 1977 was still a rather modest amount of $5 billion. That is, the foreign exchange market still performed its main function – the exchange of currencies necessary for foreign trade transactions. And then a real currency bacchanalia began, due to the fact that they simply began to speculate with currencies and earn gigantic money on fluctuations in exchange rates (before that, under the gold-dollar standard, IMF member countries were obliged to maintain stable rates of their monetary units).

The Bank for International Settlements presents a review of the state of the FOREX market every three years. At the end of October this year, the last review was published, which contains statistical data as of April. Data was collected from over 1,200 banks and dealers in 52 countries. Compared to April 2019, when the average daily turnover on the market was $6.6 trillion, in April this year they rose to $7.5 trillion. Compared to previous three-year periods, the increase is quite modest – only 14%.

Taking into account the topic we are considering, we are most interested in the structure of operations by types of currencies in this review. In April, the share of the US dollar was 88.5%. I note that, since we are talking about foreign exchange transactions, the sum of all currencies, according to the BIS methodology, is 200%. The review provides figures on the currency structure of transactions in the FOREX market since 1989. Then the share of the US dollar was 90%. After that, such an indicator was recorded back in 2001. All other years the share of the US dollar was lower. And the lowest it was in 1992 – 82%. In 2019, the share was 88.3%. Thus, the position of the US dollar in the FOREX market has not changed not only over the past three years, but also over more than three decades. He still continues to reign in this market.

For comparison, I will give data on other currencies (share in operations on the FOREX market in April 2022; in brackets – in April 2019;%):

Euro – 30.5 (32.3)

Japanese yen – 16.7 (16.8)

British pound sterling – 12.9 (12.8)

Chinese yuan – 7.0 (4.3)

Australian dollar – 6.4 (6.8)

Canadian dollar – 6.2 (5.0)

Swiss franc – 5.2 (4.9)

Hong Kong dollar – 2.6 (3.5)

As you can see, the positions of the euro and the Hong Kong dollar sank most noticeably over the three years. The Canadian dollar and especially the Chinese yuan strengthened their positions. Now the Chinese currency occupies the fifth place in terms of the volume of transactions in the FOREX market, having risen in the rating of currencies by three lines at once. The Chinese currency managed to outperform the Australian and Canadian dollars and the Swiss franc. The main part of transactions with the participation of the US dollar in April accounted for the following transactions (in brackets – the share in April 2019; %):

US dollar / euro – 22.7 (24.0)

US dollar / yen – 13.5 (13.2)

US dollar / pound sterling – 9.5 (9.6)

US dollar / yuan – 6.6 (4.1)

US dollar / Canadian dollar – 5.5 (4.4)

US dollar / Australian dollar – 5.1 (5.4)

US dollar / Swiss franc – 3.9 (3.4)

US dollar / Hong Kong dollar – 2.4 (3.3).

As you can see, the share of the US dollar and euro exchange operations sank the most. And the largest increase was in transactions in the US dollar – yuan pair.

I think that the above statistics are quite enough to understand that the US dollar at the moment continues to occupy positions in the world monetary and financial system that differ little from those that it occupied not only a year ago, but also a decade ago, and even several decades ago. These figures do not give grounds to assert that the US dollar is “dead” or is “near death.” He still has some margin of safety. It is difficult to say how much this stock will last.

Under the President Donald Trump his team was trying to stop the process of approaching the death of the dollar. Even attempts were made to breathe a second life into it. To do this, first of all, it was necessary to stop the work of the “ax”, which continued to cut a branch called “US Dollar”, and this work was expressed in the fact that the US Federal Reserve, in whose hands the “ax” was, increased the emission of dollars and kept the key rate almost at zero for years. When he came to the White House Joe Bidenhis team instructed Jerome Powell (to the head of the Fed) to intensify the work of the “axe”. On the eve of the financial crisis of 2008-2009. the assets of the US Federal Reserve amounted to about $0.8 trillion. By the end of Trump’s stay in the White House, assets exceeded $7 trillion. billions and trillions. In mid-October, Fed assets reached $8.95 trillion. In 15 years, there has been a more than 11-fold increase in Fed assets and, therefore, about the same increase in the dollar supply in circulation. The key rate of the US Federal Reserve has also been at the plinth level for a long time. It was sharply lowered in 2008, when the financial crisis flared up. It was quickly brought to a value of 0-0.25%. It was at this level for exactly 7 years (from December 16, 2008 to December 16, 2015), and then, after a slight increase, it returned to the same zero level again, where it was for exactly two more years (from March 16, 2020 to March 16, 2022). .).

Since the spring, the US Federal Reserve has unexpectedly put an end to its ultra-liberal (“pigeon”) monetary policy. A period of tightening, or “hawkish” policy began. It is expressed in raising the key rate and reducing the money supply by selling Treasury and mortgage securities from the Fed’s portfolio. In particular, on November 2, the Fed’s Open Market Committee decided to increase the key rate again, and today it has already reached the level of 3.75-4%. Since the spring, the Federal Reserve has been saying that its main task is to fight to suppress inflation, which since the same spring has had monthly values ​​exceeding 8%.

However, it seems to me that the fight against inflation is only a cover. Washington is frantically trying to stop the approaching collapse of the US dollar. The dollar “branch” on which America sits is already 90 percent cut as a result of the Fed’s dovish monetary policy over the past fifteen years. The dollar branch is already cracking, but the fall of America sitting on it has not happened yet.

At the same time, favorable indicators of the positions of the US dollar in the world monetary and financial system should not mislead anyone. Washington understands the fatality of the collapse of the dollar “branch”. And very nervous. Hence, there are more and more aggressive statements and actions of Washington, which are not able to maintain America’s hegemony, but pose a threat to the whole world. Among these actions, first of all, we should name the decision to “freeze” the foreign exchange reserves of the Russian Federation in the amount of $300 billion. Washington’s next inadequate step may be the decision to confiscate the Russian “frozen” currency.

Photo: REUTERS/Dado Ruvic

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