De-dollarization

Good Morning Ladies and Gentlemen

On Saturdays, I like going to the gym. So I did last Saturday, and it was past lunchtime when my partner, Maria, picked me up after doing our grocery shopping. Now, past lunchtime and after my gym session, I was hungry. I suggested having lunch at an Asian place not far from the gym. So we went there for lunch, and before leaving the restaurant, we were offered a fortune cookie each. The following was written on the small paper clipping in mine:

«Happiness is contagious; spread it.»

De-dollarization

The global trend toward de-dollarization has been ongoing for over a decade, and it risks getting a massive push forward by the United States’ attempts to remove and exclude Russia from the SWIFT system of international financial settlements. Furthermore, in 2017, SPFS, a Russian equivalent of the SWIFT financial transfer system, was developed by the Central Bank of Russia due to worsening relations with the West, an important move and yet largely unnoticed by the media at the time.

Will the US Dollar disappear?

Not quite yet, I believe. On the contrary, the current sanctions on Russia, Belarus, and other states can actually even strengthen the importance of the US Dollar, at least for some time. In addition and for the time being, no other currency system can offer the liquidity needed to assure global trade on the one hand and act as the global reserve currency for numerous governments and central banks on the other hand. Nevertheless, trade is increasingly performed in alternative currencies, at least between some countries, i.e. in trade between India and Russia, the Rubel has overtaken the US Dollar already, and this was well before Russia’s war on Ukraine. Overall, however, the US Dollar share of global trade has decreased only marginally in recent years. (The Fed – The International Role of the U.S. Dollar (federalreserve.gov)).

All fine then?

Probably not entirely, I would say. Look, Russia’s exclusion from the SWIFT system of international financial settlements must have sent a message to some of the large non-western economies within the G20. If I were in charge of a non-western country’s treasury department, I would probably seek diversification from the US Dollar in fear of being suddenly excluded from the SWIFT system of international financial settlements once the US government could become unhappy with political decisions taken by my government. You may claim that Russia’s war on Ukraine is an extreme event, and right you are; it truly is. Nevertheless and without judging, until a very short time ago, it was unthinkable to exclude a member-state from the SWIFT system of international financial settlements due to sanctions. This exclusion truly represents a paradigm shift, which may accelerate de-dollarization to some extent.

Conclusion

De-dollarization is happening but at a very, very low pace. Therefore, I believe the US Dollar will stay the major currency used for global trade and reserve currency still for the next decades.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, peace!

Yours truly,

Stefan M. Kremeth

Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
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9494 Schaan/Liechtenstein
Mail: smk@incrementum.li