“…We are watching, before our eyes, the unwinding of the post-1945 US dollar-based global monetary system. It looks to me like the Russians and the Chinese have been planning this for some time…”
I don’t know very much about economics, but it looks to me like this is complete hokum. But the author can always back his judgement and put his money where his mouth is – buy Roubles and Renminbi at scale, and short the Dollar, Sterling and the Euro – and he will make himself rich.
Will he?
…The problem for the USD, is that it is the de facto world reserve currency for the time being, because of its international ubiquity (via SWIFT), and its size (volume in circulation). In other words, it is ‘network effects’ which really give it the role. So, chopping off countries from the USD network, diminishes the value of the remaining network, which is likely to be reflected in the USD’s relative value. I think the IMF will end up creating a new international SDR, in effect an international currency, based on a new basket of assets, including the dollar, but also precious metals and established cryptocurrency.
That does seem to the answer – an international SDR; and it would surely be better for the USA in the long run (and assuming it gets back to reasonably competent government) to be no longer the world reserve currency
Katharine Eyre
2 years ago
Wolfgang Münchau wrote an article making a similar argument (i.e. this standoff leading to the de-dollarisation of the world) about 2 weeks ago on Eurointellligence: https://www.eurointelligence.com/column/a-bric-impenetrable-to-sanctions
I regret not having the knowledge to really assess whether it holds water.
I’m in the same situation. I don’t doubt that some countries now intend to diversify away from the US dollar, but I don’t have the specialist knowledge to assess the effects of Russia’s recent actions on this trend. One thing’s for sure: we’ll know within a year or two if Mr. Pilkington’s theory is correct.
The question to ask is: if this was possible, why would the Russians have waited till now, when under extreme pressure? Why would you not topple the Dollars hegemony first, any point during the last few years, before moving in on Ukraine?
… because of the network effects of the USD and SWIFT, as noted above. Neither the RUB, or the CNY are strong enough to just replace the USD, on their own, or even jointly.
There was no reason to before. As long as the West was willing to honour the foreign exchange holdings there was no need to take this action. The USD and other western currencies are the most preferable to use for reserve currencies, in part, because in most cases they drew a line between business and politics and honoured legal rights. Since this is no longer the case, they are no long reliable currencies to hold for large portions a nations reserve.
Su Mac
2 years ago
UnHerd doesn’t have nearly enough economics sprinkled through its articles so this is timely. However, this topic – the end of the petrodollar, American hegemony/empire, the pitfalls of printing Trillions of fiat money debt because people want it …and what happens if they switch to an alternative or start sending all those $ back again is front and centre of world events. The “how’ and the “when” have been the topic of more articles than I can remember over the last 6 years on sites like zerohedge.com and all the precious metals investor blogs.
It is a historical cycle. And it happens again and again with some of the same triggers and some different ones. This entertaining video from super-invester Ray Dalio is a great intro on how money and empire collapse are linked. https://www.youtube.com/watch?v=xguam0TKMw8
Also Mike Maloney’s well-made series “Hidden Secrets of Money” explains how money works, in an accessible youtube series that will make your jaw drop frankly with the sheer craziness of the underpinnings of our world – of which most people are oblivious! Plus learn how to protect yourself from what is coming….
Excellent video that needs to be watched by everyone seeking to understand how the world works. Thanks for sharing.
Johann Strauss
2 years ago
My gut tells me that Mr. Pilkington’s analysis is right on the money. Time will tell.
Ian Stewart
2 years ago
I’ve noticed in the last two weeks as the stupidity of Putin’s war is acknowledged that more journalists are publishing articles like this one about how clever Putin really is and how the west has been out-manoeuvred.
These articles smack of being a means to attract attention by being the devils advocate. This one is probably the worst I’ve read – claiming victory for a minor economy that corrals itself into using its own currency, and giving it superpowers in subsequently trading dollars and euros.
The Russian economy is a medium sized blip on the global economic radar, and its receding to become a tiny blip in the next 5 years. Russia ain’t leading an alternative economic hegemony. However the Chinese are, and thankfully Putin’s stupid war has woken up the west to the risk, and we’re starting to accept the end of globalisation on a western basis. So Putin resorting to roubles is a victory for this split, which won’t benefit Russia or China in the long term.
“…We are watching, before our eyes, the unwinding of the post-1945 US dollar-based global monetary system. It looks to me like the Russians and the Chinese have been planning this for some time…”
I don’t know very much about economics, but it looks to me like this is complete hokum. But the author can always back his judgement and put his money where his mouth is – buy Roubles and Renminbi at scale, and short the Dollar, Sterling and the Euro – and he will make himself rich.
Will he?
…The problem for the USD, is that it is the de facto world reserve currency for the time being, because of its international ubiquity (via SWIFT), and its size (volume in circulation). In other words, it is ‘network effects’ which really give it the role. So, chopping off countries from the USD network, diminishes the value of the remaining network, which is likely to be reflected in the USD’s relative value. I think the IMF will end up creating a new international SDR, in effect an international currency, based on a new basket of assets, including the dollar, but also precious metals and established cryptocurrency.
That does seem to the answer – an international SDR; and it would surely be better for the USA in the long run (and assuming it gets back to reasonably competent government) to be no longer the world reserve currency
Wolfgang Münchau wrote an article making a similar argument (i.e. this standoff leading to the de-dollarisation of the world) about 2 weeks ago on Eurointellligence: https://www.eurointelligence.com/column/a-bric-impenetrable-to-sanctions
I regret not having the knowledge to really assess whether it holds water.
I’m in the same situation. I don’t doubt that some countries now intend to diversify away from the US dollar, but I don’t have the specialist knowledge to assess the effects of Russia’s recent actions on this trend. One thing’s for sure: we’ll know within a year or two if Mr. Pilkington’s theory is correct.
The question to ask is: if this was possible, why would the Russians have waited till now, when under extreme pressure? Why would you not topple the Dollars hegemony first, any point during the last few years, before moving in on Ukraine?
… because of the network effects of the USD and SWIFT, as noted above. Neither the RUB, or the CNY are strong enough to just replace the USD, on their own, or even jointly.
There was no reason to before. As long as the West was willing to honour the foreign exchange holdings there was no need to take this action. The USD and other western currencies are the most preferable to use for reserve currencies, in part, because in most cases they drew a line between business and politics and honoured legal rights. Since this is no longer the case, they are no long reliable currencies to hold for large portions a nations reserve.
UnHerd doesn’t have nearly enough economics sprinkled through its articles so this is timely. However, this topic – the end of the petrodollar, American hegemony/empire, the pitfalls of printing Trillions of fiat money debt because people want it …and what happens if they switch to an alternative or start sending all those $ back again is front and centre of world events. The “how’ and the “when” have been the topic of more articles than I can remember over the last 6 years on sites like zerohedge.com and all the precious metals investor blogs.
It is a historical cycle. And it happens again and again with some of the same triggers and some different ones. This entertaining video from super-invester Ray Dalio is a great intro on how money and empire collapse are linked.
https://www.youtube.com/watch?v=xguam0TKMw8
Also Mike Maloney’s well-made series “Hidden Secrets of Money” explains how money works, in an accessible youtube series that will make your jaw drop frankly with the sheer craziness of the underpinnings of our world – of which most people are oblivious! Plus learn how to protect yourself from what is coming….
Excellent video that needs to be watched by everyone seeking to understand how the world works. Thanks for sharing.
My gut tells me that Mr. Pilkington’s analysis is right on the money. Time will tell.
I’ve noticed in the last two weeks as the stupidity of Putin’s war is acknowledged that more journalists are publishing articles like this one about how clever Putin really is and how the west has been out-manoeuvred.
These articles smack of being a means to attract attention by being the devils advocate. This one is probably the worst I’ve read – claiming victory for a minor economy that corrals itself into using its own currency, and giving it superpowers in subsequently trading dollars and euros.
The Russian economy is a medium sized blip on the global economic radar, and its receding to become a tiny blip in the next 5 years. Russia ain’t leading an alternative economic hegemony. However the Chinese are, and thankfully Putin’s stupid war has woken up the west to the risk, and we’re starting to accept the end of globalisation on a western basis. So Putin resorting to roubles is a victory for this split, which won’t benefit Russia or China in the long term.