De-Dollarisation is a process not an event

1 min
May 5, 2023
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Link to the video: The de-dollarization trend is a reflection that U.S. growth is no longer the only story that matters

Link to the full video: CNBC media hub

Following the Bloomberg appearance over Easter, I also got a chance to revisit the CNBC studio in Hong Kong, where, once again, everyone wanted to talk about the Dollar. It was a remote talk-to-camera event, but so much better than zoom and I had the (likely first and only) chance of having Warren Buffet as my warm up act (!) He was talking about US banks, but allowed me to segue into his own famous quote about what happens when the tide goes out and the fact that businesses (including banks) that relied on nearly free capital and carry trades were going to struggle in the new 'New Normal'. Also that some banks were needed to provide working capital rather than act as quasi bond funds and to contrast the financial capitalism of the west (where everyone trades some leveraged derivative of someone else's debt) with the Industrial Capital of 'the rest', where the trading companies that Buffet has successfully traded in Japan are financing 'real' economic activity.

The high frequency data point of the morning was Chinese exports, which allowed me to raise an additional point, that without the 'need' to earn $s in order to purchase energy, China is going to re-orient its trade towards the rest, but also likely increasing its 'value add' component, such as selling EVs rather than plastic toys. This will remove a lot of the dis-inflation pressure in the west, while, as we saw in the record (seasonally adjusted) data, dependency on China exports remains an issue for the US.

Once again I felt it important to emphasise that this is not about the $ losing its status as a Reserve Currency - there are many reasons why it won't, including that others wouldn't want that status - rather to emphasise that the $ will shrink as the dominant trading currency as bi-partisan exchange dominates in 'the rest', with only residual balances settled in a mix of currencies (including $s and of course Gold). This will have profound implications across all capital markets over the longer term. De-Dollarisation, in the sense of bi-lateral trade and the holding of reserves in other currencies (and assets) is happening, but it is not a one off event, it is an ongoing process.

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