Opening:
What is the situation with the US dollar today? There are many opinions on this issue, and each statement has its own logic and evidence behind it, especially those professionals who have a bunch of nouns stacked on top of each other, which makes people dizzy.
But if we put aside these distractions, look at the current situation of the US dollar objectively, and combine it with its development context, we believe that the US dollar is still strong or continues to weaken, the answer will be extremely obvious.
Today, let's talk about this issue briefly.
The U.S. dollar is the anchor of other currencies:
On the Chinese Internet, the dollar has Schrödinger's strength.
Some say it will collapse soon, and warn those who don't talk about the dollar's imminent collapse that they are not allowed to wash the floor of the United States; Some say it's still going strong, and tell us to open our eyes to the world and not be arrogant, or to take care of our own domestic affairs and be less critical of the dollar.
Of course, what is even more magical is that I have seen the same account saying these two completely opposite sets of words in different places, which made me suddenly realize for a while, and I can only sigh that the animal protection business has been so thriving now, and say "teachable".
But in the real world, the U.S. dollar does show a strong strength against global currencies that is very much in line with the times.
This sentence may be very difficult to understand like this, but if we make it concrete, everyone will be able to understand it.
The U.S. dollar index, which I believe you often hear, is an index used to reflect the exchange rate of the U.S. dollar against the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. If the index is high, it means that the dollar has appreciated relative to these currencies, that is, the dollar is strong.
Why, then, is it that when it starts to rise, it seems to be so strong against all currencies in the world?
In fact, this is the embodiment of the dollar's status as a world currency.
After the collapse of the Bretton Woods system, at the 1976 Jamaica Conference, the countries of the world truly recognized in the form of law that the dollar should be stopped for gold and the exchange rate was allowed to float freely, and this Jamaica conference officially brought the international monetary system into the current dollar system, the so-called "Bretton Woods II".
In this system, the US dollar has entered the bottom of the international commodity trade with the help of oil, and has become a reserve currency that all countries have to prepare more or less. This is kind of a pry open door for all countries, especially for advanced economies, which are the countries that the dollar index is targeting.
You know, these economies, especially Europe, were in the midst of a third globalization on a global scale. And each globalization is in fact a continuation of the previous globalization. From the first colonial globalization to the second industrial globalization based on colonies, and then to the globalization of capital driven by industrial globalization this time, all developed countries in Europe are still relying on overseas colonies, or places that have been successfully decolonized but are still economic colonies to obtain excess returns.
In this context, the economic impact of European economies on Asian, African and Latin American countries is very enormous. This effect is reflected in the currency. For example, the currency anchor of many African countries used to be the pound and the franc, and these two currencies were previously pegged to the euro, and then the euro and the dollar formed the correspondence of the dollar index.
The same is true for the currencies of Southeast Asia, the Japanese yen and the US dollar have a very direct and huge impact on currencies such as the Thai baht, the Vietnamese dong, and the Malaysian ringgit.
Even in 15 years, China adjusted the pricing mechanism of the RMB exchange rate to peg to the "basket of currencies", and gave higher weight to non-dollar currencies, expanding the currency of the basket from 11 to 24 currencies, but the impact of the US dollar on the RMB is still huge. Why? Because the 24 currencies that the renminbi is pegged to are actually pegged to the US dollar. Therefore, even if we make adjustments, we cannot avoid the objective situation that all currencies have anchors, and the dollar is the anchor of all anchors.
The US dollar is conditionally strong at the moment:
In addition, we must be more soberly aware that the US dollar only plays an irreplaceable role in trade, such as being bound to oil, so it has formed such a powerful international currency anchor?
You know, many countries don't just hold dollars for trade. It is true that the US dollar can buy a large number of commodities, especially industrial raw materials, so it is very popular. However, in the history of the third globalization in the past, the United States was an aircraft carrier running all over the world to sell its own US debt, and at the same time, once anyone was short of money, the United States would enthusiastically take the aircraft carrier to the door to let others lend its own money. Including some companies, if they are short of money, Wall Street, as the bridgehead of financial warfare, will also hear the wind and try their best to get that company to borrow dollars through various means.
In this process, the United States has completed a very double-standard thing that everyone is helpless to do, that is, for the first time, the United States has changed the logic of creditors to debtors.
What does that mean? To put it simply, at the beginning, the whole world believed that it was natural to repay debts, but the United States said to you, look, I owe you so much money, do you want me to pay back? Then you have to listen to me, and you have to change your system, your financial system, your laws and regulations as I say, or you are going to challenge the rules-based international order. When those countries with US debts look at the aircraft carriers circling around the sea, and then look at their own homes or the US troops stationed next door, they can only swallow their anger and agree.
Of course, if the country still owes the United States money, then it needs dollars even more. After all, the United States owes it money, and it is just asking it to change its posture to cooperate with the United States, but if it does not pay back the money it owes to the United States, the United States will dare to really go to its house and take it.
Therefore, in the whole process of the third globalization, the US dollar has attacked in such a positive and negative way, so that all countries have to accept the helpless reality that they have to try their best to get dollars to buy US bonds on the one hand, and to repay the money with US dollars on the other.
Relying on this, the dollar has effectively made itself an anchor for all currencies, or at least one of them. This is why the US dollar index now reflects the trend of the US dollar in the global currency market.
At the time of writing, the DXY was trading at 105.8, down from 107 in October last year or 112 in September '22, but still at an all-time high. From this point of view, the dollar is still strong, and there seems to be nothing wrong with it. But we have to ask what is the basis for such a strong position.
On February 24, 2022, Russia announced a "special military operation" and the Russia-Ukraine conflict officially began. Very soon after, on March 17 of that year, the Fed began raising interest rates.
Although in the Fed's own story, the interest rate hike is to curb inflation, for the United States, even the Americans themselves say, don't listen to what it says, watch what it does.
We all know the role of the dollar tide, so we should also understand that the real role of interest rate hikes is not only to curb inflation, but also to absorb global capital flows to the United States.
So under what circumstances will the return of capital to the United States be more effective? In fact, it is very simple, as long as there is turmoil in the region where these capitals are located, or there is a possibility of regional turmoil, then these capitals will naturally go to the United States obediently in order to avoid risks.
Therefore, as soon as the conflict between Russia and Ukraine breaks out, this regional turmoil that directly affects Russia and Europe will inevitably cause panic among all kinds of capital in the European region.
This initiative proved to be effective, but it did not fully work.
What is effective is to say that European capital and even industries have indeed fled one after another due to the energy problems and geopolitical tensions brought about by the conflict between Russia and Ukraine, and indeed they have also fled to the United States, but the fly in the ointment is that they did not all go to the United States, but found another safe harbor, which makes the United States very uncomfortable, because it can't eat enough.
But if such a trick is effective, then you might as well do more. As long as the world is turbulent enough and other places are rotten enough, then the United States, which is far away from turmoil and belongs to the capital highland, can not continue to maintain a high position, and other currencies will naturally weaken when they are in turmoil, so won't the dollar naturally remain strong?
So starting from the U.S. interest rate hike, until now, we should be very clear about the overall situation in the world, except for our country, there are very few places that can be related to stability. And a few of the most important economies, such as Japan, have typically been mired in the past two years.
With such a general trend, the dollar index remains high, what is there to be surprised about? From this point of view, the dollar is indeed still strong.
But the decline of the dollar is already inevitable:
But is the dollar's strength, based on turmoil and economic downturn in other economies, really strong? You know, when the U.S. dollar index reached an all-time high of 121 in 2001, what was the international background at that time? The IT bubble was brewing in the United States, and at the same time 911 happened, the heart of financial capital was attacked, and soon after that, the war in Afghanistan broke out. At that time, except for the United States and Afghanistan, the level of turmoil in the world was completely different from that of today, when everyone was still enjoying the development dividends brought by globalization, and all countries were holding back their efforts to develop, and the overall economic stability was much stronger than it is now.
The U.S. dollar index remained at 118 in the first quarter of 2002 amid the relative stability of the world and the turmoil of the United States itself, before starting to decline as the IT bubble burst.
In other words, the U.S. dollar index, which is now supported by global turmoil and its own hegemony, is no longer comparable to the U.S. dollar index when it was in turmoil and the world was developing rapidly.
Okay, so if this doesn't tell the whole story, then the previous historical data always gives a general trend, right?
From 1999 to the end of 2021, the share of the US dollar in official foreign exchange reserves fell from about 71% to 59.5%, a decrease of 11.5 percentage points, and the share of global payments fell from 72% to 39.9%, a decrease of 32.1 percentage points, and since the global pandemic in early 2020, US dollar cross-border financing has risen from 52.7% to 58.9%, and international bond investment has increased from 47% to 63.9%, and these two areas are very typical areas driven by quantitative easing. So it's very normal for the United States to print money, and these two values have risen; From the fourth quarter of 2019 to the fourth quarter of 2021, the US dollar was denominated in trade, from 50.4% to 40%, and SWIFT payments from 42.2% to 40.5%, coupled with the long-term trend of the proportion of foreign reserves and the share of global payments mentioned earlier, it is clear that even if the United States is printing money, these areas have not improved again.
So I think it's not difficult for us to come to a comprehensive conclusion, that is, is the dollar still strong? Compared with other currencies in the world, the effective international monetary coordination ability based on the US dollar and the overall proportion of the currencies of developed countries based on the US dollar system are still as high as 95%, the US dollar index is still at a high level, and other economies are in decline except for China.
But this strength is not really strong, but a relative, because others are worse, so it seems that the dollar is better stronger. This means that it will be difficult for the dollar to remain so strong if it does not sustain global turmoil and continue to allow major economies to either be mired in regional geopolitical conflicts or self-bleed on the currency edge.
This trend is already very obvious in the data just provided, if we follow the previous economic development trend, even based on globalization, countries will gradually seek opportunities for international currency diversification because of the previous practices of the United States, which is the fundamental reason why the proportion of the US dollar in various fields is getting lower and lower.
And in the current turbulent century-old changes, the pace of de-dollarization of countries around the world will only be faster. This will only force the United States to step up its actions to stir up world turmoil in order to safeguard its own interests, and make the world even more turbulent. However, this will in turn promote countries to accelerate the pace of de-dollarization, which in turn will trigger a larger rebound in the United States, and eventually form a two-way downward cycle.
At this point, we can summarize. That is, the dollar is still strong at the moment, but it is much weaker than the dollar in the past. And the general trend it is facing, whether it is from the data, or the trend of geography and currency, all point to a weaker future. So from this point of view, it is also an indisputable fact that the dollar is gradually weakening. And the dollar is in decline, but it is still in the process of declining, and it has not really completed this decline, so it can still show enough strength, which is also an objective fact, and the two do not conflict at all.
Therefore, in the long run, on the one hand, all countries in the world will have to go through a long and arduous struggle against the imperialist monetary hegemony, and on the other hand, they should also see the objective trend of the eventual decline of the imperialist hegemony. The two are dialectically unified.
And when we ourselves face the controversy on this topic, we should also maintain an objective and rational perspective, and not be kidnapped by those emotional expressions and eventually lose our own judgment. After all, the final victory will belong only to ordinary people all over the world.
Well, that's all for today's article, we are extraterritorial compilers, a group of people who write business history with their pen. If you like our content, please pay more attention, and I hope you can long press to like, forward, collect and leave a message, and we will see you next time.