The funny thing about the de-dollarization story is that it’s unequivocally false.

I tried to convey that as best I could when it (de-dollarization) elbowed its way back into the macro topic limelight a couple of years ago. Sometimes I was polite about it, other times not so much.

Sundry related “new world monetary order” narratives proliferated in 2022 after the West froze Russia’s G7 claims. As usual, a new crop of macro observers embraced those narratives wide-eyed and enthusiastic, as though the premise was revolutionary.

There are three key things to understand about de-dollarization narratives:

1. They aren’t new. They wax and wane, and excuses to debate the point vary, but the “death of dollar hegemony” story is a lot like minestrone: It may not be today‘s soup du jour, but it’ll be back eventually. And it’ll suck next time too.
2. Whatever the initial excuse for reviving the debate, it’s perpetuated and amplified by foreign propaganda networks with some connection — arm’s length or otherwise — to America’s strategic adversaries. That’s even more true in the social media era.
3. The vast majority of people (and media outlets) pushing the narratives have no conception whatever of the extent to which they’ve been co-opted into state-sponsored propaganda. In a lot of cases, otherwise intelligent people become surrogates without realizing it, and if it ever dawns on them, they tend to double down rather than suffer the mental anguish that goes along with acknowledging they’ve been duped.

De-dollarization’s 2022 run on Broadway was no different. Scores of observers mistook the latest iteration for a new narrative, the story was pushed incessantly by foreign propaganda networks and another several intelligent people were lost irretrievably down the rabbit hole.

Importantly, calling de-dollarization a fairy tale isn’t the same thing as suggesting it’s undesirable. I think it’s undesirable, but as an American I’m hopelessly biased. As with every other issue that comes up in these pages, I make sure my bias is informed. I can argue the other side of this point (i.e., that de-dollarization would be a good thing) better than you can. And better than any Hungarian savant. And surely better than any Bulgarian immigrant who didn’t read (or didn’t heed) that old Chinese proverb about riding tigers. I could go on. The list of the co-opted and corrupted is long indeed.

The problem with the de-dollarization story is, at a very basic level, one of practicality. There are a lot of systems I find irksome or otherwise disagreeable, but in the absence of any good ideas to replace them, let alone the wherewithal to implement any good replacement ideas I might have, what am I to do?

There’s a psychological aspect to dollar hegemony: With the possible exception of the big five religions, the dollar’s the most successful myth in human history. Generally speaking, the dollar’s an acceptable form of payment for anything you want to buy, anywhere in the world, legal, illegal or in-between. It’s no more real than the gods we worship, but it commands the same reverence. Is it possible to establish a more powerful myth? Sure. But it’ll be hard.

Russia says the dollar’s seen better days. But if nobody believes them or if, when they’re not holding hands for a BRICS “family photo,” the global south continues to exist within the dollar’s reality because no matter how much the Kremlin would like it to be otherwise, there is no other reality currently, it makes no more difference what Moscow says than what I say, or than what someone who insists on paying for a cart full of groceries with Dogecoin says.

There are also logistical aspects to dollar hegemony. Most obviously, commodities are generally priced in dollars, but more important from a systemic perspective, US dollar collateral makes the world spin. The whole thing runs on USD collateral chains: Treasury bills, notes and bonds pledged and re-pledged. That’s the foundation. If you tear that up, the rest of it doesn’t just collapse, it ceases to have any meaning.

Sane de-dollarization proponents often describe a shift away from USD hegemony as something that’ll occur only over time, and even then only at a “glacial” pace. That’s accurate, but it ignores the possibility that the process could go into reverse. Witness Bloomberg’s lead headline on Sunday evening and into Monday: “How the US Mopped Up a Third of Global Capital Flows Since Covid.”

Long story short, IMF data suggests a third of cross-border investment flows went to the US post-pandemic thanks to i) Fed hikes, which made the world’s reserve currency a high-yielder, ii) US government policies that rewarded investment and iii) the simple fact that — and forgive my candor — nobody wants to entrust their money to a goddamn totalitarian dictator who thinks Mao Zedong’s a good role model for children.

As the linked article noted, the US’s one-third share of capital flows post-COVID compares to just 18% pre-pandemic. So, far from facilitating de-dollarization, the pandemic and, later, the war in Ukraine, rolled it back. And rather dramatically at that.

Of course, as I’ve been keen to emphasize for the past — checks watch — eight years, but with growing urgency over the past eight weeks, the biggest threat to the dollar comes not from abroad but from within. On that score, America has a problem. A big, orange problem.

Last week, in “America’s New Sales Pitch,” I warned that “we’d be remiss to forget that the foundation for [US exceptionalism] is the rule of law. And a commitment to representative government. And relative political stability. All of that’s in jeopardy currently.”

As it happens, TS Lombard’s Grace Fan agrees. Bloomberg closed their article with a quote from Fan, who said, “the big question ahead is whether rule of law will, on balance, prevail through the next presidential term.” The rule of law, she went on, “is foundational to maintaining sufficient investor confidence in US assets.”

It’s no coincidence that the alternative finance portals which push de-dollarization narratives the hardest are also those which i) routinely parrot Kremlin talking points, and ii) traffic in pro-Trump propaganda: They want to see that foundation (the rule of law in America) destroyed. Because that’s the only expeditious path to de-dollarization.