Global Dollar Exodus: US Assets Sold, Dollar Plunges to Record Low

• 2024-09-13
• News

In recent years, the U.S. economy has been on a downward trend, with an increasing number of countries beginning to sell off U.S. debt. The U.S. dollar has recently experienced a sharp decline, reaching a new low. Who is abandoning the dollar? Is it just China and Russia? What makes this global wave of de-dollarization different?

The Deep Logic Behind the Dollar's Plunge

The trend of the dollar's appreciation has also been reversed this year, with a sharp drop to a new low. If we start from the high point of 114.8, by the morning of April 24th, the dollar's decline reached 11.32%.

This has attracted widespread attention from the economics community, with many believing it to be the result of global de-dollarization.

Over the past 40 years, the dollar has played a significant role in global trade, but its share in global trade has been decreasing, which means the influence of the dollar is declining year by year.

What is the logic behind this?

Countries around the world are abandoning the dollar because they see the U.S. economic growth rate worsening, high inflation that is difficult to cool down, and domestic debt becoming increasingly uncontrollable. Using their own currencies or the renminbi has become the optimal choice at present.

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Amidst the general trend of de-dollarization, the Vice President of the International Monetary Fund has warned the United States that economic sanctions imposed by the U.S. and the West on Russia could jeopardize the dominant position of the dollar.

In the conflict between Russia and Ukraine, the U.S. confiscated more than $300 billion of Russia's foreign exchange reserves and then expelled Russia from the Western-led SWIFT settlement system.This has made countries around the world realize the systemic danger. Nations have also understood that putting all their eggs in the basket of the United States could lead to the United States "stealing eggs" directly in the future. As a result, they have been abandoning the US dollar and deciding to put their eggs in other baskets, including those of the United States' allies.

In addition, the growth rate of the United States' debt far exceeds the growth rate of GDP. In the middle of last month, the US debt had already broken through 31.6 trillion US dollars, which is already 124% of the United States' GDP.

The current benchmark interest rate in the United States is 5%. Therefore, the United States has to pay 1.6 trillion US dollars in interest on its debt in one year.

The economic growth rate of the United States must reach 6.3% to make up for this deficit. In other words, under the high interest rates in the United States, the economic growth rate cannot be lower than 6.3%, otherwise it will trigger concerns about the United States' debt repayment ability, thereby triggering the sale of US debt.

Finally, more and more countries have awakened. In the past few years, they have been harvested very badly by the United States, and life has been generally difficult. The elite of other countries are unwilling to cooperate with Americans.

Under such a background, reducing the settlement in US dollars has become a consensus, choosing another currency to replace the US dollar.

So, how serious is the decline of the proportion of US dollar payments in international trade?

According to relevant media reports, in the past few months, the proportion of US dollar payments in global trade payments has fallen to 38.85%, which is basically close to the euro.

The global wave of de-dollarization is different.

De-dollarization is not a strategy that has only emerged now. For a long time in the past, economic experts have believed that over-reliance on the US dollar is a very dangerous behavior.However, the overwhelming comprehensive national strength of the United States makes the US dollar widely accepted globally. The losses incurred from using the US dollar are tolerable, and the US's economic power and international status have not undergone fundamental changes. Therefore, each wave of de-dollarization has not caused significant ripples.

However, this time is different from the past, as many countries have observed the cases of Iran and Russia.

In the past, various domineering actions by the United States were tolerated, after all, the US dollar, as the global reserve currency, has its inherent advantages.

Moreover, the United States' economic strength and international status stand tall among its peers. According to common thinking, it is believed that no country would be willing to be the first to challenge.

The current situation is somewhat different; the United States' excessive domineering behavior has triggered a series of chain reactions. Even Japan, a long-time ally of the United States, took the lead in selling US debt, causing a ripple effect that has prompted other countries to act.

To address its own shortage of US dollars, the United States has begun to print money in large quantities, leading to inflation. Since the US dollar is the world's currency, this inflation has also been transmitted to other countries, benefiting the United States. This move has sparked condemnation from various nations.

As a result, countries will reduce their reliance on the US dollar in trade settlements. With the lessons of the past, all countries want to seize the opportunity to minimize the impact of the US dollar and the US economy on their own countries.

Now, in addition to countries such as Russia, China, Brazil, and India, many of the United States' allies are also abandoning the US dollar.

With everyone abandoning the US dollar and US debt, no one is buying US debt, and how can the US authorities issue national debt?

This is also why the United States' debt ceiling has been slow to rise. Even if it is raised, it may not be issued, and a forced issuance would require the Federal Reserve to back it up. The final result would be to further push up inflation.The current high inflation has not yet subsided, and issuing more currency would lead to a resurgence of inflation, which would bring us back to the path of raising interest rates to curb inflation, and the cost of socio-economic operations would also rise sharply with the increased cost of interest rate hikes.

In this situation, the world would inevitably accelerate the dumping of the US dollar, making it even more difficult to issue US debt.

For the United States, there is an even more terrifying logic: when the US dollar interest rates are extremely high, and the Chinese yuan interest rates are very low. This situation would force countries overwhelmed by US debt to take loans in Chinese yuan.

Then, they use the yuan to buy China's holdings of US dollar assets, and use these dollar assets to repay the high-interest dollar debt. For countries, this means replacing high-interest dollar debt with low-interest yuan debt, which also reduces the economic burden. Why not do it?

Then these countries export goods and commodities to China, and use the earned yuan to repay China.

In this way, not only does the economy become more vibrant, but it also allows related countries to reduce their debt by selling their own country's goods. China also gains practical benefits and reduces its holdings of US assets, which can be described as a win-win situation.

Under this economic cycle, there is no need for the US dollar, and there is no need to worry about the United States cutting the leeks.

It is also in this context that a few days ago, the United States came to its senses and, under the pretext of agricultural supply, instigated the United Nations to discuss allowing Russia to return to SWIFT, hoping that more and more countries would use the US dollar settlement system.

Russia will never easily return to SWIFT. Does it want to be cut again?America is determined to contain China

Recently, Biden intends to officially announce a new measure against China, which is to demand restrictions on American companies' high-tech investments in China, specifically prioritizing decoupling from China in the financial technology sector.

As a result, the path for America's excess capital to profit in the Chinese market has been blocked, making it difficult for it to flow into China.

Perhaps Buffett had advance notice, so he desperately reduced his holdings in BYD before, and also quickly sold the TSMC he had just bought, which is a very obvious signal.

America's excess capital cannot enter China's promising industries in the future, which is a blow to profits for the United States.

For China, there are also many negative aspects.

Because when a large amount of capital enters, it will also bring the required technology. Now the United States directly withdraws that excess capital, and the management, technology, and capital that remain will have to rely on us.

In the short term, it will have a significant impact on our country's industrial innovation and industrial upgrading.

But in the long term, such behavior by the United States will stimulate our country's independent research and development, bringing opportunities for "decoupling substitution".

As we all know, the United States no longer talks about the economy now, only about values.Some netizens have expressed that Biden's new policy towards China is the same set we played with more than 40 years ago.

Currently, the United States is facing high interest rates, high inflation, and a slowdown in economic growth. It is also determined to comprehensively contain China, and it is inevitable that it will pay a heavy economic price for this.

The harder the struggle against China, the greater the internal pressure in the United States, and the more severe the wealth gap becomes. In turn, the more severe the wealth gap, the harder the struggle against China, otherwise, how can the contradictions be shifted.

At present, countries around the world have seen through it, which is to accelerate the process of de-dollarization, essentially out of concern that the U.S. economy and financial markets will explode, causing self-inflicted damage and dizziness.

In order to divert domestic attention, it further incites the United States to strongly look for opponents externally.

Mainly, Yellen once said such a sentence, in order to resist the security threat from China, the United States is willing to pay an economic price.

It is obvious that the United States regards China as the biggest opponent and attributes the global de-dollarization to China. This matter will ferment for a long time and has already compressed the space for China-U.S. cooperation.

Why is the United States, which is so fond of doing business, so wary of China?

We often say that the United States wants to maintainFaced with China's pursuit, the United States is highly vigilant. On the one hand, they increase subsidies to key industries, and on the other hand, they wield the big stick of sanctions. In terms of economic volume, our country is second only to the United States. The United States, in order to maintain the "dignity" of being the world's number one, tries every means to make its GDP appear higher, but China is still catching up.

On the path of global de-dollarization, the goods that can be purchased with the yuan may not be available with the US dollar. At the same time, China has a CIP that can compete with the SWIFT settlement system. Finally, China can provide products and services that other countries cannot offer, so the yuan is becoming more and more popular.

When many countries are looking for alternative currencies, how can the United States continue to play? Without too much change, the process of replacing the US dollar will be very long, but this trend has already been set.