We are witnessing a major event that has been written into history textbooks, and that is the collapse of the hegemony of the dollar.
After World War II, the United States established the Bretton Woods monetary system with the dollar as the core, and the dollar was bound to gold, but the United States printed a large number of dollars and bought them all over the world through artificial trade deficits. After the collapse of the Bretton Woods monetary system, the Jamaican system of the dollar anchored to oil was established. However, the United States, which is bent on getting into the eyes of money, has repeatedly injected water into the dollar, diluted the monetary value of the dollar, and promoted the export and return of the dollar through the Federal Reserve's periodic interest rate hikes and interest rate cuts, reaping the world's wealth over and over again, and the people of the world have suffered greatly.
Those who are familiar with international finance know that to judge whether the US dollar is good or not, they will generally look at three references, the renminbi, international oil prices and gold. The renminbi represents industrial products, the international oil price represents energy, and gold represents the security of the world situation.
These three references are inextricably linked to the US dollar, so let's take international oil prices and gold as examples to briefly illustrate. Generally speaking, international oil prices and gold prices are negatively correlated with the US dollar, and if the US dollar is strong, they fall, and if the US dollar is weak, they rise, which is a law that has been demonstrated countless times in the past few decades.
This fall and rise is the relationship between the US dollar and oil prices and gold prices in the past.
But now, this relationship has been subverted, now the dollar is rising, international oil prices are also rising, and gold prices are taking off directly (although there has been a slight pullback in the past 2 days), what does this mean?
It shows that the anchor relationship between the US dollar and oil and gold has collapsed, and when everyone starts to buy things without dollars, the price of natural things has nothing to do with the dollar.
In fact, the dollar had already experienced four crises before this crash.
- In October 1960, there was a massive sell-off of dollars and a rush to buy gold around the world. After the second postwar economic crisis in 1958, U.S. industrial output fell by 14 percent. Gold reserves fell from more than $40 billion in the post-war period to $17.8 billion, while short-term external debt stood at $21 billion. Gold reserves are no longer enough to service debts, and the market's credibility with the dollar is shaking.
- In March 1968, the U.S. gold reserves fell to $12.1 billion, while short-term foreign debt reached $33.1 billion. The price of gold rose rapidly, and the general gold treasury sold a large amount of gold, losing a total of 3.46 billion yuan of gold from October 1967 to March 1968. As a result, countries turned to the United States to exchange gold to compensate for losses.
- In May 1971, there was another massive sell-off of the dollar in the European market. On 15 August, the U.S. government announced that it would stop foreign central banks from exchanging U.S. dollars for gold at the official gold price. On 18 August, it was announced that the US dollar had depreciated by 7.89% against gold. At this point, the dollar, one of the two pillars of the Bretton Woods system, was pegged to gold and effectively collapsed.
- In January 1973, a large number of dollars were sold off in Europe. A large number of "ownerless dollars" in Europe and Asia have hit the financial markets on a large scale. In February 1973, the U.S. government was forced to announce the second post-war depreciation of the dollar, which depreciated by 10% against gold, that is, the official price of gold increased from $38 to $42.22 per ounce. However, the renewed depreciation of the dollar failed to stop the dollar crisis, and the price of gold in London rose to $96 an ounce at one point, and the foreign exchange markets in West Germany and Japan were forced to close for 17 days. Under these circumstances, the Western countries reached an agreement after consultations: the fixed exchange rate of their currencies against the US dollar was abolished and a floating exchange rate system was announced. At this point, the adjustable fixed exchange rate system based on gold and centered on the US dollar completely dismantled, and the Bretton Woods system completely collapsed. In January 1976, the International Monetary Fund (IMF) met in Jamaica and reached the Jamaica Agreement, marking the final end of the Bretton Woods system.
So, what is the reason for this dollar crash?
First, the U.S. debt crisis triggered a credit crisis for the dollar.
Although the United States has a legal debt ceiling, this mechanism never appears to be effective in limiting debt growth. Since World War II, Congress has adjusted the debt ceiling 99 times, raising the debt ceiling each time it reaches the threshold, allowing the government to continue borrowing new debt to pay off old debt. It's like having a group of drunkards in charge of setting and enforcing a limit on drinking, and once the limit is reached, the limit is temporarily lifted through a series of comical negotiations until the next time the limit is reached.
As the Federal Reserve continues to raise interest rates, the debt interest that the United States needs to pay in the past 2023 has reached $896 billion, and after entering 2024, the situation will become even more dangerous, and the total debt of the United States will soon exceed $35 trillion. This is 1.2 times the annual gross economic output of the United States, and at the end of World War II, it was only about 1.1 times.
Do you know what this concept is?
This means that the U.S. borrows money to pay for more than 20% of its economic activity every year, which is a very dangerous signal that the U.S. economy is already heavily dependent on borrowing to stay afloat. If all the principal and interest are to be repaid, it will take 150 years to repay the current fiscal revenue of the United States, and the rest of the world knows that the Americans will definitely not be able to pay it back, and in such a situation, everyone will naturally lose trust in the dollar.
For example, China has been reducing its holdings of U.S. bonds for 23 months in the past 26 months, and the balance of U.S. bonds held by China has fallen below $700 billion, and Ireland has sold $12.6 billion of U.S. bonds, Belgium has sold $21.3 billion of U.S. bonds, and Switzerland and the United Kingdom have also sold billions of dollars of U.S. bonds.
Judging from the recent surge in gold and commodities, the dollar index, although rising, is actually very empty.
Second, many countries have begun to de-dollarize.
Some people say that the US sanctions against Russia are the beginning of the collapse of the dollar hegemony system.
The United States and Jewish capital gangs not only created the Russia-Ukraine war, but also froze Russia's overseas dollar assets, openly confiscated them, and kicked Russia out of the Swift settlement system. It is this move that has led governments around the world to start "de-dollarization" one after another.
Recently, Russian Foreign Minister Sergei Lavrov said that in the context of the comprehensive development of Russian-Chinese economic and trade cooperation, more than 90% of mutual settlements between the two countries are carried out in their own currencies, and the two sides have almost completely de-dollarized trade settlements. Two years after the outbreak of the Russia-Ukraine conflict and the freezing of a large number of Russian assets, the renminbi has become the only and best choice for Russia's foreign exchange reserves.
In addition to China and Russia, Bangladesh and Russia agreed in April to use the renminbi to pay for nuclear power plant projects, and Argentina announced that it would stop using the dollar and instead use the renminbi to settle imports from China.
In October last year, Malaysian Prime Minister Datuk Seri Anwar Ibrahim said Malaysia would increase the use of local currency settlements when trading with other countries and reduce its dependence on the US dollar.
According to the current trend, in the future, China will use RMB to buy oil from Russia, Iran, Saudi Arabia, Venezuela, and other major oil-producing countries, and all countries will use RMB to buy industrial products from us. The euro is used for trade within the EU, and we use their own currencies to buy grain from Brazil and Argentina, and the world's energy trade, industrial trade, and grain trade are all settled in US dollars, so is this US dollar still the world currency?
According to statistics, the share of the US dollar and other Western currencies used as international currencies in global payments has declined. In November 2023, the share of the US dollar decreased by 0.17 percentage points compared to October. The euro's share fell to 22.95% from 23.6% in October. The share of the British pound decreased by 0.18 percentage points in November compared with October to 7.15%.
In contrast, the renminbi's share of global payments has soared. At the beginning of 2023, the proportion of global payment settlements using RMB was 1.91%, and in November 2023, this figure was 4.61%.
The rate of rise can be imagined, and the renminbi has risen in the global trade settlement system.
At the same time, central banks around the world have also stepped up their efforts to buy gold reserves to reduce their dependence on the US dollar. Since 2022, global central banks have also bought about 650 tonnes of gold, with Russia and China being the largest buyers. China's central bank also threw out information that it has hoarded gold for six consecutive months since November last year, and the total amount of gold reserves in China has now risen to 2,076 tons.
According to the International Monetary Fund, as of the end of 2022, the US dollar's share of global foreign exchange reserves fell to 58.36% from 71% in 1999, the lowest level since statistics began in 1995.
Now, the world is starting to de-dollarize, and that's the biggest problem for the United States. So, if you look at what the United States is doing now, launching a financial war has triggered a major collapse of the exchange rates of many Asian countries, and its purpose is to quickly harvest a wave of Southeast Asia and Japan while the hegemony of the dollar has not collapsed. In particular, Japan has recently suffered a double kill in stocks and foreign exchange, and the yen has continued to depreciate, and the yen has been sold off in the absence of a clear bearishness, easily breaking through the 155 yen mark, hitting a 34-year low.
However, no matter how much the United States struggles, it cannot change the objective fact that the hegemony of the dollar is about to collapse. International transactions will become more diverse, and U.S. sanctions will lose their effectiveness. And all countries in the world will also be more independent in choosing their own development paths, and will no longer be constrained by the selfish interests of the United States.