De-Dollarization And Global Trade

The comments below are an edited and abridged synopsis of an article by Charles Hugh Smith

The current telling of the story of de-dollarization—the replacement of the US dollar as the world’s reserve currency with a new BRIC (Brazil, Russia, India, China)-funded reserve currency—depicts the loss of the reserve currency as a catastrophe that will crush America.

De-Dollarization And Global Trade - BullionBuzz - Nick's Top Six
Global freight transportation business, cargo container with cardboard boxes and Earth globe on laptop

Once we shift from considering a reserve currency as an abstraction to a mechanism of trade and finance, then another outcome takes shape: Supporting a reserve currency is a burden, and lifting that burden from the US will benefit the US and hurt mercantilist exporting nations.

As a bonus, it will also shift the burden of supporting a reserve currency to the BRIC participants, who will then have to do what the US has done for decades:

1. Export their new reserve currency in size by running vast, sustained trade deficits, for the only way a reserve currency can function is if there are sufficient quantities of it floating around as a transparently traded, market-priced commodity to grease trade and finance.

2. Become the dumping ground for the world’s surplus production of goods and services as the means to run the vast, sustained trade deficits that are the other side of exporting currency so others can use it in global trade.

Many commentators have explained these mechanisms of reserve currencies and pointed out that being relieved of the burden of supporting the primary reserve currency would be a great long-term benefit to the US.

Up for discussion: What ‘backed by gold’ really means; not so fast; and fiat currencies aren’t backed by nothing.

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