The hegemony of the dollar is shattered

The hegemony of the US Fed and the dollar in the global market is coming to an end. This thesis was made by Igor Sechin at the economic forum in Baku. He gave a number of arguments why this is happening and why these processes are irreversible. The United States played so much that they themselves pushed other countries to abandon the dollar

The hegemony of the dollar is shattered
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The era of the “American global cycle” is coming to an end, when the United States, with the help of its tools – the Fed and the dollar, and in recent years sanctions have been added to them, monopolized global markets. The United States can no longer restrain the development of other centers of influence, such as China, India and Russia, said the head of Rosneft, Igor Sechin, at the Verona Eurasian Economic Forum in Baku.

“Neither the pandemic, nor even the Ukrainian crisis, nor the problems of energy and the economy as a whole are in any way the main reason for the tectonic changes taking place in the world. The United States is forced to fight to maintain its hegemony at any cost and cannot afford to give up this fight, because the loss of hegemony – financial, military, political and economic – means for them the impossibility of reproducing themselves as a country, economy and political system. We are talking about changing the global regulator – a hegemon who arbitrarily appointed himself as such, independently inventing rules for the rest of the world and arbitrarily changing them as soon as they become unprofitable for him”, said Igor Sechin.

What changes did the head of Rosneft notice?

First, we are talking about the fall in investments in the US public debt. Since the end of 2021, foreign investors have reduced investments in US government debt by $238 billion. Secondly, the share of the United States in the foreign exchange reserves of the world’s central banks has fallen to 55% – this is the lowest figure since 1995.

“Nevertheless, the dollar is strengthening in countries that are allies of the United States, but this is not the whole world,” Sechin said.

In these countries, the United States continues to earn on dollar emission.

“Today, the yen, the pound and the euro suffer the most from the Fed’s policy. It is they who, for the sake of saving the dollar, threaten to burn in the flames of the crisis,” said the head of Rosneft.

The United States over the past two years has printed about the same amount of dollars as over the previous 40 years – 5.9 trillion, this is 38% of the money supply, President Vladimir Putin said earlier. The eurozone printed 2.5 trillion euros. All this led to a crisis, as it launched inflation around the world. The West began to abuse its monopoly position in the currency sphere, the Russian leader pointed out.

“The world has changed for everyone. Including for the United States,” Sechin said. In his opinion, “the resource that they received in the last century as an issuer of the world currency” is running out. Today it is no longer possible to ignore the positions of China, India, Russia and other countries that create their own systems of mutual settlements, he believes.

The central banks of Asia and the Middle East are switching to bilateral lines of foreign exchange settlements, reducing the risks of arbitrary seizure of accounts, sovereign funds and foreign exchange reserves, disconnection from the settlement system. “We are seeing the desire of states that want to preserve their sovereignty to abandon settlements in dollars. This process is not fast, but irreversible,” said the head of Rosneft.

“There is a trend to reduce investments in US government debt, but it is greatly exaggerated,” said Valery Yemelyanov, an expert on the stock market at BCS Mir Investments. Firstly, the expert explains, 75% of the US government is credited by the Americans themselves, and only 25% is accounted for by foreign holders of US debt. Secondly, if you look at the breakdown by countries that invest in US public debt, then in total for the year the volume of investments fell by only 0.9%, that is, less than one percent. “This is largely due to the fact that countries need their reserves to solve pressing problems: they sell part of US bonds to cover budget needs or support their currency,” says Yemelyanov.

Previously, this trend was led by Russia, which has been actively reducing its holdings in US Treasuries over the past few years, due to geopolitics and sanctions.

This year, Japan, China (including Hong Kong), Taiwan, South Korea, and Brazil reduced their investments in the US government debt most noticeably.

“China, the second largest foreign holder of U.S. Treasuries after Japan, has reduced its investment in U.S. government debt below $1 trillion this year, the lowest level since 2010.

This trend has been observed for several years against the backdrop of geopolitical confrontation between countries. This year, the Taiwan issue escalated again, which could also be one of the reasons for the decline,” says Vladimir Chernov, analyst at Freedom Finance Global. Japan reduced its investments in the first half of the year by more than 90 billion dollars, but then began to increase them again. In general, according to official statistics, in the first half of 2022, foreign holders got rid of US government debt in the amount of $316.9 billion.

There are countries that continue to willingly lend the US even more – this is primarily Europe, as well as the countries of the British Commonwealth, including India, that is, supporters of the States.

Many countries picked up Russia’s trend to reduce the share of dollars in reserves after the US and the EU froze Russian reserves in dollars and euros, and now they are thinking how to withdraw them completely so as not to ever return them.

As Vladimir Putin stated at the Valdai Club, the West has discredited the institution of international financial reserves by “pocketing” Russia’s gold and foreign exchange reserves.

“This sets a precedent. Therefore, Saudi Arabia began selling oil to China for yuan rather than dollars in the second quarter of this year, thus reducing the share of its dollar reserves. All those countries that switch to mutual settlements in national currencies thus reduce the share of the US dollar in their reserves, and today there are already a lot of them,” says Chernov.

“The largest drop in the share of the dollar in international settlements is noted between the BRICS countries and the EAEU. In international settlements, the share of the Chinese yuan has grown more than others, and the share of settlements in Indian rupees and Arab dirhams is not growing very significantly, but in the near future an increase in the volume of settlements in Turkish lira and other currencies is expected,” Vladimir Chernov believes.

Over the past ten years, the share of settlements in the national currencies of the BRICS countries has grown from 2 to 40%, the head of VTB Andrey Kostin cited an example.

Russia has also been constantly engaged in this, but earlier the main successes were achieved mainly in trade with the former CIS countries. Whereas tough Western sanctions this year forced Russia to switch to ruble settlements even when trading gas, which seemed unthinkable at the beginning of the year. In Russia, the yuan shot thanks to the growth of trade with China: it is the yuan, apparently, that is bought into reserves, it is the yuan that is now traded in serious volume on the Moscow Exchange.

“Rejection of the dollar and the euro for Russia is already an irreversible process. Taking into account the current trend, already in the medium term, our main foreign trade partners will be China, the EAEU countries, Turkey, India, the states of the Near and Middle East, Latin America, and the African continent,” Kostin notes. Therefore, it is logical to keep the currencies of these countries in reserves.

The share of reserves in dollars in various countries last year was also 55%, data for this year has yet to be calculated. If you look at a longer time frame, you will notice a clear decline in the role of the dollar. The highest share of the dollar in reserves in history – about 85% – was in the first half of the 1970s, as a result of the legacy of the economic boom of the 1960s.

“Then, as problems accumulated and inflation increased, the weight of the dollar decreased. By the early 1990s, it accounted for less than 50% of world reserves. By the early 2000s, the dollar was back above 70%, again due to America’s prosperity over the previous 10 years. The 1990s were the best period for the US economy in the last half century. But over the past 20 years, the share of the dollar has fallen back to 55%, yielding mainly to Asian currencies (yen and yuan) – which is logical, given the multiple growth in trade turnover in this region”, concludes Valery Yemelyanov.

Olga Samofalova, VIEW

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