According to the IMF's latest global foreign exchange reserve currency composition (COFER) data in July, as of the end of the first quarter of 2023, the US dollar accounted for 59.02% of global foreign exchange reserves (59.43% in the same period of 2021), indicating that although global central banks are accelerating de-dollarization, the US dollar is still the largest reserve currency held by major central banks in the world.
The reason why the dollar is the main reserve currency of the global central bank, behind which the commodities represented by oil are denominated in US dollars, and control and dominate the exchange and clearing system SWIFT between international currencies, on the other hand, most of the dollars obtained by countries around the world through sales and services will return to the United States in the form of US bond investment products, and at the same time, international reserve assets are also calculated in US dollars, so under the endorsement of US economic strength, petrodollars and US bonds jointly support the currency status of the US dollar after decoupling from the gold standard.
Therefore, because the dollar's main reserve and settlement currency status dominates the foreign exchange and international trade environment, the United States can pass on its growing debt default and inflation risk spillover to some markets with a single economic structure, high foreign debt and shortage of foreign reserves to collect seigniorage taxes, and in the case of the beginning of the dollar shortage, the economy, assets and exchange rates of these markets will continue to be affected, Goldman Sachs warned in a report released on July 6 that the market may appear in the third quarter of 2023.
Bank of America strategist Michael Hartnett said in a new report published on July 8 that the U.S. economy has been resilient so far, which means that interest rates will remain at higher levels for longer, but the U.S. recession is only delayed, which will put more pressure on the ability of the U.S. Treasury to bail out its own debt.
Therefore, under the intertwining of multiple economic pressures such as high inflation, soaring borrowing costs and high local manufacturing costs, in order to pass on its own debt and inflation risks, the United States will continue to harvest the process of economic structure and financial debt market black hole in economies and financial debt markets with obvious problems.
As the BWC Chinese network research team has emphasized on different occasions, every strong dollar cycle in history has always triggered economic and financial market shocks, and the economic and financial risks triggered by high inflation and banking crises in the United States are taking advantage of different dollar cycles of tightening and easing, and combining the currency status of the dollar to pass on to some countries with a single economic structure and fragile external reserves.
This effect can be compared to Venezuela, Zimbabwe, South Africa, Sri Lanka, Brazil, Myanmar, Indonesia, Lebanon, the Czech Republic, Poland, Pakistan and Egypt, in addition, Turkey, Argentina and Chile have also defaulted on sovereign debt, and the external debt problem has been more serious or the cost of US dollar financing has become high, because the economies of these countries have fallen into the fragile mode of severe currency depreciation and debt crisis, respectively, and the economy and financial markets are already in a precarious situation.
In particular, Vietnam's economy, which is now in the limelight, and its questionable Indian investment market. The recent collapse of Vietnam's economy and export market means that the chip absorption effect of this US harvest cycle on the market is continuing.
The BWC Chinese net finance team noticed that in recent years, Vietnam and India seem to have suddenly become economic black holes, and are starting the "World Factory" and "Industry 4.0" plans with national efforts, sparing no effort to absorb capital, debt, technology, manufacturing enterprises and even talents from the United States.
But at present, adverse conditions such as the return of US dollars, soaring financing costs, and difficulties in raw material and commodity supply chains may have a far-reaching impact on financial markets after the pace of economic growth and rising inflation in Vietnam and India, and will have a negative impact on many companies, which in turn increases financing costs and may lead to the withdrawal of international capital from Vietnam.
You know, in the vicissitudes of the world economy, the predators at the top obtain the wealth of other countries, and the dollar is such a "modern financial pirate".
With the shrinking purchasing power of the US dollar leading to higher prices of imported goods, and the United States using loose and tight monetary policy to switch to seigniorage, the accumulated international reserve assets of Vietnam and India may be rapidly depleted and lead to some debt and exchange rate risk storms, which is a major challenge for Vietnam's economy and financial markets, while also needing to address the risk of non-performing loans.
Taking Vietnam as an example, this shows that Vietnam is likely to be harvested by the United States, a "modern financial pirate", and Vietnam's economic miracle may be beaten back to the original shape by the United States, because for several years, the high growth of Vietnam's economy is formed by piling up huge external dollar debts, which makes Vietnam's ability to resist strong dollar harvesting is more vulnerable than other economies, which will aggravate Vietnam's economic volatility and squeeze out international investment in the process of accelerating the harvest of Vietnam's economy by the United States.
The analysis shows that the core crux of Vietnam's manufacturing and real estate investment collapse is to fall into the black hole of dollar debt and want to trade with US interests, but Vietnam's foreign reserves are saddled with external debt of nearly 70% of GDP.
According to data from Vietnam's central bank, as of July 1, the total debt in Vietnam's financial system increased by 9.49% from the end of last year to US$172.9 billion, but the foreign reserves were only about US$84 billion, indicating that Vietnam's total debt reached 175% of the country's foreign reserves. This further confirms that in the process of the continuous harvesting of Vietnam by the United States, Vietnam does not have a wide moat.
In this regard, Ngo Chi Long, former director of the Price Market Research Institute of the Ministry of Finance of Vietnam, said that there is a lot of ineffective growth in the Vietnamese economy, only pursuing the quantity of investment, not paying attention to efficiency and quality, resulting in the country falling into the dollar debt trap, so that some Vietnamese enterprises whose credibility is questioned are at risk of being harvested, especially Vietnam's real estate industry.
Based on this, there is a view that Vietnam's current situation is more like the rush of the Indian economy, Reuters also said on July 8 that the Vietnamese economy may be becoming a victim of the harvest by the United States, supported by the high external dollar debt burden and limited foreign reserves, it is likely to be a copy of the Indian economy. (End)