Don’t Expect a Death of the Dollar Scenario to Unfold
Surprise, 2018 is continuing the same trend of engineered de-dollarization which picked up speed last year. Setting the tone right out of the gate, President Trump tweeted the following about Pakistan:
“The United States has foolishly given Pakistan more than 33 billion dollars in aid over the last 15 years, and they have given us nothing but lies & deceit, thinking of our leaders as fools. They give safe haven to the terrorists we hunt in Afghanistan, with little help. No more! “
This follows an annual State Department report from a few days ago where it was stated that $255 million of military aid would be withheld from Pakistan because of its poor performance on fighting terrorism, as well as its inability to reduce threats to American forces in Afghanistan.
Why is America taking this stance on Pakistan now? Everyone has known for years that Pakistan was only a fair-weather friend in the war on terrorism, such as that particular “war” is meant to achieve, or not achieve.
What changed to warrant such a shift in policy?
Looking back just before Christmas on December 19, 2017, we see that the Economic Times of India published statements from Pakistan’s Minister for Planning and Development regarding the nations intent to replace the USD in trade with China.
“We are examining the use of yuan instead of the US dollar for trade between the two countries,” the minister said.
Donald Trump is incrementally pulling the United States back from its forward-leading position as world policeman and financier. This has been shown through a reduction in funding to both NATO and the United Nations, as well as reduced funding and aid to international institutions and programs, all of which have been supporting the liberal international agenda and policies which are counter-intuitive for American economic growth, such as the Paris Climate Accord.
African nations on a whole have large Chinese import economies which will benefit from removing the USD and trading directly in yuan. These nations, such as Kenya, Nigeria, Tanzania, and Uganda, not to mention South Africa, all benefit from large amounts of US aid like Pakistan. These nations will follow the Pakistan move on using the yuan in trade with China, which will precipitate the pulling of American aid.
Some geopolitical strategy will to be applied of course, because it will be in America’s interest to maintain its own trade in USD. But this doesn’t change the fact that the broad use and accumulation of USD in foreign exchange reserve accounts around the world was a tool used to export dollar inflation. The less international demand on the USD means the Trump administration will have more tools to decrease the trade deficit and increase GDP growth. A depreciation of the dollar will take place in exchange with the currencies of those nations who begin to diversify with yuan. Each incremental step will see the renminbi strengthen and the dollar weaken.
Keep in mind, these exchange values are all relative. The dollar will mostly depreciate, but in varying degrees, depending on the amount of trade and diversification taking place. A depreciating dollar also isn’t necessarily a bad thing. As wages and jobs increase domestically, and a healthy inflation expands along with interest rate increases, American’s may not feel much of a change.
A depreciating dollar will mean cheaper American exports, which will fuel domestic growth and production. More jobs, higher wages, and lots of Trump votes in 2020. Add in the tax cuts and other economic stimulates which will role out over the next few years, and Americans are likely to experience some the best years since the 1950s.
It’s like I’ve been saying for years now, it’s all about the debt-to-GDP ratio, which will be decreasing dramatically in the coming months and years.
The issue of European nations is a little more tricky, though the increasing trade with both China and Russia will build even more momentum for de-dollarization. We will have to watch Ukraine and Iran closely to understand what direction Europe will take. – JC
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JC Collins can be contacted at email@example.com