The dollar will be the dominant world currency in 2030

Login or register to post comments Last Post 6981 reads   22 posts
Viewing 10 posts - 1 through 10 (of 22 total)
  • Tue, Oct 27, 2009 - 05:41pm

    #1

    Kurosawa

    Status Member (Offline)

    Joined: Jul 02 2008

    Posts: 14

    count placeholder

    The dollar will be the dominant world currency in 2030

What do you guys think about this one? I don’t know where this guy is coming from or what he is about. Something about this article does not sit right with me. Specifically, it is that it doesn’t jive with anything  that I have learned over the past few years.

Ambrose Evans-Pritchard

Ambrose Evans-Pritchard has covered world politics and economics for 25 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London.

Dollar hegemony for another century

 

Let me stick my neck out.

The dollar will still be the world’s dominant reserve currency in 2030, sharing a degree of leadership in uneasy condominium with the Chinese yuan. It will then regain much of its hegemonic status as the 21st century unfolds. It may indeed end the century even stronger than it was at the start.

The aging crisis in Asia — and indeed the outright demographic implosion in Japan and China, not to mention China’s water crisis — will soon be obvious to everybody. Talk of Oriental supremacy will start to sound overblown at first, and then preposterous.

Japan is about to go bankrupt. It is on the cusp of a fiscal crisis that will change perceptions of Asia dramatically. The IMF says gross public debt will reach 218pc of GDP this year. This is compounding very fast. It will be 246pc in 2014.

The Hatoyama government is spending as if there is no tomorrow. It plans to issue ¥50 trillion or $550bn in fresh bonds. I have no idea when this will spiral out of control. It could take another two or three years. It could start next week. Yes, I know that Japan has been borrowing merrily at ever lower rates for 20 years without the sky falling. The 10-year yield is 1.3pc. What happens when it rises to global levels of 3pc to 4pc? People made the same sort of arguments about the global boom before it suddenly tipped over.

This blog does not attempt market timing, nor does it offer investment advice. But I am absolutely certain that pundits consigning the dollar to its death have missed an even more dramatic currency and debt story in Japan. The yen will top ¥200 to the dollar before this is over. Jim O’Neill from Goldman Sachs has already begun to hint at this.

Apologies to readers who feel confused about my view on the dollar. I have written a string of NEWS pieces over recent weeks quoting the currency experts and Asian officials slamming America, or exploring the dollar demise thesis.

People assume that I share these views. I do not. Furthermore, I suspect that at least some of China’s grumbling about the dollar slide over recent months has been a ruse to lower the yuan (pegged to the dollar of course) against the euro, yen, and even sterling. The goal is to protect export margins. (Surely premier Wen Jiabao knows that China’s $1.6 trillion or so invested in US bonds is a sunk cost. Forget about it. The holdings are the consequence of their own currency manipulation in the first place.)

The fact that Asian central banks are accumulating $600bn or more a year in reserves by running huge trade surpluses is proof enough that their (mostly rigged) currencies are undervalued by 30pc to 40pc against the West. To that extent, I agree entirely with HSBC currency guru David Bloom that this is untenable. If these countries continue to resist currency appreciation they will overheat and succumb to asset bubbles — if they haven’t already in China.

Where I am less sure is that this will necessarily be resolved by a falling dollar. The evidence so far is that Asia will put off the day of adjustment as long as possible because they are addicted to mercantilist export strategies — and export oligarchs control the political systems (bar Japan). In which case they will lose competitive edge the old-fashioned way, by wage inflation for year after year until the world comes back into alignment. If so, the dollar will not fall at all. It may rise.

Nor do I really agree that this is in essence a story of the two sick sisters: Britain and the US.

They are certainly sick. But as readers know, I think much of Europe is equally sick — Spain, Italy, Greece, Ireland, the Baltics, are even sicker — even if the lag-times are longer. The IMF keeps telling us that Europe has failed to come clean on its bank losses. Germany’s BaFin regulator says the same thing. Are they wrong?

It all has echoes of the early 1930s when the Anglo-Saxons were crushed in the first two to three years, and the French bloc was crushed over the subsequent three years. What goes around, comes around.

Charles Dumas from Lombard Street Research says Washington must be chuckling as the weak dollar gives it time to rebuild America’s industrial core. The “inflationistas” — ie, those convinced that the dollar is being debauched despite the fact that core inflation in the US is falling and that the M3 money supply is contracting — are playing straight into the hands of the United States.

Nobel Laureate Gary Becker told me a few weeks ago that America’ spectacular gains in productivity – growing at a trend rate of 2.25pc to 2.5pc — is laying the foundation for a much stronger US recovery in the long-term than most people seem to realize. Compare that with 0pc to 1pc for the eurozone. In Italy it is negative.

The UN expects America to add roughly 100m people by 2050, keeping its age balance in relatively good shape through a mix of immigration and a healthy fertility rate — now 2.12 live births per woman, still above replacement level. This compares to: Taiwan (1.13), Korea (1.2), Japan (1.22), Ukraine (1.25), Poland (1.27), Spain (1.3), Italy (1.3), Russia (1.4), Germany (1.41), China (1.77), Britain (1.96), and France (1.98). Some of this data may be slightly out of date, but the picture remains valid.

Professor Becker said a collapsing birth rate is extremely hard to reverse, and the cultural effects are insidious. Old societies are status quo. They are slow to embrace new technologies. Young minds are the source of hi-tech invention.

The EU is fully aware of the danger. “What is at risk in the medium to long run is nothing less than the sustainability of the society Europe has built and the viability of its civilisation,” said an EU report (initially suppressed) by former Dutch premier Wim Kok as long ago as 2004. Nothing has been done since despite endless warnings from the Commission.

China’s work force will peak in absolute terms in six years, and then go into sharp decline. I have no idea how people square this with claims that China will soon replace the US as world hegemon. The stark reality is that China will hit a Japanese-style demographic crunch before it becomes rich. Sheer size will give it weight. But mastery?

Of course, if the US were stupid enough to enact the 10-year spending plans projected by the White House — with a deficit of $1.9 trillion in 2019 on Congressional Budget Office estimates — the country will be ruined. I do not think America has so far lost its senses that it will commit suicide in this fashion. In any case, the bond markets will react long before we get there. They will force a change in policy. That change will imply higher US savings, and less import growth. The export surplus powers that live off America’s market are going to take it on the chin.

At the end of the day, America is a unified nation forged by wars, under the rule of law, with a (largely) unifying language and patriotic creed, and one of the oldest and most deeply-rooted democracies in the world. As the Supreme Court demonstrated during Watergate, it can break presidents who violate the law.

It is often stated that a currency reflects the strength of an economy over time. Actually, it reflects the strength of a society. Who really thinks that Europe’s old-aged home is a better bet than America, even if they can hold the euro together as the gap widens further between Germania and Club Med? Or thinks that China’s half-reformed Communist regime is ready for global leadership. Remember the little girl in a red dress with pigtails who `lip-synched’ the opening ceremony of the Beijing Olympics? Believe what you will.

  • Tue, Oct 27, 2009 - 07:18pm

    #2
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: The dollar will be the dominant world currency in 2030

Kurosawa,

I am not sure I agree with the comment about the US dollar remaining as the world reserve currency – but I do agree with the comments about culture and the relative strength of US culture in comparison to other societies in the world. It’s fertility rate is the top among industrialized nations – and the “melting pot” nature of US culture keeps society homogeneous – in light of high immigration.

In Europe we not only have extra low fertility rates, but we also have a culturally imbalanced population. For example – at the moment 50% of births in Belgium are from Muslim familes. This means that in about 20 years or so, the majority of the population will be Muslim. These changing demographics do not bode well for a homogeneous and balanced society with common values.

John

 

  • Tue, Oct 27, 2009 - 07:20pm

    #3
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: The dollar will be the dominant world currency in 2030

Ambrose is a good guy, and I usually catch all his articles. He tends though to be one of these folks who restrains from being identified with an opionion and wears many hats, changing them frequently. He’s also had articles that are heavy on the doom too. This one strikes me more as a thought experiment and a way to just get people thinking. Barring an unforseen tech miracle I don’t see a “reserve currency” even existing in 100 years. Of course any thesis that projects decades into the future without heavily considering energy is kind of silly.

Attention JAG, you’ve found your new God.

  • Tue, Oct 27, 2009 - 07:26pm

    #4
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: The dollar will be the dominant world currency in 2030

[quote=mainecooncat]

Attention JAG, you’ve found your new God.

[/quote]

LOL!!!! Too funny MCC.

Now if I could only find a virgin to sacrifice.

  • Tue, Oct 27, 2009 - 07:30pm

    #5
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: The dollar will be the dominant world currency in 2030

John Bryson wrote: “and the “melting pot” nature of US culture keeps society homogeneous”

I’ll expand on this later, but I can’t imagine that anyone who’s extensively traveled throughout the US would agree with this point. And just to note, I’m not coming from a pride angle here as in, “Our counrtry is a rich and diverse place.” It’s just simply not true. The US could really fracture into multiple parts much to the delight of many. A friend of mine who relocated from Texas recently keeps saying, “It’s like a different world up here.”

  • Tue, Oct 27, 2009 - 07:32pm

    #6
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: The dollar will be the dominant world currency in 2030

[quote=JAG]

[quote=mainecooncat]

Attention JAG, you’ve found your new God.

[/quote]

LOL!!!! Too funny MCC.

Now if I could only find a virgin to sacrifice.

[/quote]

Oh good! I’m glad you took it how I meant it.

  • Tue, Oct 27, 2009 - 07:37pm

    #7
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: The dollar will be the dominant world currency in 2030

Another small problem….Trillions and trillions and trillions of dollars of debt world wide that have not been recognized as losses on the books of either the financial systems of the world or the direct obligations of the world governments themselves. No one and I mean no one knows how to deal with it so for now they choose to ignore it. The article while interesting was very superficial lacked any sense of real insight.

  • Tue, Oct 27, 2009 - 07:52pm

    #8
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: The dollar will be the dominant world currency in 2030

Much of Evan-Pritchard’s thesis appears to depend on adding 100M people to America’s population by 2050.  He sees this as a positive compared to older countries because they will have an older, and presumably less productive, population while we will still have youth on our side.

I fail to see how this is a good thing.  We already consume a wildly disproportionate share of the world’s resources.  Increasing our population by another 30% is going to make that better?  Even if he is right that our productivity will increase disproportionately, that just means that we will be consuming even more resources to fuel the productivity growth.

My take-away from this article is that he is living in a paradigm that is rapidly disappearing.  We can’t afford to be burning through the world’s resources at an even greater pace than we already are.  What part of unsustainable doesn’t he understand?

  • Tue, Oct 27, 2009 - 08:02pm

    #9
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: The dollar will be the dominant world currency in 2030

Hi mainecooncat

I don’t doubt that there are large cultural differences between the states and regions in the US, but they pale in comparison to the differences we have here in Europe even without the large non-integrated Muslim populations. The point I was trying to make is that immigrants to the US – integrate into US culture – whether that be in California, Florida, Texas or wherever else it maybe. Here, many of them don’t – either because they don’t want to, are not assisted to, or the failure of past policies now makes it more diificult to assimilate non-western immigrants.

I take your point that the US could tear itself apart again, like it did 150 years ago. Let’s hope that doesn’t happen.

John

  • Tue, Oct 27, 2009 - 08:09pm

    #11
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: The dollar will be the dominant world currency in 2030

citation:  I tend to view finance as a surreal world.. a bit like fashion.. or a virtual reality game.. where the rules can be changed.. if desirable.

 (eg Nixon 71… effectively rewrote the world financial system..)

 IMO the physical realities matter more.. demographics, energy… and in those respects the US is well placed… IF … it can manage the

energy problem in time.

 +ve’s  huge human, technological and natural resources

  -ve’s  structural dependence on fossil fuels – suburbs – long distances…

 As a good nutjob conspiracy theorist,  I tend to assume more intelligence in long term planning than is indicated by the

superficial nonsense spouted by the political & media circus… so I’m not as pessimistic as Orlov / Celente..

 Less confident about the dollar though.. in it’s present form at least.

 Conclusion – Ambrose may be onto something.

 

Viewing 10 posts - 1 through 10 (of 22 total)

Login or Register to post comments