Libertarians and ultra-conservatives keep shouting for the sky with injections of liquidity. You listen to them and it seems like the end of the world. The dollar is always said to be the worst. And everything that has to do with fiscal and monetary policy is received with outrage. In one way or another, any print of money seems immoral. This crisis was no exception. Longtime critics see the appeal as terribly bad. There is talk of inflation. Some even mentioned the word “hyperinflation” (Binance CZ). The end of the dollar. Total collapse. What is true in all of this? Are we really going to have hyperinflation?
Recently, Dr. Nouriel Roubini, a noted New York University economics professor, wrote an extremely interesting article on the dollar. The (brilliant) article was published in various media. I read it on the portal of the British newspaper The Guardian. Roubini, also known as Doctor Doom, is both grumpy and smart. The man knows what he’s talking about. We can’t deny it. Many in the crypto space are outrageous about inflation and the end of the dollar, but they don’t substantiate their claims.
Read on: Analysts fear a strong US dollar will dampen Bitcoin’s upward momentum
For example, dear friend Changpeng “CZ” Zhao, CEO of Binance, predicted “hyperinflation” as a result of the stimulus but did not elaborate on it. Hyperinflation: 50% monthly inflation. It doesn’t take a rocket scientist to know that his prediction won’t come true. All of these catastrophic predictions we hear in the crypto room regarding the dollar and inflation seem to be ambiguous and visceral political attacks than serious macroeconomic analysis. When we take into account that the US inflation estimate for this year is less than 2%, where do you get your CZ numbers from?
But it’s not just CZ. The list of well-known Bitcoiners heralding inflation and the end of the dollar is very long. Everyone talks like Peter Schiff (famous defender of gold) or the typical libertarian of the 70s. Roubini, on the other hand, is not a libertarian propagandist. Indeed, he is a world class economist. Sullen and kurmudgeon like no one. I believe that the subject has never smiled for a moment in its entire life. Pessimistic to more power. However, he knows the subject and supports his claims. Let’s talk about your article.
The current weakness of the dollar has raised concerns about the dollar as the world’s reserve currency. The gold price is rising and many fear an increase in the inflation rate. The aggressiveness of the stimuli is accused of being the cause. According to these fears, money pressures mean uncontrollable inflation. The dollar will not be worth much and will therefore become less relevant. According to Roubini, this is an exaggeration. It warns us that short-term cycles are being confused with long-term trends.
People attack Bitcoin with the same argument. When Bitcoin records a few bearish months, the critics come in and use these numbers to project its decline, assuming the trend will stay that way forever. We hate when they do that to Bitcoin because it’s actually a very stupid analysis. But many bitcoiners do the same with the dollar. Of course, the dollar has depreciated a lot in the last few months, but that’s because the stimulus was implemented to that end. The increase in the first few months of the year should be counteracted. Roubini reminds us that the dollar has risen 30% since 2011. Too strong a dollar makes American products less competitive in the international market. It is necessary to weaken it in order to reactivate the economy.
Read Next: What Does a Weak Dollar Mean for the Global Economy?
The dollar tends to strengthen in downturns and weaken in bullish cycles. In February-March it was very strong and in July-August it was weak. In times of panic, the dollar is the epitome of a safe haven. In particular government bonds. This is the goose that lays the golden eggs of the United States: your financial apparatus. The world trusts the dollar. The rest of the countries have to export to build up reserves. Governments and individuals buy dollars and invest in their financial systems. It is a colossal privilege for the United States. The round business.
Let me use an example to illustrate the magnitude of this privilege. Argentina, for example, is in debt and Argentine bonds are in dollars. To pay that debt, the country must export goods and services in order to receive dollars. You need to place your products in the highly competitive international market. However, since Argentina mainly exports raw materials and agricultural products, these depend on the price fluctuations in the international goods market. The Federal Reserve, on the other hand, can pay your creditors by pressing numbers on a computer. What a difference! Doesn’t that mean the goose that lays the golden eggs?
Of course, this privilege is not for free. There are many reasons the world gave this crown to the United States. The dollar is the dollar for a reason. Political force. Financial infrastructure. Corporate culture. Federal Reserve discipline. Institutional strength. In other words, the United States is not a banana republic.
According to Doctor Doom, what threatens the hegemony of the dollar in the world? Among the possible causes, Roubini mentions protectionism and the use of the dollar as a geopolitical weapon. The United States is abusing financial sanctions. If the trade war, economic nationalism, and the use of the dollar as a weapon intensify in the future, countries may be forced to create alternatives. China, Russia and many emerging markets could form alliances to quit depending on the dollar.
Read on: America is losing the “technical cold war,” warns Ripple co-founder
If the world stopped buying dollars, the United States’ ability to print money “without consequences” would be severely limited. In that case, the United States would be like any other country. The stimuli would be even more dangerous and the risk of inflation greater. Stimuli like this one would create hyperinflation. The dollars would stay in the United States. That is, the barrel would have a bottom. And the hose could no longer be left open because it would overflow with so much liquidity.
The position of the dollar is now safe. We probably won’t see an end in the near future. However, it is evident that China wants to be the power of the future. Obviously, that’s your long-term plan. You are building an increasingly robust financial system and want to export the yuan. There is no doubt that AliPay and WeChat Pay, as allies of the digital yuan, will seek to grow beyond China’s borders.
It is much more pleasant to read Roubini than to hear Roubini. On the screen, it seems like he’s about to bump into the interviewer. He’s like the grumpy dwarf from Snow White or the grumpy old man from the movie Up, but an Iranian version. However, despite his eternal frown, his analyzes are very accurate. We cannot deny that the power of the dollar is closely tied to the power of the United States in the world. If they choose isolation, I very much doubt that the dollar will maintain its status as a world reserve currency. It just wouldn’t make sense to have dollars with a selfish United States anymore.