Wednesday, March 31, 2021

Kenneth Rogoff - The Dollar's Fragile Hegemony

In this article appearing on Project Syndicate, Kenneth Rogoff (Harvard) revisits a question that has been raised for many years. Will another currency (in this case the Chinese Renminbi) eventually dethrone the US dollar from its role as the major global reserve currency? Professor Rogoff notes that "it seems to be an article of faith among US policymakers and many economists that the world's appetite for dollar debt is virtually insatiable."

In this article, Kenneth Rogoff suggests that China may take some actions that could eventually disrupt the present US dollar based monetary system. Below are some bullet points from the article:

  • the US Dollar currently continues to reign supreme in global markets
  • the dollar's dominance could be more fragile than it appears
  • Chinese authorities could shift to an inflation targeting regime 
  • They may allow the exchange rate against the US dollar to more freely fluctuate
  • The US relies on the "exorbitant privilege" from the dollar to fund massive borrowing
  • Chinese authorities face obstacles to making these changes, but are making gradual changes
  • The US dollar eventually eclipsed the British Pound
  • The Renminbi won't become the global currency overnight
  • It took decades for the Dollar to replace the Pound
  • First we may see three major currencies - Dollar, Euro, Renminbi
  • US public and private borrowing rates would be impacted

My added comments: There is not much new here. Speculation about the dollar being replaced has been going on for a long time. This article talks about how it could happen, but once again describes the process as gradual and perhaps taking decades to unfold. So, no near term horizon major change is predicted in this article. This is in line with what we have reported here now for years. The conditions for potential rapid monetary system change exist all the time if public confidence in the present system wanes for any reason. However, the global monetary authorities and the Federal Reserve in the US have shown no inclination to make any major rapid changes to the present monetary system unless they are forced to do so by events out of their control.

Thursday, March 18, 2021

FT - Time for a Great Reset of the Financial System

The Financial Times publishes this article calling for a great reset of the present monetary system. Just about every issue raised in this article has been covered here for years, so there is nothing new or surprising in the article for readers here. Below is a brief summary of bullet points from the article and then an added comment.


  • On average monetary systems last 35-40 years before a new system is required
  • The Bretton Woods system based on the gold standard broke down in the 1970's
  • The replacement system based on an unanchored US dollar has "reached the end of its usefulness"
  • The current system is plagued by a 30-year debt super cycle and "unending liquidity created by commercial and central banks"
  • The massive increase in mortgage debt has driven up housing prices and contributed to income inequality
  • Now is a good time to devise a new monetary system to replace the current one
  • Included should be "widespread debt cancellation" and perhaps even a "debt jubilee"
  • Policymakers should negotiate some form of "anchor" to the currency or currencies
  • The easy money policies of the present system have created asset bubbles that are not sustainable
  • Growth should become less reliant on debt creation and more on productivity and innovation
  • A new monetary system with an anchor and not based on ever expanding debt can restore fairness
My added comment: I am pretty sure that on this page and this page of this blog we have tried to cover just about every issue in the bullet point list above for many years. I would wonder if those running the present system agree with the premise of this article in the FT that their policies are the big reasons why the present system "has reached the end of it's usefulness" and now must be replaced with a new system. 

If they do agree, it's fair to ask why they have allowed this to go on and on for years all the while assuring the public these kinds of problems are not really problems we need to be concerned about and everything is under control. If they do not agree with this premise, why should the author of this article expect any of his proposals to go anywhere as everything is fine and those in charge have done a great job, right?

Here is another question for all of us to ponder. If those running the present system have implemented such poor policies that we must admit defeat and replace the current "unfair" and "unsustainable" system as described in this article, why should we just blindly trust those whose policies created the mess to fix it? Maybe someone else should get a chance to offer up some new ideas. Just a thought.