Where Does the World Turn to as it “De-Dollarizes?”

18 Mar
US Debt

Where Does the World Turn to as it “De-Dollarizes?”

Hint:  It is a precious metal, gold in color, one that been honest money for thousands of years.   Hmmm…

America’s European allies are fed up with being pushed around by Washington politicians.

We have been telling you that for years, but now even the New York Times has noticed.

De-dollarization is on display as central banks around the world move to add gold to their currency reserves.  (See our two-part posts Strange New Respect for Gold here and here.) 

They are turning to gold because of the rank recklessness of US debt and Federal Reserve money printing.  They know this debt will never be repaid and that much more legalized dollar counterfeiting is inevitable. 

But the monetary considerations are only part of the story.   

Resentment and push-back against US diplomatic bullying figures in as well.  

A New York Times piece, Europe Struggles to Defend Itself Against a Weaponized Dollar, (3/12/2021) provides details about this part of the story.

A brief excerpt:

“The American willingness to punish its European allies and impose sanctions on them in pursuit of foreign-policy goals continues to rankle.

“It is an underlying tension, a ready reminder of the asymmetric power of the United States. That is especially so when it comes to what are known as secondary sanctions. While Iran and Russia, for example, maybe the primary target of sanctions, the secondary sanctions punish other countries and companies — very often European — that do business with them as well.”

“Increasingly popular with Congress, secondary sanctions have been deployed to coerce allies to fall into line on any number of issues. In recent years, those have included the Nord Stream 2 natural gas pipeline, Iran’s nuclear program, and the socialist governments of Venezuela and Cuba. The great fear is that they would someday be used by the United States against China — or even vice versa — leaving Europe squeezed in the middle.”

The cost of US sanctions is taking a big bite out of the business of some big players. The NYTimes story reports US sanctions on Iran cost the French energy giant Total of $2 billion in lost business, “while Siemens lost a rail contract worth $1.5 billion and Airbus lost $19 billion.”

The US harms itself by hastening the end of the global dollar standard with this promiscuous use of sanctions.  In November we wrote that the SWIFT payments system, the leading international account settlement facility for world banks and commerce, is watching the US dollar share of its settlements decline. Since the US uses the SWIFT system as a tool of its foreign policy and sanctions enforcement, important new alternatives to bypass SWIFT are coming online.  

At a time the US needs all the foreign creditors it can get, it is making the dollar – and our country – an object of foreign resentment.  

It reminds us of Ron Paul’s observation about the growing resentment, that when the US does have a meaningful financial crisis and needs international support of one kind or another, we may experience more piling-on than support.

The take-away is that the movement away from the dollar will grow from today’s pace into a sudden stampede.  Take to heart the example of the foreign central banks that are moving their assets into gold.  

We can help you do the same with a sensible plan and portfolio designed for your personal needs.  It is what we do for our clients.