The De-Dollarization Fairytale
Apr. 20th, 2023 02:54 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
ny_quantwhat’s the potential alternative?
Japan? Its government bond market is 60%+ absorbed by the BoJ, and there have been multiple days in a row (!) where no trade happened in the JGBs – how can you store your FX reserves in such an illiquid market?
Europe? With such a fragile monetary but non-fiscal union, and the only AAA countries potentially able to provide the world with safe collateral (German Bunds) instead sticking to austerity for decades?
China? Brazil? Russia? You are facing a combination of capital controls (China), lack of democracy/rule of law (Russia), corruption and frequent episodes of double-digit inflation (Brazil) – do you want to take these risks when storing your hard-earned FX reserves accumulated from selling your goods and services abroad?
The truth is that US Treasuries don’t have a valid competitor as a global vehicle where to invest FX reserves.
USD-denominated foreign debt is huge, and it makes an orderly De-Dollarization not more than a fairytale.
Japan? Its government bond market is 60%+ absorbed by the BoJ, and there have been multiple days in a row (!) where no trade happened in the JGBs – how can you store your FX reserves in such an illiquid market?
Europe? With such a fragile monetary but non-fiscal union, and the only AAA countries potentially able to provide the world with safe collateral (German Bunds) instead sticking to austerity for decades?
China? Brazil? Russia? You are facing a combination of capital controls (China), lack of democracy/rule of law (Russia), corruption and frequent episodes of double-digit inflation (Brazil) – do you want to take these risks when storing your hard-earned FX reserves accumulated from selling your goods and services abroad?
The truth is that US Treasuries don’t have a valid competitor as a global vehicle where to invest FX reserves.
USD-denominated foreign debt is huge, and it makes an orderly De-Dollarization not more than a fairytale.
