Takeaways From the ZeroHedge Dollar Debate

Author
Dr. Robert P. Murphy
Date
February 17, 2024
Categories
Economics, US Dollar Strength, World Reserve Currency, Cryptocurrencies
Blog Main Image

On February 13 I participated in a ZeroHedge debate on the fate of the USD. Specifically, Jim Rickards and I defended the proposition that the US dollar would no longer be the dominant world’s reserve currency by 2030, while Brent Johnson (of “dollar milkshake” fame) and Michael Every took the opposite view.

In the present post, I want to highlight some of the important points of the debate, which lasted 3 hours (including audience Q&A). Naturally, in this platform, I will focus on those elements of the debate that are most relevant to the work I am doing with infineo, specifically in tokenizing real-world assets and putting them on the blockchain.

Another BRIC in the Wall

One of the main points that Jim and I made is that the economic and military might of the BRICS+ block of countries is already enormous, and it will continue to increase (relative to the US and its close allies) over the next decade. If we use the Purchasing Power Parity (PPP) method of weighting different currencies, then just the BRIC nations—meaning Brazil, Russia, India, and China—as of 2022 constituted 31% of global GDP, while the US was 16%. Again, using a PPP method of comparing the dollar to the yuan, China alone surpassed US economic output back in 2016. (If we use market foreign exchange rates, then US GDP is higher than China’s.)

Moreover, since 2000 the BRIC nations have sharply increased their physical gold holdings, with China’s quadrupling and Russia’s quintupling. According to official numbers, the US still holds the biggest absolute stockpile of physical gold—though see my interview with Dominic Frisby and his research saying China is #1—but the point is that the US has been steady while the BRIC bloc is accumulating gold very rapidly.

Why So Sad?

Ironically, both sides in the debate agreed that the US government has enacted policies that, other things equal, would make foreigners want to ditch the dollar. For example, if we use the metric of “federal government debt held by the public” (i.e. excluding “intragovernmental debt” such as the Social Security trust fund), then the debt-to-GDP ratio will mushroom from 39% in 2008 to a projected 116% by 2034, according to the latest CBO report. The feds will be tempted to resort to the printing press to get out of this mess, and that will weaken the attractiveness of holding dollar-denominated assets.

Another huge problem is the increased weaponization of the USD. The US kicked Russia out of the SWIFT banking system and has not only “frozen” certain Russian financial assets, but is in the process of seizing them outright. It’s not farfetched that Washington would use Taiwan or some other pretext to cancel payment on Chinese-held Treasury debt. Again, yet another reason foreigners, particularly those runnings central banks, may significantly reduce their exposure to dollars in the coming decade.

You Can’t Beat Something with Nothing

The single biggest argument from our opponents came down to: But where else can investors go? Our two main replies: Gold and a BRICS-issued currency.

I won’t here spell out the emerging institutional framework for a BRICS currency union; Jim did that in the debate if you want to watch it there. But here I do want to elaborate on not only various countries but even institutional money managers relying on gold as an element in their portfolio of currencies.

I believe that as the track record of blockchain-based, gold-backed digital tokens grows by 12 months every year, you will see rapid adoption by conventional fund managers. Even as I write, “tether gold” has a market cap of some $493 million, representing claims on an underlying 7644 kilograms of physical gold. As the legal and regulatory issues get sorted out, we are going to see an explosion of diversification into different asset types.

Conclusion

By the year 2030, it will be far easier for a network of commodities exporters, manufacturing firms, and financial services companies effortlessly coordinate their activities into mutually beneficial patterns, even though they are scattered among the globe and possibly face punitive actions from the US and Europe. The growing sophistication of blockchain technology and the growing ability of regular people to use it will provide an escape hatch for those leaders (both political and business) who are wary of the current system’s dependence on a single currency.

To reiterate, even our opponents in the ZeroHedge debate agreed that empires eventually fall, and one day the USD will no longer be the world’s dominant reserve currency. Jim Rickards and I argued that that day is coming a lot sooner than most people realize.

NOTE: This article was released 24 hours earlier on the Infinite Banking (IB) 3.0 - The Future of Finance Facebook Group

Dr. Robert P. Murphy is the Chief Economist at infineo, bridging together Whole Life insurance policies and digital blockchain-based issuance.


Twitter: @infineogroup, @BobMurphyEcon

Linkedin: infineo group, Robert Murphy

Youtube: infineo group

To learn more about infineo, please visit the infineo website

Newsletter from our Chief Economist

Enter your email on the right to receive the infineo newsletter from our chief economist Dr. Robert P. Murphy & keep up to date with other infineo communications.