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The Petroyuan And ApeCoin: Fables Of The Dollar Deconstruction
A few days ago, market participants were treated to a new version of an old story.
"Saudi Arabia is
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Maybe the Kingdom isn’t pricing the future on Earth age.
In an effort to avoid only commenting when something makes me mad (a trait of the internet era, i guess) — nice post.
Makes a lot of sense.
What happens when the world moves away from fossil fuels?
Thanks, that was really informative, much appreciated.
Really good deep dive into the entanglements within the world’s currency system. Many people seem to be a bit deluded about the importance of the dollar. No substitute for the dollar is priced other than in dollars. The book I never got around to writing was a treatise on value and all the ways we define it and manage it. I have to say Dr. Kelton’s response to the menu is spot on. I wonder when MBS will become arrogant enough to really piss of the US and test our response.
As usual, the stubborn realities of volatility, stability, interconnectedness, pirates, risk, costs, etc., enter into functionality.
In terms of a Petro yuan, there can be little treehouse boys clubs that secretly design special purpose entities where a handful of billionaire thugs exchange marbles in a game. I assume that game is already being played with arms and drugs, so expanding the financial framework of criminal money laundering into a Petro yuan crypto connection is unremarkable.
The thing that will make the exciting world of crypto magic less exciting is instability and that moment in time when your fun money is illiquid and failing as collateral or failing to buy something like groceries.
As a speculative toy, the shiny allure of crypto as a get rich quick mechanism seems appealing as a modern digital ponzi opportunity, primarily because so many cool people are chasing its hipster legacy. Why invest in the reality of grandpa’s antique mutual funds when NFT stuff is so hot?
Anyway, here’s more trash talk from some idiot at Bank of England:
“The stablecoins in circulation today are typically backed by a mix of commercial paper, short dated securities and cashfootnote[14]. This backing model is not appropriate for use in systemic payments. If holders were to run from these stablecoins, the assets would not support all redemptions. First, there is a liquidity mismatch between these backing assets and the redemption profile needed to serve as a payment instrument and second stablecoin operators may face difficulties in selling the backing assets, particularly in stressed conditions.”
An additional thought related to Petro Juan crypto dynamics is the geopolitics of trade in general.
At the core of trade sanctions is the hope that when terrorist nations or individuals rear there ugly heads, there are international laws and mechanisms that can be initiated to penalize bad actors.
The current sanctions in Ukraine are a great example of this economic policing power and many international corporations have respectfully cooperated in a United effort to cut off Russian liquidity. However, there are holdouts, like Nestle who like India want to pretend that there are grey lines associated with mass murderers.
In this topic of digital currency, there is a camel’s nose in the tent, where these neutral players cross ethical lines in their support of terrorist activities. The defi theory behind crypto provides the curtain to hide accountability for global interactivity.
Apparently, people that love crypto and NFT money laundering are willing to connect themselves to global criminals, in a United effort to destabilizing the dollar and embracing a wild west 1860’s-like currency disaster.
The Schrodinger Kitty Litter Box of anonymous crypto allows the simultaneous states of morality to intertwine with criminal lust. It’s not stability.
MBS is not America’s friend. He showed early signs of having a sociopathic personality disorder early in his nascent ascent to Saudi Arabian power after jailing all his family competitors and then ordering the murder of a critical Wapo journalist in the Saudi embassy in Istanbul.
The U.S. sales of military hardware to the Saudi’s doesn’t justify continued ‘coddling’ of MBS and Saudi Arabia and support of his genocidal war in Yemen. Now that America is functionally energy independent, the. U.S. should start to send a tougher message to MBS that he risks America’s ire at his peril.
If America is prepared to sanction China if the aid Putin in his illegal and genocidal war with Ukraine, we can do things far more punitive to MBS and his entourage.
I agree that CNY replacing the USD as the reserve currency is plain silly and not something to lose sleep about.
What I do worry about however is the fallout from nuking Russia’s CB. Foreign CBs at the time of the GFC held about a third of all UST. That percentage has been falling ever since and is now about half of that. I don’t know how to quantify the effects of this trend, but at the margin it bodes poorly for both future inflation levels and the ease with which we can service our debt down the road.
The US will never “have trouble” servicing debt. America issues the currency the interest payments are denominated in. The reason Russia is in trouble is because the have hard currency debt with dollar coupons that have no local currency payment clause.
I’m not sure what the quoted text refers to, but point taken. However I suspect that Russia disagrees about how automatic it is that we service our debt.
True, but what Barry is suggesting is that we may have to offer higher rates to issue bonds. Unless we go full MMT.
The holdings numbers be cites may well undercount the actual foreign holdings. Unless things have changed the rather lagging TIC data often obfuscates true ownership. Thus holdings by many US hedge funds were listed as foreign because the registered owners were in the Cayman Islands or Netherlands Antilles.
It’s said (a fine Trumpism) that many Chinese holdings are also parked in nominee names rather than as official foreign holdings at the NY Fed.
I imagine that will become more common now that we have prevented the Russian CB from tapping their savings. You modern ones think or hope they will diversify into cryptos. But us old dinosaurs figure physical gold held in vaults in friendly venues such as Switzerland and Singapore or even at home may prove to be a wiser hedge. There’s always a non-trackable bid out there.
“go full MMT”
20 years late
275 or 300 bps in rapid succession with this kind of leverage in the economy is going to create a severe downturn, yes a depression- that is my view. I did not say a 1930s depression. Nor did I say the Fed should keep rates at zero. Saying it has been done before does not cut it. The economy was far different in 2004-5 than it is now. It has become obvious that they should raise fund rates. Just not like a Bull(ard) in a China shop. My view is maybe 3 or 4 raises – depends on the economy of course and how much they intend to shrink the balance sheet (bad idea in my view- but that is another story). Could my number be wrong? Sure- nobody knows what the right number is. It could be 6 or 2, but I am pretty confident it is not 11 or 12 in rapid fire succession. Looking at the shape of the yield curve, the value of the $ and the direction of corporate bond spreads will give one a clue that I may be onto something. Powell’s approach makes far more sense. Could he be wrong? Sure- but Bullard’s approach has too much risk. And for good measure what makes anyone think monetary policy is going to impact inflation that much? We are opening up after a pandemic shut down and a now a war that have caused supply shocks and in particular an energy shock. The central bank surely has to react and cut back stimulus, but slam on the brakes? Foolish.
I don’t know why but this topic area is fascinating for me.
An interesting area related to the pandemic is what’s called convergent mutation, basically COVID hanging out with people that have suppressed immune systems, everywhere.
That condition can be used as an awkward metaphor for crypto, NFT and Petro Juan.
I view NFT as a cancer like state that exists as a binary reality. It’s out there and it’s growing and spreading, but it’s not really a critical issue, it’s a derivative mutation of crypto that infects a small subset of speculative participants.
Nonetheless, as that underlying activity spreads, adoption of NFT madness is more like the equivalent of zoot suits from around 1940ish.
In that analogy, social unrest and inequality is somewhat behind generational NFT acceptance, but I doubt we’ll see generational adoption.
The Ukraine crisis adds a new layer to global instability and thus people are looking for a new stability, thinking crypto has magical accountability as a better way forward, when in fact, it’s pretty obvious that crypto is highly chaotic.
I imagine crypto mutation stuff will spread in hybrid financial instruments and worm it’s way into corporate balance sheets, and not unlike COVID it’ll linger unnoticed as it mutates. For some reason that reminds me of Chinese securities interlaced into Americans pension funds, with the full blessings of SEC and various oversight authorities who look the other way and pretend that was not risky.
This whole intermingling issue is all about the Camel Nose finding it’s way inside the tent, creeping in as it studies new ways to evade detection. This also fits nicely with polarized politics and people everywhere who’ll not understand anything while they become passionate experts with fever pitch opinions that stake out territory in Schrodinger’s Kitty Litter Box.
I apologize for my enthusiasm on this topic, but…
I hope to be the first to suggest this, but the Petro Juan is nothing less than an NFT.
The transactions that China, Russia and India are toying with are nothing less than private transactions between desperate criminals. The oil trading contracts are agreements that virtually are as valueless as an NFT pixel. There’s a very strong relationship between NFT auctions where someone is posting massive amounts of fake bids to inflate a worthless trade.
China may be willing provide backing to facilitate exchanges with Russia or India, but how much real world exchange value will be in the supply chain? Will the captain of an oil tanker pay for insurance with China oil tokens that have no exchange value? Thus, at what point do these fake exchange experiments break down and explode, and when does reality kick in? Some sucker in the pipeline will eventually want a currency pegged to something other than the capricious fantasy value of a red pixel.
From a recent paper from India on crypto:
“In contrast, despite China being the world’s largest trading partner, its currency still makes up less than 2 percent of the world’s reserve currency.8 Due to this discrepancy between China’s share in trade and its currency’s share in the global economy, the country remains beholden to a financial system that undermines its importance”
I found that last sentence really funny! China’s currency experimenting is slightly ahead of American efforts, but nothing amazing. They’ve made progress to a point where subway tokens are digital, but those tokens are pretty useless in Moscow or New Delhi….bahawha, but maybe those are priceless in oil deals?
H-Man, what a tome! Expounding and extrapolating on a variety of subjects. Keep it up if you have any energy after the last post.
I’m almost running out of ideas on this topic, but if this were my closing argument to put the Petrojuan on death row, it’s the case to be made about a race to the bottom.
There’s a reason that China has such a tiny fraction of global reserves. They play a trade war game that depends on a relationship based on currency manipulation and devaluation. That’s the secret sauce for the Petrojuan and their new flavors of NFT digital currency will be based on the same recipe they’ve been serving for many decades.
China, Russia and India and a dozen other mini me dictatorships may want to exchange NFT dog crap but those tokens will never have the liquidity of the dollar.
In a race to the bottom, cheap Russian oil and a devalued Petrojuan are nothing but an enhanced lubricant that will add to the decline of those criminal based societies.
Economic 101 stuff:
“As long as a currency peg keeps the yuan low relative to other currencies, consumers using foreign currencies can buy more of China’s exports than they would if the yuan was more expensive”
@oldbird you had me stumped with “put the Petrojuan on death row” for a bit. I thought maybe it was slang for Petrobras oil-rig roustabouts, which confused me because I thought everyone knows their called Petrobros, am I right? And why would we do all oil-rig roustabouts like that, after all, this isn’t Saudi Arabia? Then the lightbulb went off! First-strike on Putin’s main ally in ‘our backyard’, the Venezuelan dictator, Maduro! But, that would mean the US envoy just sent to talk with Maduro was a smokescreen! Very Putinesque. You ex-CIA? Never mind don’t tell me. Lets run this by Doody Giuliani and Kidney Powell to fabricate legal cover for Flynn’s crackedpot team of ex-Silvercorp commandos. We’ll call it Operation Gideon II in honor of the first monumental cluster-fork Operation Gideon. If that doesn’t work, or even if it does, I’ll call OAN (or is it NaN?) and Fox News and get them to cite the Moron Doctrine of ~1823 for 3 or 4 news cycles and it’ll be perfectly legal in the minds of 70+ US million voters. Don’t worry, I got this. Will finish reading your comment tomorrow.
P.S. Eric and Don Jr. said whatever we do just don’t mention Donald Trump’s name ever! They were empathic about never mentioning Donald Trump or Trump Towers LLC or #TheRealDonaldTrump ever!
This is a great article, thank you. If the Fed was forced to pivot and resume QE to save the economy from a recession, the US$ should weaken dramatically, and if at the same time China introduced a currency convertible to gold, do you you think such a currency could replace the US$ as a reserve currency? If trading partners didn’t want yuan, they could always take gold.
no. china isn’t going to introduce a new gold-backed currency that gives foreign countries massive claims on Beijing’s gold reserves.
@H: Just echoing @hookandgo to say you have written sage words, yet again, this weekend. Excellent event interpretations across a range of financial, geo-political, etc. subjects that might reverberate equity indices most liberal democrazy smaii investors risk money in. Feels like I got my money’s worth of dots connected. If something is germane to a point you deem important, then it bears repeating/hyperlinking. No need to mention it, or apologize, for me. Besides, reiterating matters of import really helps the intermittent reader checking back in. Thanks.
Dude! Think Nixon! Not exactly the Gold Standard for American presidents from our rule of law standpoint, but is any POTUS’s policies more likely to have been scrutinized, thus deeply understood and appreciated, by the Chinese than Tricky Dick’s?