“De-Dollarization” Is (Has Been) Underway

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“De-Dollarization.” What does that mean? In blunt terms, it means ‘we don’t want your U.S. dollars anymore.’ This is not new news. The move away from the dollar has been going on (quietly) for quite some time. But over the past few years there has been a growing number of countries around the world “lightening up” on dollar holdings and even using alternative options for international trade. Uh oh!

Remember the U.S. dollar is a fiat currency (as are almost all global currencies) which means it is not backed by anything. Not gold, nor silver nor anything. No intrinsic value or fixed value. Just “full faith” in the government that issues it. A government basically just declares it’s currency “legal tender” and there ya go. Again, “full faith and creditworthiness” of the issuing government makes the currency (U.S. dollar) have value. But what if that “full faith” becomes doubtful?

It seems that several large countries around the globe have lost some “faith” in the dollar. Several of these countries (specifically Brazil, Russia, India, China and South Africa……or “BRICS”) are very close to creating a new currency as an alternative to the dollar. Its also no secret that China is “itching” to replace the dollar as the world’s reserve currency. But China’s currency doesn’t have the depth and liquidity currently to replace the dollar. So, a joint effort to create a new currency is under way. And, the new currency would be secured by gold and other commodities such as rare-earth elements. Oh oh.

Why the rush? In Russia’s case it certainly is a way around Western sanctions. In China’s case it may be a way around possible future sanctions (and to become the world’s reserve currency). Others just to become less dependent on the dollar as they sense that U.S. government spending is constantly diluting their dollar holdings. And, spite.

Saudi Arabia and several other oil producers have agreed to trade oil in the Chinese Yuan rather than dollars (first time EVER). The Saudis do not “care for” the U.S. government and are reducing their dependence on the dollar.  An additional wild card? Iran is joining with the “new order” as well. A movement away from the dollar is gaining momentum.

U.S. government spending, social agendas, looming shortfalls in entitlement programs, bank deposit guarantees and more are casting doubt and eroding “faith” in the dollar. Maybe the meeting a few weeks ago between China’s Xi Jinping and Russia’s Vladimir Putin wasn’t just about the war in Ukraine. Maybe it was about “dumping” the dollar. Faith and trust is so fragile.

“De-Dollarization” anyone?