USD Reserve Currency Status Eroding Slowly But Surely

Wall Street Journal reported a few days ago:

Secretary-General of the European External Action Service (EEAS), Helga Schmid, held a meeting to announce that Europe has found a way of circumventing U.S. sanctions on Iran. The meeting was attended by representatives of China, France, Germany, Russia, the United Kingdom, and Iran.

The governments of France, Germany and the United Kingdom have developed a special purpose vehicle called INSTEX to enable European businesses to maintain non-dollar trade with Iran without breaking U.S. sanctions.

INSTEX bypasses SWIFT, which includes US banks and US Dollars, was operating and processing transactions on Jun 28.

Bypassing SWIFT is intended to allow those trading with IRAN to avoid US ability to veto transactions because INSTEX does not involve US banks or US Dollars.

INSTEX is open to all EU member states and there is a mechanism in place or contemplated that would allow non-EU states to join (read that China, Russia, and others).

China has already been arranging to purchase oil in exchange for their own currency instead of US Dollars.

These two measures are inflection points that indicate the potential eventual end to the near total dominance of the US Dollar as the world’s reserve currency. More such arrangements may come into play if we over-use our banking system and our currency as a bludgeon to implement and enforce our foreign policy when our allies are not on our side.

If the US Dollar loses that reserve currency status, we may find that our ability to fund our continual and even increasing national deficit becomes limited in the amount of Treasury debt we can sell, or the price we must pay to borrow the money. Either way, a major change in our way of life and in our markets would surely follow — most likely quite unpleasant.

Of this, ZeroHedge said, “…once those who benefit the most from the status quo openly revolt against it, the countdown to the end of the USD reserve status officially begins.”

This is what Allianz Global Investors said a year ago:

The US dollar has long been the currency of choice for banking and trade, and for valuing all other currencies. This has brought the US enormous economic benefits and significant structural downsides. Yet a shift away from the dollar may have begun, which could help the global economy in the long run.

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Bill Johnson 9 months ago Member's comment

Good read.

Richard Shaw 9 months ago Author's comment

Thank you