Everyone who has grappled with the world’s current monetary system knows what happened on the 15th of August in 1971 and what it meant for the global monetary order. On this day, President Richard Nixon temporarily closed the gold window and ended the dollar peg to gold.
Thanks for this article! I'm always sceptical when someone predicts the imminent demise of the dollar, because it just shows how much they fail to appreciate the complexity of the monetary system. We're talking years or decades here: to assume the status quo can continue like this forever is foolish as well. The truth is somewhere in the middle and probably best defined by the timeframe we attach to it.
Fabian, this is such a fascinating subject and I think Luke makes some excellent points. objectively, there is no doubt that the Russians seem to be playing a far stronger hand than the West assumed. and ironically it was Angela Merkel and the European hatred of President Trump that helped them deal that hand to themselves. but the cards are what they are and now they must be played.
Ultimately though, the acceptance of a neutral reserve asset will be a long time coming I fear, as those countries that don't have it before the declaration will fight tooth and nail to allow it. whether that is oil or gold or a basket, commodity importers are going to be screaming to prevent such an outcome. Which takes us back to the dollar, as you aptly describe the cleanest dirty shirt in the laundry. I feel a little discussed consequence of being the reserve currency is that the US is effectively required to print them to satisfy the rest of the world's needs.
FWIW, which is probably not much, I feel like the first major step will be a debt jubilee of some sort, reducing the amount of leverage outstanding in the world. only then can a neutral asset with limited ability to be expanded be acceptable to the bulk of the world.
To me that argues that real assets remain the hold of choice and debt instruments are going to be a problem going forward.
Thanks for this article! I'm always sceptical when someone predicts the imminent demise of the dollar, because it just shows how much they fail to appreciate the complexity of the monetary system. We're talking years or decades here: to assume the status quo can continue like this forever is foolish as well. The truth is somewhere in the middle and probably best defined by the timeframe we attach to it.
Fabian, this is such a fascinating subject and I think Luke makes some excellent points. objectively, there is no doubt that the Russians seem to be playing a far stronger hand than the West assumed. and ironically it was Angela Merkel and the European hatred of President Trump that helped them deal that hand to themselves. but the cards are what they are and now they must be played.
Ultimately though, the acceptance of a neutral reserve asset will be a long time coming I fear, as those countries that don't have it before the declaration will fight tooth and nail to allow it. whether that is oil or gold or a basket, commodity importers are going to be screaming to prevent such an outcome. Which takes us back to the dollar, as you aptly describe the cleanest dirty shirt in the laundry. I feel a little discussed consequence of being the reserve currency is that the US is effectively required to print them to satisfy the rest of the world's needs.
FWIW, which is probably not much, I feel like the first major step will be a debt jubilee of some sort, reducing the amount of leverage outstanding in the world. only then can a neutral asset with limited ability to be expanded be acceptable to the bulk of the world.
To me that argues that real assets remain the hold of choice and debt instruments are going to be a problem going forward.
have a great weekend