It’s been another roller coaster week for markets.
The RBA minutes showed that local monetary policy is still walking a tightrope.
The US is at another standstill over its debt ceiling circus.
And the slowdown in China appears to be worse than expected.
Needless to say, it’s tough out there for investors right now. But it’s not just individuals that are feeling the heat…
One of the more fascinating developments over the past week actually came from the recent ASEAN Summit. This meeting of Southeast Asian nations reached a surprising decision by effectively deciding to ditch the US dollar!
Essentially, the members agreed to start promoting local currency transactions for trade. A decision that is clearly aimed at helping trade growth whilst also boosting the use of the many regional currencies.
In other words, they want to rely less on the universal appeal of the US dollar for trade, and instead promote a framework that supports the local foreign exchange system — the kind of goal that’s just another example of the growing ‘de-dollarisation’ movement.
So, what does this trend mean for investors like yourself?
Centralised breakdown
Without getting too stuck in the weeds of this matter, the short answer is to expect more volatility.
If the global economy really is moving away from the US dollar as its preferred reserve, things could get a little wild in the short term. After all, you can’t just undo a system that has been in place for the better part of half a century and not expect to break a few things.
On top of that, don’t expect the US to give up without a fight. They know all too well just how powerful a weapon the US dollar is, and they’re not going to want to let go of it.
But it’s not all doom and gloom either.
Change, no matter how volatile it is, should be welcomed. After all, no centralised system or group should have as much power as the US dollar does on global trade. It inevitably leads to abuse and dire consequences, whether with noble intentions or not.
Just look at the Russian sanctions, for example.
Would most people say that punishing Russia for invading Ukraine is morally acceptable? Probably.
But at the same time, it led to an extreme energy crisis in Europe and has exacerbated the current inflation we’re all battling. All of us are poorer for this aggressive wielding of the US dollar.
And while you shouldn’t expect a de-dollarised world to necessarily do better in these extreme scenarios, at least it gives each and every nation a choice. Just like it will provide choice to investors for new avenues to profit from…
The ultimate winner is…
Of course, many will see this de-dollarisation as a win for China and the yuan. They are, after all, the most likely to replace the US dollar if it is deposed.
But I don’t think that is likely either.
The whole point of de-dollarisation is to unwind some of the transgressions of globalisation. It’s about giving power back to the individual rather than the collective.
And when it comes to modern trade or transactions, one asset is a clear standout in this regard…
I am, of course, talking about Bitcoin [BTC].
With its novel blockchain and decentralised ethos, bitcoin is the natural solution to a de-dollarised future. Whether political leaders will realise that or not is obviously a lot less clear.
Our own crypto expert, Ryan Dinse, passionately touched on this recently. As he concisely put it:
‘Despots hate bitcoin the most because they can’t control it. It’s the people who live in such countries that use bitcoin to escape the tyranny they live under.
‘Alex Gladstein of the Human Rights Foundation wrote:
“Maybe you don’t need bitcoin. Maybe you don’t understand bitcoin. Maybe PayPal, Venmo, or your bank account serves your needs just fine.
“But don’t write off bitcoin as simply a vehicle for financial speculation. For millions of people around the world, it’s an escape hatch from tyranny — nothing less than freedom money.”’
This is why he’s watching this de-dollarisation movement closely as well, because he can see the writing on the wall and the opportunity that it presents for bitcoin:
‘The US dollar is now seen as “political money”. It’s not a good store of value for many export-driven countries that need to park their large trade surpluses somewhere.
‘Never mind the likes of China and Russia, even “friendly” nations like Japan and India are cutting back on their US dollar holdings.
‘The days of US dollar dominance could be ending.
‘In short, the entire world of finance and money is in flux right now.’
For this reason alone, despite the unease that volatility brings, everyone should own at least a little bitcoin. Because as the momentum swells, the benefits for early investors seem likely to breakout.
Regards,
 |
Ryan Clarkson-Ledward,
Editor, Money Morning
