1 Comment
May 7Liked by Godfree Roberts

SDRs go back to 1969 and certainly they played a much bigger role in Finance back in the 1980s than today. There is a lot of confusion and throwing about the world de-dollarisation.

But start with the meaning of money - Economists say:

First: Money is a store of value.

Second: Money is a unit of account.

Third: Money is a medium of exchange.

With modern computers and networks it is easy to replace Money as a unit of account or a medium of exchange. Trivially easy.

The challenge is Money as a store of value. And so Money markets, not FX markets or accounting.

Specifically if you have $10 or 20bn worth which you want to place in liquid places in lots of at least $1bn a hit and which you can withdraw all within a week, where do you go? There is only one place, the US dollar money markets, and replacing that will not be easy. More likely it will collapse due to credit issues long before an alternative emerges.

More accurately we should be talking about the Money market - demand and supply for Bank deposits and short dated (<3m, including <2w) securities. Where those deposits are seen to be of high credit quality. So that largely means US government, US states and US corporates plus a smaller amount from Europe.

Until China (or Russia) is operating massive twin government and trade deficits it is hard to see where those potential borrowers are coming from.

De-dollarisation of $ as a store of money is the hardest challenge.

I like the comments of Larry Summers, it chimes with my own view that we are not seeing US resisting the future challenge of China for hegemony. We are seeing the angry reaction of a defeated empire 6 or 7 years afterwards.

Expand full comment