Nassim Taleb Highlights Ongoing De-Dollarization

De-Dollarization: A Slow but Steady Process

The world is gradually moving away from the US dollar, a process known as de-dollarization. This phenomenon, which is happening right in front of us, is not a sudden or unpredictable event. However, many people are still oblivious to it. Despite sounding like a conspiracy theory, de-dollarization is a reality. Countries worldwide are striving to reduce their reliance on the US dollar, causing its influence to gradually diminish. This doesn't mean that the dollar is on the brink of collapse due to a significant crisis. Instead, it's more akin to a slow and steady decline.

Nassim Taleb's Take on De-Dollarization

Nassim Taleb, widely recognized for his book "The Black Swan", has stated that the real de-dollarization process is not being fully recognized. He noted that while global transactions are still typically denominated in dollars, central banks (especially those in BRICS countries) are increasingly storing their reserves in gold. This means that while the dollar continues to be the primary medium of exchange, more and more countries are turning to gold as a store of value. Richard Turrin, an author, echoed this sentiment, stating that the US will continue to boast about the high percentage use of the USD in trade, even as its value declines.

Reasons for the Shift from Dollar to Gold

There are two main reasons why the dollar's high percentage in trade settlements is becoming increasingly irrelevant. Firstly, gold holdings are now being used to show reserve storage. Secondly, the migration of trade to alternative currencies is not reflected in SWIFT statistics. This shift towards storing wealth in gold rather than dollars is understandable, given the US government's ongoing devaluation of its currency.

De-Dollarization Trend Confirmed

Luke Gormen, founder and president of Forest for the Trees, confirmed Taleb's point with a graph. He noted that the de-dollarization trend has been in effect for over a decade and has become more pronounced since the 2022 sanctioning of Russian FX reserves. In fact, global dollar reserves have decreased by 14 percent since 2002. This decline in dollarization accelerated after the US and its Western allies imposed aggressive sanctions on Russia and froze its assets following its invasion of Ukraine.

Impact of Dollar Weaponization

The weaponization of the dollar by the United States is undermining its strength and role as a reserve currency. A report by the Atlantic Council on the falling percentage of dollar reserves highlighted dollar weaponization as a factor behind this trend. The US and its allies not only froze Russian assets but also excluded the country from the SWIFT financial system. This has led to other countries realizing their vulnerability due to their dependence on the dollar, prompting them to diversify away from the USD.

Central Banks Increasing Gold Reserves

Central banks worldwide are steadily increasing their gold reserves. According to a survey by the World Gold Council released in June, 29 percent of central banks plan to increase their gold reserves in the next 12 months. This is the highest level since the survey began in 2018. Only 3 percent of the banks surveyed indicated plans to decrease their gold reserves. This trend of gold buying is expected to continue, supporting the expectation that 2024 will be another strong year for central bank gold demand.

Gold Prices Confirm Central Banks' Wisdom

The rising price of gold confirms the wisdom of these central banks. It also serves as a tangible sign that the dollar is losing value and status.

Bottom Line

The ongoing de-dollarization process is a slow but steady phenomenon that is changing the global financial landscape. With countries decreasing their reliance on the US dollar and increasing their gold reserves, the dollar's status as the world's reserve currency is gradually diminishing. This shift is a clear sign of the changing dynamics of the global economy. What are your thoughts on this trend? Do you think it will continue, or will the dollar regain its dominance? Share your thoughts and discuss this topic with your friends. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6 pm.