De-dollarization [Other countries reducing reliance on US dollar]

[galeno]

I'm worried about de-dollarization. Our port is 50% VWRD + 50% AGGG.

The only thing I can think of doing as a Boglehead is to sell 10 to 20% of our VWRD and put the procedes into VDEM. Maybe do the same with AGGG. Sell 10 to 20% and put it into one of these:

https://www.blackrock.com/americas-offs ... fmkt=43524

Any thoughts?

[arcticpineapplecorp.]

It's important to realize that reserve status is something that, historically, has been gained or lost over a long time horizon. It's unlikely that the world would wake up one day with dollars no longer holding international appeal. Rather, in examples such as the British pound, there was a multidecade process by which it went from the center of world economics to a second-tier currency.

As for what would replace the dollar, it's hard to forecast at this point. It's possible to imagine a world in which the euro or Chinese yuan eventually became the primary reserve currency, but a great deal would have to change in world politics to get to that point.

Source

the link you provided was to many funds via blackrock investing in emerging markets. Do you really think emerging markets are (or will be) safer than the US Dollar?

are you looking for a solution in search of a problem?

there's always something to be worried about. Whether you should act on those feelings or not, is the issue. Generally not a good idea to change your portfolio based on your feelings/worries. Having a portfolio means you've predetermined your Investment Policy Statement. Then you simply follow the plan. Stay the course. Don't start changing because you have fears of this or that happening. If you keep changing, you really have no plan at all. Do you have an IPS?

[nisiprius]

The dollar isn't "the" reserve currency, it's just the biggest of about eight. By far the biggest, but still, just one of eight. Reserve currencies are defined pragmatically by what central banks decide to use.

It isn't as if the Grand Panjandrum of the IMF one day flips and says "the dollar is no longer The Reserve Currency, we have now made the Euro The Reserve Currency." It would just be that the composition of the reserve currencies central banks are using is current 58% U.S. dollars and 20% Euros, and maybe someday it would be 48% dollars and 30% Euros and maybe over time some other currency would become the biggest.

IMF: World Currency Composition of Official Foreign Exchange Reserves

[asset_chaos]

What specifically is the worry? What problem will be solved by overweighting emerging market stocks and bonds?

[galeno]

Great questions. My worry is going broke because of de-dollarization.. My other worry is WW3.

No problem will be solved by increasing our allocation of EM stocks and bonds.

I need to stop worrying about the above.

What specifically is the worry? What problem will be solved by overweighting emerging market stocks and bonds?

[galeno]

The below is reassuring. Living in a EM country almost my entire life I'm used to our currency crashing quickly. I thought the UK suffered greatly when the GBP stopped being the reserve currency.

When our currency crashed in the early 1980s our economy shrunk by 10%. We had 90% inflation. Those were hard times for us.

We had another very nasty currency crash in 2014. But we were fine because we were already retired and living off a 4% AWR of a stock and bond portfolio mostly based on USDs.

Over the last 6 months our currency has gone up 30% vs the USD. Again times are tough.

<It's important to realize that reserve status is something that, historically, has been gained or lost over a long time horizon. It's unlikely that the world would wake up one day with dollars no longer holding international appeal. Rather, in examples such as the British pound, there was a multidecade process by which it went from the center of world economics to a second-tier currency.>

[Glockenspiel]

Which currency is going to suddenly become the most desired currency in the world? Don't tell me crypto. The US dollar is valuable because everyone knows its relative worth, it can be used anywhere at any time, and people all over the world have faith in its use as money. Cryptocurrencies will never take over from that standpoint.

[TacoLover]

It's important to realize that reserve status is something that, historically, has been gained or lost over a long time horizon. It's unlikely that the world would wake up one day with dollars no longer holding international appeal. Rather, in examples such as the British pound, there was a multidecade process by which it went from the center of world economics to a second-tier currency.

As for what would replace the dollar, it's hard to forecast at this point. It's possible to imagine a world in which the euro or Chinese yuan eventually became the primary reserve currency, but a great deal would have to change in world politics to get to that point.

Source

the link you provided was to many funds via blackrock investing in emerging markets. Do you really think emerging markets are (or will be) safer than the US Dollar?

are you looking for a solution in search of a problem?

there's always something to be worried about. Whether you should act on those feelings or not, is the issue. Generally not a good idea to change your portfolio based on your feelings/worries. Having a portfolio means you've predetermined your Investment Policy Statement. Then you simply follow the plan. Stay the course. Don't start changing because you have fears of this or that happening. If you keep changing, you really have no plan at all. Do you have an IPS?

If I were looking for a currency to replace USD I’d look for an economy that is large and growing and dynamic with strong protections for private property and the rule of law and ideally a growing population. I don’t see anyone remotely meeting those criteria today. If a new contender arises I really don’t think it will be a surprise that happens over a week or two. There will be a possible contender and over many years that contender will gradually show the factors above - growing economy, increasingly dynamic, etc. like for the USA vs international argument I think we will see it coming in plenty of time. For now I’d keep my eye on India but I don’t know enough about the country and the people and the government and the culture to have an opinion. For however much we can complain about the USA and that we’re going the wrong direction, everyone else is going the wrong direction faster and is way ahead of us.

[Carguy85]

For however much we can complain about the USA and that we’re going the wrong direction, everyone else is going the wrong direction faster and is way ahead of us.

Exactly. Not sure how folks don’t see this in all the international threads… o well it’s their money. Search Peter Ziehan on the matter if you want to put your mind at ease about USD

[TacoLover]

For however much we can complain about the USA and that we’re going the wrong direction, everyone else is going the wrong direction faster and is way ahead of us.

Exactly. Not sure how folks don’t see this in all the international threads… o well it’s their money. Search Peter Ziehan on the matter if you want to put your mind at ease about USD

I saw a lecture from him, and I hope that he is correct but I never know who is crazy on the Internet and who is normal. My thoughts on other currencies replacing the United States, dollar is the same as my thoughts on all USA investing versus international. It is not that we are perfect. we are certainly heading in the wrong direction. It’s just that everyone else is so much worse and rushing so much faster in the wrong direction that it seems to meet we are the best by default. One of the commenters, I think Beelzebub, phrased it has the least dirty shirt in the laundry.

[happyisland]

Galeno, it sounds like you need to read your own signature line and go for a hike. Friends just got back from a wedding in San Jose and they raved about how beautiful the mountain forest was.

[watchnerd]

I'm worried about de-dollarization. Our port is 50% VWRD + 50% AGGG.

The only thing I can think of doing as a Boglehead is to sell 10 to 20% of our VWRD and put the procedes into VDEM. Maybe do the same with AGGG. Sell 10 to 20% and put it into one of these:

https://www.blackrock.com/americas-offs ... fmkt=43524

Any thoughts?

If you already hold international stocks (unhedged), you should have some upside to a declining dollar.

[nisiprius]

...It is not that we are perfect. we are certainly heading in the wrong direction. It’s just that everyone else is so much worse and rushing so much faster in the wrong direction that it seems to meet we are the best by default...

Yeah. I am always puzzled by the idea that every country in the world is fiscally responsible but us.

[watchnerd]

...It is not that we are perfect. we are certainly heading in the wrong direction. It’s just that everyone else is so much worse and rushing so much faster in the wrong direction that it seems to meet we are the best by default...

Yeah. I am always puzzled by the idea that every country in the world is fiscally responsible but us.

"With great power comes great responsibility."

Seriously, though, to maintain currency hegemony and the 'exorbitant privilege', it may require higher expectations being met.

[Beensabu]

...we are the best by default.

Ba dum tsss

[halfnine]

For however much we can complain about the USA and that we’re going the wrong direction, everyone else is going the wrong direction faster and is way ahead of us.

Exactly. Not sure how folks don’t see this in all the international threads… o well it’s their money. Search Peter Ziehan on the matter if you want to put your mind at ease about USD

I saw a lecture from him, and I hope that he is correct but I never know who is crazy on the Internet and who is normal. My thoughts on other currencies replacing the United States, dollar is the same as my thoughts on all USA investing versus international. It is not that we are perfect. we are certainly heading in the wrong direction. It’s just that everyone else is so much worse and rushing so much faster in the wrong direction that it seems to meet we are the best by default. One of the commenters, I think Beelzebub, phrased it has the least dirty shirt in the laundry.

Really? Swiss Franc?

[Valuethinker]

For however much we can complain about the USA and that we’re going the wrong direction, everyone else is going the wrong direction faster and is way ahead of us.

Exactly. Not sure how folks don’t see this in all the international threads… o well it’s their money. Search Peter Ziehan on the matter if you want to put your mind at ease about USD

I saw a lecture from him, and I hope that he is correct but I never know who is crazy on the Internet and who is normal. My thoughts on other currencies replacing the United States, dollar is the same as my thoughts on all USA investing versus international. It is not that we are perfect. we are certainly heading in the wrong direction. It’s just that everyone else is so much worse and rushing so much faster in the wrong direction that it seems to meet we are the best by default. One of the commenters, I think Beelzebub, phrased it has the least dirty shirt in the laundry.

Really? Swiss Franc?

It's not possible for the currency of a nation of 8m people to be the world's default currency. Not without printing so many Swiss Francs that it would completely devalue that currency.

Swiss economy is tied to the EU quite closely. The Credit Suisse situation was a warning - small countries with huge banking deposits. UBS became the "bank of last resort" and now has deposits (larger than?) equal to Swiss GDP. Not a comfortable place to be.

[Valuethinker]

[edited]

[halfnine]

For however much we can complain about the USA and that we’re going the wrong direction, everyone else is going the wrong direction faster and is way ahead of us.

Exactly. Not sure how folks don’t see this in all the international threads… o well it’s their money. Search Peter Ziehan on the matter if you want to put your mind at ease about USD

I saw a lecture from him, and I hope that he is correct but I never know who is crazy on the Internet and who is normal. My thoughts on other currencies replacing the United States, dollar is the same as my thoughts on all USA investing versus international. It is not that we are perfect. we are certainly heading in the wrong direction. It’s just that everyone else is so much worse and rushing so much faster in the wrong direction that it seems to meet we are the best by default. One of the commenters, I think Beelzebub, phrased it has the least dirty shirt in the laundry.

Really? Swiss Franc?

It's not possible for the currency of a nation of 8m people to be the world's default currency. Not without printing so many Swiss Francs that it would completely devalue that currency.

Swiss economy is tied to the EU quite closely. The Credit Suisse situation was a warning - small countries with huge banking deposits. UBS became the "bank of last resort" and now has deposits (larger than?) equal to Swiss GDP. Not a comfortable place to be.

I am not suggesting that the Swiss Franc would become the world's default currency. De-dollarization itself doesn't necessitate that another country becomes the de-facto reserve currency. It simply means there is less reliance on the USD. The question then becomes what options are available to a non-US resident retail investor. The answer that they should embrace the USD because it is the reserve currency is flawed. The answer that they should embrace USD as it is "the least dirty shirt in the laundry" is not only untrue but also entirely flawed. This doesn't of course mean the USD should be ignored. Just because 100% USD is flawed doesn't mean 0% USD is the answer.

[LadyGeek]

I clarified the thread title to help readers with the terminology. See: Dedollarisation - Wikipedia

Please stay focused on the investing aspects. Conjecturing on US or non-US economic policy is off-topic. See: Non-actionable or Trolling Topics

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:

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  ...

[petulant]

I clarified the thread title to help readers with the terminology. See: Dedollarisation - Wikipedia

Please stay focused on the investing aspects. Conjecturing on US or non-US economic policy is off-topic. See: Non-actionable or Trolling Topics

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:

• US or world economic, political, tax, health care and climate policies
  ...

I'm not sure it really clarified since the language now--"reducing reliance on US dollar"--could be taken as an individual household's choice. Maybe it should say "Other countries reducing reliance on US dollar" or "EM countries reducing reliance on US dollar."

[LadyGeek]

^^^ Thanks! I retitled the thread as you've suggested. The OP can change the thread title further by editing the Subject: line in Post #1.

[galeno]

That's exactly what I did! But instead of a hike I played pickleball for the first time. I think pickleball is going to be my new sport. I love it.

My wife pointed out that every spring (here it means the start of the rainy season) I start getting pessimistic and nervous about my country and the world in general and feel I need to speculate.

Question. Did your friends make any comments about how they found CR to be extremely expensive?

Galeno, it sounds like you need to read your own signature line and go for a hike. Friends just got back from a wedding in San Jose and they raved about how beautiful the mountain forest was.

[nisiprius]

...One of the commenters, I think Beelzebub, phrased it has the least dirty shirt in the laundry.

Really? Swiss Franc?...

Swiss Francs and Venezuelan Bolivars are the hardest currencies in the world. Ernst Stavro Blofeld said so in Thunderball. Might be out of date, though.

[tdm757]

Having been in Colombia and Turkey recently...they fall back on the dollar whenever they can get it.

Venezuela I understand really likes dollars.

The euro I think is a distant 2nd for me.

I don't think I have a third idea in mind.

[TedSwippet]

... One of the commenters, I think Beelzebub, phrased it has the least dirty shirt in the laundry.

"Laundry" seems to carry a sense of future improvement. Perhaps "the least rusty car in the junkyard"?

[pennywiser]

Right now there is risk of US defaulting on its debt. What does the world do? Buy more dollars in flight to safety...
Doesn't look like dollar is a grave danger to me.

[LadyGeek]

I removed an off-topic discussion regarding political and economic policy of the US debt-ceiling limit. As a a reminder, see: Non-actionable or Trolling Topics

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:

• US or world economic, political, tax, health care and climate policies
  ...

Please stay on-topic, which is:

I'm worried about de-dollarization. Our port is 50% VWRD + 50% AGGG.

The only thing I can think of doing as a Boglehead is to sell 10 to 20% of our VWRD and put the procedes into VDEM. Maybe do the same with AGGG. Sell 10 to 20% and put it into one of these:

https://www.blackrock.com/americas-offs ... fmkt=43524

Any thoughts?

[roger83x]

I am using EUR hedged ETFs (XUTE LU1399300455, U10H LU1407890976) but not because I want to bet on de-dollarization, I want to make a short-term bet on interest rates cuts from the Fed without betting on a stronger USD (and EUR is the currency in use in my country).

[Vulcan]

...It is not that we are perfect. we are certainly heading in the wrong direction. It’s just that everyone else is so much worse and rushing so much faster in the wrong direction that it seems to meet we are the best by default...

Yeah. I am always puzzled by the idea that every country in the world is fiscally responsible but us.

Well, the US is pretty out there.



But at least it's not Japan.

(Img source and data: https://worldpopulationreview.com/count ... by-country)

[minimalistmarc]

Great questions. My worry is going broke because of de-dollarization.. My other worry is WW3.

No problem will be solved by increasing our allocation of EM stocks and bonds.

I need to stop worrying about the above.

What specifically is the worry? What problem will be solved by overweighting emerging market stocks and bonds?

You know the solution, stop worrying. You’re not going to go broke and not much you can do to prepare for WW3

[watchnerd]

The only semi-significant "de-dollarization" I've heard of is the Saudis allowing China to pay for oil in yuan.

Although some geopolitic analysts say this isn't really about economics or money as much as it is to give The Kingdom a 'hook' into China in the event that the rivalry between Saudi Arabia and Iran in the Persian Gulf gets hot and the Saudis want to use China to pressure Iran (their semi-ally).

[bendix]

I'm worried about de-dollarization. Our port is 50% VWRD + 50% AGGG.

The only thing I can think of doing as a Boglehead is to sell 10 to 20% of our VWRD and put the procedes into VDEM. Maybe do the same with AGGG. Sell 10 to 20% and put it into one of these:

https://www.blackrock.com/americas-offs ... fmkt=43524

Any thoughts?

So, the Dollar is likely to further lose share in world reserve currencies. It has done so for the last two or three decades. Steady and slowly. And chances are this might continue. Probably faster than it has been, but still not over night. I think this might be more a trouble for the standard of living of Americans than for your personal investments. I may of course be completly wrong, because my ability to see into the future is as good as anyone else´s. Do I lose sleep over it? No, really not.

And re EM: Look what happened there 2 years ago or so. The Chinese Communist Party decided that the owner of Alibaba didnt show enough obedience and started a civil war on tech companies. Since then EM (which is basically 50% China, Taiwan and Hong Kong) is down probably a third and especially Chinese Tech is down 80% or so. I am really not sure I´d go overweight on such a racket. And yes, I own plenty of EM which I bought for diversification and I do wish strongly that I hadnt. There are tons of stories out there of people who e.g. bought into Chinese Mobile operators and the CCP decided overnight this and that and everyone´s investment went to hell. Dont go there. It´s a casino for insiders and not investing.

[petulant]

It's impossible to predict whether dedollarization will continue to proceed apace and the extent of its negative impact on workers and investors in the United States.

1. The dedollarization process has been happened for decades and even reached a peak in the early 2000s with the introduction of the euro, which was supposed to be the great competitor to the dollar. And during the 2000s, the U.S. dollar did lose value while U.S. stocks underperformed (U.S. vs. int'l is often a currency story). However, during the Financial Crisis, the dollar and the U.S. Treasury's bonds once again became safe havens, and the following Eurozone banking crisis cemented the euro as the weaker partner.

2. There are various statistics that can track dedollarization or lack thereof, including share of cross-border transactions, share of global debt, and share of central bank reserves. The last figure, share of central bank reserves, has shown some decline in the last few years. Here is a link to an IMF article with a handy chart of the dollar as share of reserves:

https://www.imf.org/en/Blogs/Articles/2 ... 5-year-low

But note that even though the dollar has declined a bit in the last couple years, it is still 1) a majority of global central bank reserves and 2) tracing the lows of 2008. Even if the dollar continues its slide, will it then reverse again a bit, then slide again a bit, and so on?

Further, with respect to the other figures, an overwhelming share of international transaction invoicing occurs in dollars, per this Fed article:

https://www.federalreserve.gov/econres/ ... 11006.html

In the same article, the dollar also has a majority share of foreign-denominated debt. Is that even a good thing? Do we really want Nigeria or Malaysia to have a banking crisis because their currency moves around against the dollar too much? We might be better off if they had debt in the currency of their largest trade partners, like Nigeria in euros and Malaysia in yen and renminbi.

Anyway, even material changes shouldn't affect the basic machinery of the system--if the share of reserves drops to 40%, the share of invoicing drops to 60%, and the share of international debt drops to 40%, is that really going to change much?

3. Finally, one measure of the direct impact on Americans that could result from currency issues is the share of our GDP involved in international trade. You could measure that by taking the sum of exports and the sum of imports together, then dividing them by GDP. A high number means the country's economy is highly dependent on foreign trade and hence likely to be very affected by currency issues; a low number means the opposite. What we see is that the United States has one of the lowest figures of trade dependency in the world.

https://en.wikipedia.org/wiki/List_of_c ... -GDP_ratio

By the way, a lot of the U.S.'s trade is with Canada and Mexico, which would almost certainly stay tied to the dollar even if its dominance receded, meaning even this ratio may overstate the exposure of the U.S. to foreign trade.

So, de-dollarization is something to understand, but it's not at all clear 1) that it is large yet, 2) that current trends will continue or accelerate, or 3) that realistic declines in dollar status would actually be negative for Americans.

[DJN]

Hi,
the thing is, it is not really the dollar, it is the euro dollar that we need to worry about if anything and the US policy makers don't control that part.
DJN

[nisiprius]

It would be hard to find any other financial chart as level as this.



At that rate...



...the dollar will be gone by 2148. On March 16th. At 11:43 am, EST.

[Valuethinker]

It's impossible to predict whether dedollarization will continue to proceed apace and the extent of its negative impact on workers and investors in the United States.

1. The dedollarization process has been happened for decades and even reached a peak in the early 2000s with the introduction of the euro, which was supposed to be the great competitor to the dollar. And during the 2000s, the U.S. dollar did lose value while U.S. stocks underperformed (U.S. vs. int'l is often a currency story). However, during the Financial Crisis, the dollar and the U.S. Treasury's bonds once again became safe havens, and the following Eurozone banking crisis cemented the euro as the weaker partner.

2. There are various statistics that can track dedollarization or lack thereof, including share of cross-border transactions, share of global debt, and share of central bank reserves. The last figure, share of central bank reserves, has shown some decline in the last few years. Here is a link to an IMF article with a handy chart of the dollar as share of reserves:

https://www.imf.org/en/Blogs/Articles/2 ... 5-year-low

But note that even though the dollar has declined a bit in the last couple years, it is still 1) a majority of global central bank reserves and 2) tracing the lows of 2008. Even if the dollar continues its slide, will it then reverse again a bit, then slide again a bit, and so on?

Further, with respect to the other figures, an overwhelming share of international transaction invoicing occurs in dollars, per this Fed article:

https://www.federalreserve.gov/econres/ ... 11006.html

In the same article, the dollar also has a majority share of foreign-denominated debt. Is that even a good thing? Do we really want Nigeria or Malaysia to have a banking crisis because their currency moves around against the dollar too much? We might be better off if they had debt in the currency of their largest trade partners, like Nigeria in euros and Malaysia in yen and renminbi.

Anyway, even material changes shouldn't affect the basic machinery of the system--if the share of reserves drops to 40%, the share of invoicing drops to 60%, and the share of international debt drops to 40%, is that really going to change much?

3. Finally, one measure of the direct impact on Americans that could result from currency issues is the share of our GDP involved in international trade. You could measure that by taking the sum of exports and the sum of imports together, then dividing them by GDP. A high number means the country's economy is highly dependent on foreign trade and hence likely to be very affected by currency issues; a low number means the opposite. What we see is that the United States has one of the lowest figures of trade dependency in the world.

https://en.wikipedia.org/wiki/List_of_c ... -GDP_ratio

By the way, a lot of the U.S.'s trade is with Canada and Mexico, which would almost certainly stay tied to the dollar even if its dominance receded, meaning even this ratio may overstate the exposure of the U.S. to foreign trade.

Good and sensible analysis.

Barry Eichengreen, who is the doyen of economic historians on these sorts of international monetary issues, is very good on all this.

So, de-dollarization is something to understand, but it's not at all clear 1) that it is large yet, 2) that current trends will continue or accelerate, or 3) that realistic declines in dollar status would actually be negative for Americans.

Eichengreen points out that the de-sterlingization of world trade and finance took decades. Britain reached its peak in 1913 - London had a much greater dominance in international trade and finance then that New York does now - and WW1 marked a very abrupt shift. Britain liquidated all of its international reserves as well as borrowing heavily to keep the war going.

But it took decades for the world to conclusively move from GBP to USD as the currency of denomination of reserves & trade, for example. If the dollar does become less important that's not an immediate signal that the Yuan/ Renimbi will be replacing it.

With a currency like the Chinese one, the restrictions placed on its own businesses and citizens with respect to the currency, and the desire for control of it by the Bank of China, make it even less likely.

One thing that might happen over time is more natural resource trade gets denominated in bilateral currencies, not the USD. So for example Ruble-Renimbi for Russian energy exports to China. That seems to be happening.

[Always passive]

In 2003 I retired, moved from LA to Tel Aviv (Israel) but left all my money in dollars at Fidelity, where it still is.
In those days a dollar could buy 4.5 shekels. In the meantime the economy of Israel got stronger and with it the currency, so that until recently the dollar fell to close to 3 shekels. I thought that the end of the world was here.
But guess what! The economy of Israel has began to weakening and the dollar began to strengthen, now at 3.7 shekels per dollar. So, it does not seem the end of the world after all.
The point I am trying to make is that I am not about to give up on the dollar, at least not in my life time. There are other things to worry about!

[LadyGeek]

An off-topic post and reply have been removed. This thread has run its course and is locked (conjecturing on US and world economic policy). See: Non-actionable or Trolling Topics

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:

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