ZeroHedge.com [yet again] provides an historic insight into why we are living in interesting times.
De-dollarization has been an ongoing theme hidden just below the surface of the mainstream media for more than a year as Russia and China slowly but surely attempt to “isolate” the US Dollar.
Until very recently, direct trade agreements with China (in other words, bypassing the US Dollar exchange in bilateral trade) had been with smaller trade partners.
On the heels of Western pressure, Russia and China were forced closer together and de-dollarization accelerated from Turkey to Argentina as an increasing number of countries around the world realize the importance of this chart.
However, things are about to get even more dramatic. As Bloomberg reports, China will start direct trading between the yuan and the euro tomorrow as the world’s second-largest economy seeks to spur global use of its currency in a “fresh step forward in China’s yuan internationalization.”
Europe & China Start Direct Trading In Euros & Yuan As De-Dollarization Expands
It appears that President Obama’s former chief economist has realised that “what was once a privilege is now a burden”.
There are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world’s reserve currency. It’s a core principle of American economic policy. After all, who wouldn’t want their currency to be the one that foreign banks and governments want to hold in reserve?
But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.
Authored by Jared Bernstein, originally posted Op-Ed at The NY Times
Obama’s Former Chief Economist Calls For An End To US Dollar Reserve Status
The statistics indicate “we are in the midst of an extremely rare historical event” that may lead to “more frequent, longer lasting and more far reaching geopolitical stresses”.
Given this analysis it strikes us that today we are in the midst of an extremely rare historical event – the relative decline of a world superpower.
US global geopolitical dominance is on the wane – driven on the one hand by the historic rise of China from its disproportionate lows and on the other to a host of internal US issues, from a crisis of American confidence in the core of the US economic model to general war weariness.
This is not to say that America’s position in the global system is on the brink of collapse. Far from it. The US will remain the greater of just two great powers for the foreseeable future as its “geopolitical multiplier”, boosted by its deeply embedded soft power and continuing commitment to the “free world” order, allows it to outperform its relative economic power. As America’s current Defence Secretary, Chuck Hagel, said earlier this year, “We (the USA) do not engage in the world because we are a great nation. Rather, we are a great nation because we engage in the world.”
Nevertheless the US is losing its place as the sole dominant geopolitical superpower and history suggests that during such shifts geopolitical tensions structurally increase.
If this analysis is correct then the rise in the past five years, and most notably in the past year, of global geopolitical tensions may well prove not temporary but structural to the current world system and the world may continue to experience more frequent, longer lasting and more far reaching geopolitical stresses than it has in at least two decades.
If this is indeed the case then markets might have to price in a higher degree of geopolitical risk in the years ahead.
Jim Reid of Deutsche Bank
End Of Empire – The ‘De-Dollarization’ Chart That China And Russia Are Banking On
Anyone who has recently experienced a sense of 1914 déjà vu whilst perusing the mainstream media recently may be well advised to recall the sage words of Mark Twain:
“History doesn’t repeat itself, but it does rhyme”.