COMMENT: Mr. Armstrong, I simply needed to thanks for collaborating in our board assembly. We had come to the identical conclusion that every one of this discuss of BRICS and de-dollarization was being promoted by folks within the conspiracy class, missing any sincere expertise in worldwide commerce. Earlier than the assembly, we known as one, and our Chairman listened. They might not reply any actual financial query. The claims that that is the tip of greenback hegemony solely uncovered their lack of knowledge.
Trump’s tariffs, Biden’s sanctions, and the freezing of Russian property have been all presupposed to kill the greenback as Russia, China, India, Brazil, and South Africa have been to assemble parallel monetary programs as if they’d not promote to the US. Then there was the point out of backing by gold. Our chairman was very impressed that you might reply each query. You pointed us in the best path with widespread sense and your real-world expertise.
Thanks as soon as once more. As you stated, us is about one third of all the world client market, and international monetary transactions to IPO are predominantly in {dollars}. Our Chairman will likely be at your WEC personally this time.
SFD
ANSWER: Thanks. As a result of that is such an essential matter and I shouldn’t have the time to attend each board assembly internationally, I believed it greatest that I lay out the gist of our discussions. Your organization is within the international enterprise, and it’s pathetic how nearly all of these folks preach the identical nonsense with out understanding world commerce. The US greenback’s dominance in worldwide finance is evident regardless of BRICS, however its share varies throughout completely different areas. Earlier than World Warfare II, nations issued their debt in British kilos with a view to promote it in London.
U.S. Multinational Dominance: U.S. firms earn huge income abroad. That is the PRIMARY motive why these analysts don’t perceive world commerce. Apple, Microsoft, and Pfizer all generate greater than 50% of income overseas. In 2022, U.S. multinationals earned $1.6 trillion from overseas associates (BEA knowledge). Then there’s the Mental Property (IP) and Providers similar to our agency with places of work all over the world. The US is a web exporter of IP, royalties, and high-value providers (e.g., Google’s advert income overseas).
The US historically runs a items deficit (manufacturing) of $1 trillion/yr however a providers surplus of $300 billion if we take a look at the accounting primarily based on the possession of firms relatively than location, US abroad affiliate gross sales ($6 trillion/yr) dwarf overseas affiliate gross sales within the US ($4.5 trillion/yr). Now throw within the web IP receipts ($100 billion surplus), the U.S. possible reveals a web Dealer Surplus on an possession foundation.
When mixed with providers, IP, and abroad income, the general stability shifts to a surplus. The US advantages disproportionately from globalized manufacturing as a result of its companies seize worth by way of branding, R&D, and IP—components obscured by conventional commerce metrics. This highlights why commerce deficits alone are an incomplete measure of financial well being. Trying on the ownership-based accounting higher displays the place worth is captured in international provide chains. I’ve argued this in Washington, but it surely goes in a single ear and out the opposite.
World Commerce Invoicing & Settlement (Major Focus):
Roughly 40-50% of all international commerce (exports) is invoiced in US {dollars}. This implies the costs of products traded internationally are set in {dollars}, whatever the nations concerned. Over 80% of worldwide commerce finance (letters of credit score, and many others.) is carried out in {dollars}!!!!! Round 88% of worldwide overseas alternate (FX) transactions contain the US greenback on one facet (based on the BIS Triennial Survey). This underpins commerce settlements and makes the entire silly argument of de-dollarization laughable, for they’re mixing geopolitical with economics.
SWIFT knowledge (cost messages) accounts for roughly 46-48% of worldwide cost messages (by worth) which are denominated in USD (as of mid-2024). It is a key indicator of precise settlement forex. On condition that the newest client spend on the finish of 2025 quantities to $55.5 trillion, of which the American client is now $17.9 trillion, US client spending accounts for 32.3% of all the world! So, will BRICS displace the greenback? Come on. They stated the identical BS in regards to the Euro. America is the LEAST socialist nation, and that above all accounts for its Dominant Share of the world economic system. Regardless of having solely about 4% of the world’s inhabitants, the U.S. persistently accounts for almost one-third of worldwide client spending. This underscores the immense measurement and significance of the U.S. client market to the worldwide economic system and thus the greenback.
The greenback’s dominance does affect client spending globally as a result of many items that customers purchase domestically are imported in different nations. If these imports have been invoiced and paid for in {dollars}, fluctuations within the greenback’s worth may have an effect on native costs (inflation/buying energy). This is the reason your key commodities like oil, metals, and grains are predominantly priced in {dollars}. Modifications within the greenback have an effect on the price of vitality and uncooked supplies globally, impacting manufacturing prices and finally client costs for an enormous array of products. When the US is about 1/third of the world’s client spending and about 50% of all world commerce, that’s the reason they’re priced in US {dollars} relatively than the pesos.
The subsequent HUGE space these one-issue analysts ignore is the Debt & Monetary Markets. Nations and firms borrowing in {dollars} face reimbursement prices affected by greenback energy, influencing their economies and doubtlessly client spending energy inside these nations. This has usually been one space that I get known as into rather a lot. Foreign money Pegs/Reserves have been a crucial challenge over time. Many nations handle their currencies relative to the greenback or maintain important greenback reserves, influencing their home financial coverage and financial stability. This contains International Change Reserves. The greenback constitutes about 59% of allotted international overseas alternate reserves held by central banks (IMF COFER knowledge Q1 2024).
Roughly 75-80% of rising market (EM) exterior sovereign bonds are denominated in US {dollars}. For company EM bonds, the share is barely decrease, round 60-70%. As I identified, earlier than World Warfare II, EMs would challenge their debt in British kilos as a result of that was the place there was a market to promote their debt. As we speak, the pound has been changed with {dollars}, and the FINANCIAL CAPITAL OF THE WORLD is now New York – not London or Paris.
Of the Sovereign Debt points globally (Authorities Issuance), that works out to be 75-80% USD-denominated (e.g., IMF, BIS, and J.P. Morgan EMBI Index knowledge). For instance, as of 2023, over 75% of EM authorities bonds held by overseas traders have been in USD. Flip to the company world. There we see 60-70% USD-denominated company debt points (e.g., Financial institution for Worldwide Settlements knowledge). That is even increased in sectors like commodities or multinationals.
New York Metropolis is unequivocally the world’s main international monetary middle, and its banks play a dominant function in key facets of worldwide banking. This ensures the greenback’s function in international transactions. The overwhelming majority of worldwide commerce and finance is carried out in USD. NYC banks are on the coronary heart of that system. On a clearing foundation alone, the Clearing Home Interbank Funds System (CHIPS) in NYC clears roughly $1.5 trillion each day in cross-border USD funds. That represents a large share of worldwide USD flows.
Then there’s the Correspondent Banking community. Main NYC banks act as correspondent banks for hundreds of banks worldwide, facilitating their worldwide USD transactions.
Funding Banking (Capital Markets) takes place within the coronary heart of the NYC-based banks (Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup) and this persistently dominates international facets of Mergers & Acquisitions, Fairness and Debt underwriting (IPOs, bond issuances), and Gross sales & Buying and selling (particularly of US Treasuries, the world’s most profound and most essential bond market). Even when we take a look at the worldwide funding banking payment income, you’ll discover that greater than 50% takes place in New York Metropolis.
Europe and Britain, together with India and Switzerland, cancelled their forex. The $500 and $1,000 Canadian banknotes have been withdrawn from circulation and are not authorized tender as of January 1, 2021. Nevertheless, they’ll nonetheless be redeemed at banks or the Financial institution of Canada for his or her face worth, they usually could maintain further worth for collectors. Trump has proposed bringing again the $500 invoice. But, whereas Roosevelt stopped issuing high-denomination payments, they’re nonetheless legitimate. It is a MAJOR challenge that the greenback stays the reserve forex all over the world – it’s TRUSTED!!!!!! Whereas 60% of all U.S. payments flow into overseas, about 80% of $100 notes dominate overseas holdings because of their excessive worth and portability.
The greenback is concerned in roughly 40-50% of commerce invoicing, over 80% of commerce finance, and about 46-48% of worldwide cost settlements. Analysis has proven that allocating world commerce based on possession relatively than location ends in the US having a commerce surplus, not a deficit.
The greenback stays the undisputed dominant international reserve and transaction forex, concerned within the overwhelming majority of cross-border monetary flows. All the nonsense about “de-dollarization,” with some nations (like China, Russia, Brazil) growing using different currencies in bilateral commerce agreements, is a distraction. Such a shift is gradual and hasn’t considerably eroded the greenback’s general international share, and can’t till the financial adjustments, and that won’t come till AFTER 2032.
