Zeihan: The Dollar’s Demise As The Global Currency Is Greatly Exaggerated
“Every few months to couple of years, a new conventional wisdom takes hold that the United States is in its final years, if not final months, and some big political thing is going to happen that is going to dethrone the US dollar as the global currency, and all American power will unwind with that. There is no part of that logic chain that has ever been correct.”
Some takeaways:
U.S power is not a result of its position as the global currency, it’s the other way around. The global currency has to be able to impose, by force if necessary, some sort of taxpax on the trading system to allow trade to happen in the first place. And right now the U.S Navy is more powerful than that of all other navies combined by about a factor of seven. And if you consider that the world’s second and third most powerful expeditionary navies are the Japanese fleet and the British fleet, and you throw them in as American for this Force projection factor, you’re now talking in excess of 12 to 1.
“Honestly, there’s there’s never been any math there and there’s no danger to the U.S. position from a strategic point of view.”
“BRICs is a group of four large developing economies: Brazil, Russia, India and China. It’s a grouping that was put together by some finance guy back in the 2000s, and all he meant by it was ‘Hey, look, these are four big countries with big bond markets we might want to consider trading these as a group.’ That’s all he ever thought about it.”
“The leaders of the BRICs countries do get together from time to time. [No]
meaningful policy has ever come out of it, because these countries don’t really trade. I mean they all trade with China, of course, but they don’t trade with one another, so there’s a reason to caucus with Beijing, but the rest of it is just kind of fluff. Always has been.”
“When I see stories about other countries such as South Africa, or Argentina, or now Saudi Arabia starting to join, I’m like ‘Oh, this is really boring.’ Because these countries really have nothing in common.”
“The conspiratorial logic goes: If they stop using the U.S. dollar, then the US is doomed. Well they’d have to start using something else, and none of them, none of them, want to use each other’s currencies, because that would give that country a leg up.”
“The Russians have always said that the ruble should be the global currency, which makes everyone, everyone laugh, because nobody wants rubles, especially Russians.”
Same for the Yuan and the Rand.
“If you want to have a Global Currency it has to be huge. It has to be able enough to lubricate the global exchange mechanisms, which at last check was in the tens of trillions. And that doesn’t mean that your currency has to be in the tens of trillions, that means you have to be able to lubricate the exchange of tens of trillions, your currency needs to be even bigger.”
Which gets us to probably the single biggest constraint on being a global currency: you have to not care what happens to the value of your currency in any given day, because if there’s a trade surge and demand of your currency goes up, then all of a sudden supply of your currency is plummeted, and you’re dealing with very real economic distortions at home. So your currency has to be so huge that you don’t care that global exchange in it is moving around every day. And that means you also need to be able to run a persistent trade deficit, because you have to be able to provide currency for everyone who wants to trade everywhere at any time, and you cannot sign off on each individual transaction.
“That makes the list down to one already.”
“Europeans couldn’t do it, because they have to run a trade surplus because their demographics are so aged they will never be net importers again.”
“It can’t be the Chinese. The Chinese are the most manipulated currency in human history. They print two to five times as much currency every month as the U.S Fed did at the height of our monetization programs in 2007 to 2008, and then again during Covid. It’s everything that everyone says is wrong with the US dollar is actually wrong with the Yuan by a factor of 10.”
“Every time the Chinese start to loosen up their capital controls in an attempt to have a bigger role for their currency internationally, a half a trillion to a trillion dollars of private savings floods out of the country in a matter of months, and they have to slam that window shut again.”
Even in times of war, countries tend to use the dominate global currency for international trade, even if issued by their current enemy.
“The Russians are under financial constraints right now, sanctions put on them by the Americans the Europeans and others, and so they tried to pull a lot of their petroleum earnings, which comes in in euros and dollars, and they tried to push it into Chinese yuan as kind of like a stick it to the West. Well, a few months later they tried to then pull it out, and the Chinese went like ‘Well, no, we really don’t want these Yuan back.’ And so the Russians just lost tens of billions of dollars.”
In a post-globalist economy, American dollars provide a handy hedge against regional hegemons.
“There’s no shortage of people who don’t like Americans, who have no sense of math or history, who are always going to trot this up every few months, and it means as little today as it did then.”
This entry was posted on Wednesday, January 4th, 2023 at 12:53 PM and is filed under Foreign Policy, video. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
12 Responses to “Zeihan: The Dollar’s Demise As The Global Currency Is Greatly Exaggerated”
This is a subject those who want the U.S. to abandon its alliances and retreat to Fortress North America would do well to contemplate seriously. As Zeihan said: our power doesn’t come from being the world’s currency; our currency dominates the world because of our power. So what happens if we dismantle the structures of that power?
Maybe our position would remain dominant enough to keep the dollar as the world’s currency, but maybe not. And that’s all apart from the other consequences that flow from no longer being the world’s policeman.
The biggest issue I see is Saudi Arabia making deals to accept other than dollars for oil as well as one-to-one deals paid in other than dollars. It doesn’t sink the dollar which has lots of things going for it, but it does look like the system is splitting into two blocks, –the dollar and the other.
Here’s an insight you won’t hear from Zeihan, but it’s a sad truth: The real reason the US is the reserve currency is that we’re predictable and reliable. It’s like “Nobody ever got fired for choosing IBM…”, which was a truism until it wasn’t. And, that happened precisely because IBM became unreliable and unpredictable.
Nobody likes uncertainty. The things that the US has done at the behest of idiots like Obama and Biden are what are causing the problem; withdrawal from Afghanistan was a huge mistake, just as withdrawing from Iraq was. Once we got into those situations, it was immensely more damaging to withdraw than it was to stay. ISIS would never have happened, and the Iraqi Army that we built up before Obama knifed it in the back would still be there, growing as an institution of stability in Iraq.
Of course, the real mistake was Bush committing to a course of action that required long-term commitment, when he could not guarantee that the commitment was actually there. Given the realities of the Democratic Party, both Iraq and Afghanistan should have been punitive expeditions into Saudi Arabia and Pakistan, ending in their destruction as modern nations. Sad, but true; Bush took the path of lesser evil, and set us on a track towards later and more extensive damage and destruction.
Which doesn’t leave the Democrat scum blameless for what they did in the actual event. The carpetbaggers in both parties are really responsible for what happened in both nations, just as they are for what happened in Ukraine.
About 45 seconds into the video, he does not say: “The global currency has to be able to impose, by force if necessary, some sort of tax on the trading system to allow trade to happen in the first place.”
He says: “The global currency has to be able to impose, by force if necessary, some sort of PAX on the trading system to allow trade to happen in the first place.”
By pax, he means that the power behind the currency must be able to prevent some other power from coercing trade to be conducted in his currency. This is why BitCoin (or any other digital currency) can ever replace the dollar as the global reserve currency. Its decentralized nature renders it defenseless.
His basic point is generally valid and has been valid for some time – no matter how messed up things get here, the rest of the world is even more messed up and therefore there’s no viable “competitor” to replace the U.S. dollar… because there’s no viable competitor to e.g. replace the U.S. Navy.
One does have to wonder if this would hold in the event of a “black swan” event that is so rare that hardly anyone saw it coming. It can seem comforting that Russia is a fading threat (demographic collapse), and China will soon follow Russia down the path of being a fading threat (starting a Russian-style demographic collapse). But Europe has long been quietly in demographic collapse, as has Japan. The U.S. has been flirting with going into demographic eclipse. Demographic decline + absurd levels of debt = no U.S. Navy to enforce the “pax,” followed by system collapse?
Could the whole system just collapse completely? It can occasionally be wondered if all the smart people could be thinking that the past is prologue, when what we could find ourselves facing is something like the Bronze Age collapse of c. 1200 B.C. (It’s also worth pondering what might have caused that, which is to say the least murky. One of the better explanations, which fits much of the archaeological findings, is that the societies became too overloaded with unsupportable parasitic power-elite classes… hmm, sound familiar?)
[…] a profitable profession for Cuban beekeepers – when the state deigns to pay them BattleSwarm: Zeihan: The Dollar’s Demise As The Global Currency Is Greatly Exaggerated Behind The Black: Drainage out of a Martian crater, January 4, 2023 Quick space links, and Backlash […]
Well said. Some thoughts, though … I’d wager Bush calculated that we needed Saudi Araibia(n oil) pretty heavily back in 2001, whereas Afghanistan was a quasi failed state already. Plus the need for KSA as a regional power to counter Iran. Pakistan, for all their perfidy … they had nukes, and the saber-rattling between them and India probably factored in.
Hell, maybe some of the “geniuses” in Foggy Bottom thought they could talk Pakistan into being friends with us. State Dept is arrogant enough, I’m sure they thought they’d succeed.
Iraq would have remained a problem, with or without Saudi Arabia. Here again, I’m sure the DoD and contractors saw opportunitie$$$ and made the case to the White House, if they even needed convincing.
Agree the biggest problem was starting a major activity that would outlast his presidency whether he left in ’09 or ’05. Expecting the corporate media and the Democrats to cooperate long-term was among the biggest mistakes.
Reminds me of the Constellation program after the shuttle Columbia fell apart on reentry. A new big expensive program that wouldn’t be finished until well after Bush was out of office, announced in ’04. Then in 2006, what do you know, Congress switches to the Democrats, San-Fran-Nan becomes speaker (historic! snort), and NASA’s new vision ends up ashambles, like so many other things.
There’s the rub for me. From watching Zeihan and hearing him say often enough, the post-WWII Bretton Woods agreement was how USA set up the global order we’ve had for the past 70 years … globalism did (and does) a lot of good for the USA.
But.
Globalism has also been a giant “fuck you” to American citizens. Low-skilled labor is either offshored or replaced with illegal aliens. That means the lower rungs on the economic ladder are taken away. Is it any wonder black Americans have a harder time than the rest? Especially combined with DC’s incentives to stay poor. But eventually this pile of inequality explodes, and you get powerful organizations like ACORN, BLM, and a massive cadre of willing supporters among the public.
Even higher-skilled labor is offshored, too. So not only is economic life terribly distorted for our lower class, the middle class gets the shaft, too. The middle class who pays the lion’s share of the taxes … taxes DC then happily spends on every other country in the planet.
It’s no surprise globalism has lost its popularity, and America-first populism gained. Polite politicians of both parties refused to touch these issues, and mocked Americans for caring about them, so it’s no wonder the voters turned to the most impolite winner they could find – Trump – and let him run things awhile.
All fair points, but here’s the thing: Trump didn’t dismantle the mighty U.S. military or our alliances; and I don’t believe for a moment he would ever do that.
But he was able to make changes in policy that made real improvements; in just a few years.
My point is that the problems you cite could be addressed by significant improvements in policy, i.e., taxes, regulation, and getting rid of laws that are supposed to “protect” but really keep people off the ladder of opportunity: minimum wage laws, the anti-independent contractor law in California, the Jones Act, all kinds of forced unionism, bad energy policies, subsidizing all the wrong things, gosh, my fingers get tired trying to type out the whole list.
It certainly is not that the US dollar is “strong” as currencies have traditionally been considered. And indeed the others are very messed-up. Some wag a decade or so back called it “the least dirty shirt in the laundry hamper”, which I think still is a valid way to look at it. Historically strong currencies of a generation ago Swiss franc? They’ve said they would print money as needed to deter becoming a reserve currency, and then they did it. So no easy solutions exist.
“Kirk” has interesting observations. Churchill, who seemed not to like the American “up starts”, opined that America will do the right thing, after they have tried everything else. I would have hoped that Europe would have learned some responsibility after Nazi Germany was defeated and the Soviet gang crumbled, but after the Ukraine was savaged and Putin made it clear that Poland and Romania were on the menu (gas, oil, defensible borders), the US stepped up. Corruption is everywhere. Obama and Hillary were sending weapons to iSIL/ISIS. Biden is beyond hope senile. Yet the Saudi Crown Prince was able to swap out the entire Saudi ruling elite after President Trump sent his eldest child, a woman, no less, with the hit list. Putin sent a mech infantry column across the Euphrates River at Deir ez Zor, to exterminate a Kurdish power center under the watchful eyes of S-400 radar systems in the mountains of Lebanon and Syria. The US snuck in ~150 attack, support, and command aircraft that stomped the Russian column and an uncounted mass of Iranian and Shiite infantry into the Syrian desert sand. Washington is as corrupt as Moscow, Paris, Kyiv, et al. I can see Churchill grinning in the background. Uncle Sugar can be corrupt and clumsy, but (I like the word) we are “reliable”. The little players will do what they think they have to, but they know what is on the other side of the table. I hope that we don’t disappoint them (or us). The people changing Biden’s diaper and loading his teleprompter are doing their best to Bork the game. The equivalent people may have destroyed Russia. I hope that they are not as successful here.
This is a subject those who want the U.S. to abandon its alliances and retreat to Fortress North America would do well to contemplate seriously. As Zeihan said: our power doesn’t come from being the world’s currency; our currency dominates the world because of our power. So what happens if we dismantle the structures of that power?
Maybe our position would remain dominant enough to keep the dollar as the world’s currency, but maybe not. And that’s all apart from the other consequences that flow from no longer being the world’s policeman.
The biggest issue I see is Saudi Arabia making deals to accept other than dollars for oil as well as one-to-one deals paid in other than dollars. It doesn’t sink the dollar which has lots of things going for it, but it does look like the system is splitting into two blocks, –the dollar and the other.
Here’s an insight you won’t hear from Zeihan, but it’s a sad truth: The real reason the US is the reserve currency is that we’re predictable and reliable. It’s like “Nobody ever got fired for choosing IBM…”, which was a truism until it wasn’t. And, that happened precisely because IBM became unreliable and unpredictable.
Nobody likes uncertainty. The things that the US has done at the behest of idiots like Obama and Biden are what are causing the problem; withdrawal from Afghanistan was a huge mistake, just as withdrawing from Iraq was. Once we got into those situations, it was immensely more damaging to withdraw than it was to stay. ISIS would never have happened, and the Iraqi Army that we built up before Obama knifed it in the back would still be there, growing as an institution of stability in Iraq.
Of course, the real mistake was Bush committing to a course of action that required long-term commitment, when he could not guarantee that the commitment was actually there. Given the realities of the Democratic Party, both Iraq and Afghanistan should have been punitive expeditions into Saudi Arabia and Pakistan, ending in their destruction as modern nations. Sad, but true; Bush took the path of lesser evil, and set us on a track towards later and more extensive damage and destruction.
Which doesn’t leave the Democrat scum blameless for what they did in the actual event. The carpetbaggers in both parties are really responsible for what happened in both nations, just as they are for what happened in Ukraine.
About 45 seconds into the video, he does not say: “The global currency has to be able to impose, by force if necessary, some sort of tax on the trading system to allow trade to happen in the first place.”
He says: “The global currency has to be able to impose, by force if necessary, some sort of PAX on the trading system to allow trade to happen in the first place.”
By pax, he means that the power behind the currency must be able to prevent some other power from coercing trade to be conducted in his currency. This is why BitCoin (or any other digital currency) can ever replace the dollar as the global reserve currency. Its decentralized nature renders it defenseless.
[Fixed. – LP]
His basic point is generally valid and has been valid for some time – no matter how messed up things get here, the rest of the world is even more messed up and therefore there’s no viable “competitor” to replace the U.S. dollar… because there’s no viable competitor to e.g. replace the U.S. Navy.
One does have to wonder if this would hold in the event of a “black swan” event that is so rare that hardly anyone saw it coming. It can seem comforting that Russia is a fading threat (demographic collapse), and China will soon follow Russia down the path of being a fading threat (starting a Russian-style demographic collapse). But Europe has long been quietly in demographic collapse, as has Japan. The U.S. has been flirting with going into demographic eclipse. Demographic decline + absurd levels of debt = no U.S. Navy to enforce the “pax,” followed by system collapse?
Could the whole system just collapse completely? It can occasionally be wondered if all the smart people could be thinking that the past is prologue, when what we could find ourselves facing is something like the Bronze Age collapse of c. 1200 B.C. (It’s also worth pondering what might have caused that, which is to say the least murky. One of the better explanations, which fits much of the archaeological findings, is that the societies became too overloaded with unsupportable parasitic power-elite classes… hmm, sound familiar?)
Cheery stuff to ponder…
[…] a profitable profession for Cuban beekeepers – when the state deigns to pay them BattleSwarm: Zeihan: The Dollar’s Demise As The Global Currency Is Greatly Exaggerated Behind The Black: Drainage out of a Martian crater, January 4, 2023 Quick space links, and Backlash […]
@Kirk
Well said. Some thoughts, though … I’d wager Bush calculated that we needed Saudi Araibia(n oil) pretty heavily back in 2001, whereas Afghanistan was a quasi failed state already. Plus the need for KSA as a regional power to counter Iran. Pakistan, for all their perfidy … they had nukes, and the saber-rattling between them and India probably factored in.
Hell, maybe some of the “geniuses” in Foggy Bottom thought they could talk Pakistan into being friends with us. State Dept is arrogant enough, I’m sure they thought they’d succeed.
Iraq would have remained a problem, with or without Saudi Arabia. Here again, I’m sure the DoD and contractors saw opportunitie$$$ and made the case to the White House, if they even needed convincing.
Agree the biggest problem was starting a major activity that would outlast his presidency whether he left in ’09 or ’05. Expecting the corporate media and the Democrats to cooperate long-term was among the biggest mistakes.
Reminds me of the Constellation program after the shuttle Columbia fell apart on reentry. A new big expensive program that wouldn’t be finished until well after Bush was out of office, announced in ’04. Then in 2006, what do you know, Congress switches to the Democrats, San-Fran-Nan becomes speaker (historic! snort), and NASA’s new vision ends up ashambles, like so many other things.
@Martin Fox
There’s the rub for me. From watching Zeihan and hearing him say often enough, the post-WWII Bretton Woods agreement was how USA set up the global order we’ve had for the past 70 years … globalism did (and does) a lot of good for the USA.
But.
Globalism has also been a giant “fuck you” to American citizens. Low-skilled labor is either offshored or replaced with illegal aliens. That means the lower rungs on the economic ladder are taken away. Is it any wonder black Americans have a harder time than the rest? Especially combined with DC’s incentives to stay poor. But eventually this pile of inequality explodes, and you get powerful organizations like ACORN, BLM, and a massive cadre of willing supporters among the public.
Even higher-skilled labor is offshored, too. So not only is economic life terribly distorted for our lower class, the middle class gets the shaft, too. The middle class who pays the lion’s share of the taxes … taxes DC then happily spends on every other country in the planet.
It’s no surprise globalism has lost its popularity, and America-first populism gained. Polite politicians of both parties refused to touch these issues, and mocked Americans for caring about them, so it’s no wonder the voters turned to the most impolite winner they could find – Trump – and let him run things awhile.
Howard —
All fair points, but here’s the thing: Trump didn’t dismantle the mighty U.S. military or our alliances; and I don’t believe for a moment he would ever do that.
But he was able to make changes in policy that made real improvements; in just a few years.
My point is that the problems you cite could be addressed by significant improvements in policy, i.e., taxes, regulation, and getting rid of laws that are supposed to “protect” but really keep people off the ladder of opportunity: minimum wage laws, the anti-independent contractor law in California, the Jones Act, all kinds of forced unionism, bad energy policies, subsidizing all the wrong things, gosh, my fingers get tired trying to type out the whole list.
It certainly is not that the US dollar is “strong” as currencies have traditionally been considered. And indeed the others are very messed-up. Some wag a decade or so back called it “the least dirty shirt in the laundry hamper”, which I think still is a valid way to look at it. Historically strong currencies of a generation ago Swiss franc? They’ve said they would print money as needed to deter becoming a reserve currency, and then they did it. So no easy solutions exist.
“Kirk” has interesting observations. Churchill, who seemed not to like the American “up starts”, opined that America will do the right thing, after they have tried everything else. I would have hoped that Europe would have learned some responsibility after Nazi Germany was defeated and the Soviet gang crumbled, but after the Ukraine was savaged and Putin made it clear that Poland and Romania were on the menu (gas, oil, defensible borders), the US stepped up. Corruption is everywhere. Obama and Hillary were sending weapons to iSIL/ISIS. Biden is beyond hope senile. Yet the Saudi Crown Prince was able to swap out the entire Saudi ruling elite after President Trump sent his eldest child, a woman, no less, with the hit list. Putin sent a mech infantry column across the Euphrates River at Deir ez Zor, to exterminate a Kurdish power center under the watchful eyes of S-400 radar systems in the mountains of Lebanon and Syria. The US snuck in ~150 attack, support, and command aircraft that stomped the Russian column and an uncounted mass of Iranian and Shiite infantry into the Syrian desert sand. Washington is as corrupt as Moscow, Paris, Kyiv, et al. I can see Churchill grinning in the background. Uncle Sugar can be corrupt and clumsy, but (I like the word) we are “reliable”. The little players will do what they think they have to, but they know what is on the other side of the table. I hope that we don’t disappoint them (or us). The people changing Biden’s diaper and loading his teleprompter are doing their best to Bork the game. The equivalent people may have destroyed Russia. I hope that they are not as successful here.
[…] computer chips) on the international market that requires hard currency. And remember that that BRICS currency idea is going […]